Everyone has heard about pension costs but few have heard about the other retirement cost that’s burdening California governments and schools. “OPEB” — “Other Post-Employment Benefits” — are a form of deferred compensation, just like pensions. The principal OPEB benefit is a promise to cover post-retirement health costs. Because government employees in California may retire before they are covered by Medicare and often receive benefits on top of Medicare, OPEB promises in California add up to hundreds of billions of dollars.
The promises themselves are not a problem if sufficient money is set aside at the time the promises are made. You can see examples here of honestly-run enterprises that properly fund such promises. But if not, future budgets get invaded to pay off the past promises. That starves citizens at that time of the services they need because their taxes are being diverted to meet past unfunded retirement promises.
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