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NYS Comptroller

THOMAS P. DiNAPOLI

Press Releases

June 16, 2015, Contact: Press Office (518) 474-4015

DiNapoli Op-Ed: Act on Proposal to Help State & Local Governments Pay for Retiree Health Care

New York State Comptroller Thomas P. DiNapoli’s op-ed, “A Ticking Clock for Job Benefits,” was published in The Albany Times Union today, urging the state Legislature to act on his proposal to create an optional investment pool to help fund retire health insurance and other post employment benefits (OPEB).

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New York is behind other states when it comes to paying for benefits promised to public employees when they retire. The state Legislature should act now or the cost to taxpayers will only grow.

Most state and local government employees earn future benefits while they are working, such as pensions and other post-employment benefits (OPEB), primarily health insurance, which are paid later. Even with retirees paying a share of their health insurance premium, health care costs for current and former employees are mounting.

While public employers in New York annually pay contributions to pre-fund pensions, the same does not hold true for paying for retiree health insurance. The state and local governments pay the bill for health insurance every year on a pay-as-you-go-basis, which means that current taxpayers are paying for promises made a long time ago to retirees.

It is sort of like paying the minimum due on a credit card rather than paying in full or setting up a payment plan to reduce the debt. And like a credit card, the costs only grow if you don’t pay more than the interest charges. It’s best to pay the costs up front or you will find yourself in a hole that only gets bigger.

Accountants call this an unfunded liability, because there is no money being set aside now to cover these future costs.

New York’s state and local governments face an estimated $136.5 billion liability for these OPEB benefits. That is a staggering amount. Unfortunately, the governments that want to do the right thing and set aside some money lack the legal mechanism to pre-fund these benefits. This needs to change.

I have put forth a legislative proposal that would give public employers the option, not a mandate, to help fund these future benefits for present day employees. Under my proposal, public employers could set aside money in a trust fund to pay for these benefits and invest this money, ultimately lowering costs over the long term.

There would be no limit on how much or how little a government can deposit into the trust. Prefunding these benefits is significantly less expensive over time, as investment returns help offset costs. The point is to stop pushing these costs out and making future generations of taxpayers pay for them. This is a cost of doing business, but we cannot keep making a promise without realistically funding it.

More than 30 states have already put rules similar to what I have proposed in place that allow public employers to set aside money to pay for these benefits.

New York City is well ahead of the rest of the state on this issue. In 2006, the city established the Retiree Health Benefits Trust under its own rules. In 2014, the trust had a balance of $2.4 billion and the city plans to contribute another $280 million in this year.

While the city still has an unfunded liability of $89.5 billion, it is doing the right thing and chipping away at these costs.

Down the road, governments without a plan to deal with their large bills could see their bond ratings suffer and borrowing costs increase. Retirees could see draconian proposals to reduce their benefits.

New York needs to stop ignoring this issue. The numbers are daunting, but there is an even steeper cost for doing nothing. Establishing an OPEB trust fund for New York can be part of a sensible long term strategy for fiscal stability. Lawmakers should act now.

See OPEB legislation.

See A Ticking Clock for Benefits.

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