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County of Santa Clara Board Approves Strategy to Tackle Unfunded Retiree Health Liability

$15 million payment brings total for year to $119 million
COUNTY OF SANTA CLARA, CALIF.—Today, the County of Santa Clara Board of Supervisors approved a plan to make significant payments to cover the $1.8 billion unfunded liability in the retiree health pension and to pay it off over a 35-year period.  The Board also authorized the transfer of $15 million from reserve funds for an immediate payment, bringing the annual cash payment this year to $119 million.
The Board’s action was based on an actuarial study that outlined the level of payments necessary to eliminate the unfunded liability in the program by 2047.
“We have an $1.8 billion obligation to our employees and every year that goes by the amount is growing by millions of dollars putting us in a deeper hole, “ said Supervisor Joe Simitian, District 5. “The payment plan would reduce taxpayer costs for the benefit by $52 million a year and $1.5 billion over time.”
"We raised the issue of paying down this unfunded liability early on in the budget meetings and Tuesday we took the final steps necessary to attack the problem head on, and not kick the proverbial can down the road,” said Supervisor Mike Wasserman, District 1.
After a lengthy discussion, the Board also included language that gives it the flexibility to forego making a payment, if needed, with the approval of a majority of the members.
The County of Santa Clara is one of only a few counties that have been paying towards the unfunded retiree health liability.  However, in recent years, the County has used the funds to provide services during the economic downturn and postponed making payments towards the liability.
The longer the county takes to pay down that debt, the faster it grows and the more the county will have to pay over time as its employees retire, taking away funds that could otherwise be used for programs and services.
“As Chair of the Finance and Government Operations Committee, I will be asking for updated analyses periodically, given the fact that the market conditions and assumptions are constantly changing,” said Supervisor Dave Cortese.  “We won’t wait until the next budget cycle.  We’ll take another look at midyear to determine how the assumptions are holding up.”
The payment plan approved will ramp up payments over the next five years to a level that would retire the plan debt by 2047, provided that assumptions about benefit costs, fund investment returns and other factors hold true.
Background - County’s Employee Health Benefits in Retirement
The vesting periods for County retiree medical program eligibility are:
5 years of county service (those hired before 8-16-96), or
8 years of county service (those hired between 8-17-96 and 6-18-06), or
10 years of county service (those hired after 6-19-06).
Currently, the County is seeking through negotiations with its employee organizations, a 15 year vesting period for employees hired in the future. The County Employee Management Association (CEMA) has already agreed and the 15 year vesting period would affect it members hired after 8-19-13.
Once vested, two other conditions have to be met in order to claim this benefit:
1.       Employee must be at least age 50
2.       Employee must retire from the County and be collecting a Public Employee Retirement System (PERS) pension check.
After meeting these requirements, the retiree is eligible for the single lowest cost health plan coverage the County offers (no free dependent coverage) for lifetime.  Retirees can fully self-pay for any additional coverage.
Media Contact: Gwendolyn Mitchell/Laurel Anderson, Office of Public Affairs (408) 299-5119
Posted: August 27, 2013
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