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New York’s counties, municipalities and school districts can eventually eliminate their long-term liabilities for retiree health benefits by encouraging the creation of employee-run Retirement Medical Trusts (RMTs), according to the Empire Center for Public Policy.

The potential for such trust funds was explained in a report released today to kick off the Empire Center’s new “Empire Ideas” project, which will include a series of research papers and public forums designed to help elected officials, local taxpayer groups, community associations and concerned taxpayers explore ways of improving the quality and cost-effectiveness of local governments and school districts across New York.

Retiree healthcare for state and local employees — known in accounting terms as other post-employment benefits, or OPEB – is “a huge, unfunded and rapidly growing liability” whose rising annual cost “is adding to the stress on local budgets already squeezed by the economic downturn and skyrocketing public pension bills,” the report says. As previously revealed in another Empire Center study, the state and its counties, municipalities, school districts and major public authorities have promised nearly $250 million in retiree healthcare – without setting aside any money to pay for it.

Local elected officials “should use the information disclosed under new government accounting rules to help taxpayers and employees understand that their retiree healthcare promises are simply unsustainable in the long run,” the report says.

In the short term, the report says local officials can seek to reduce annual outlays for OPEB by ending the reimbursement of Medicare Part B premiums, increasing premiums paid by younger retirees and reserving the greatest coverage for those who have worked the longest. In the long run, it recommends, governments should establish a strong preference for funding retiree healthcare solely through Retiree Medical Trusts, managed by unions. Such trusts could serve multiple government employers on a county or regional basis, the report says.

The report includes an explanation of how retiree healthcare could be pre-funded through fixed-dollar contributions shared by employees and employers. As an example, it estimates that for an initial contribution of $100, rising to $200 after seven years, a 25-year union employee could retire at age 55 with a tax-free benefit of over $691 a month.

RMTs are a “win-win” solution that could ensure retiree healthcare is pre-funded on a mutually affordable basis while relieving taxpayers of the long-term OPEB burden, the report says. Although elected officials cannot create employee-run RMTs for their bargaining units – only employees themselves can do that —they can encourage the approach, the report says.

In localities were retiree healthcare is authorized under law, “elected officials could approach their unions with stark choice: create an RMT or risk losing access entirely to health coverage for future retirees,” the report says. “Among school districts and other government employers required to collectively bargain any proposed change in retiree health benefits, the governing body could pass a resolution formally establishing a preference for RMTs as a negotiating objective.”