San Jose Must Increase Contributions to Health Trust to Avoid Unfunded Liabilities
San Jose likely will increase projected health care costs for city retirees and contributions to a health benefits trust to comply with new national accounting rules, the San Jose Mercury News reports. The accounting change could lead to higher payroll reductions for health care costs or a future reduction of benefits.
Under the new rules, U.S. cities must calculate by 2007 the future costs of retirees' health care benefits and disclose "unfunded liabilities" or establish a fund to pay for such costs.
The city already has a total of $107 million in its retiree health trust fund to cover health insurance premium costs for retirees for the next 10 to 15 years. City budgeters estimate the cost of paying the premiums will be about $356 million during that time period.
If San Jose officials choose not to increase contributions to the health fund, the unfunded liability could reduce the city's bond rating, which is currently the highest of any large California city. Depending on the projected increase in costs, the city "may have to consider paring the health care benefits it currently provides retirees," the Mercury News reports (Lohse, San Jose Mercury News, 11/7).