RI taxpayers to pony up $48m for retiree health in 2011

Pensions may get all the headlines, but this year Rhode Island is also taking a major step forward in grappling with the cost of providing health care to state retirees over the decades to come.

Taxpayers will contribute $48.4 million this fiscal year to Rhode Island’s new Retiree Health Care Trust Fund, State Budget Officer Tom Mullaney told WPRI.com. The Chafee administration’s budget proposes putting another $52.1 million into the trust fund during the next fiscal year, which starts July 1.

Those amounts are in addition to state taxpayers’ yearly contributions to the pension fund, which will total $204 million this fiscal year and $238 million next fiscal year, according to Mullaney’s most recent estimates.

The General Assembly created the Retiree Health Care Trust Fund in 2008 to stockpile money to cover state employees’ future medical costs, also known as “other post-employment benefits,” or OPEB. The law also created a new OPEB Board to oversee the trust fund that began meeting last October.

This fiscal year’s $48.4 million payment to the health trust fund marks the first time the state will make the full required contribution determined by its actuaries – state lawmakers voted in 2009 to delay the first full payment by two years because of the state’s budget woes. Up to now, the state has paid retirees’ medical bills as they came in rather than out of savings and investment earnings.

Rhode Island faced a $775 million unfunded liability for retiree health as of June 30, 2009, according to the state treasurer’s office. Few states have put aside significant resources to cover those costs, as shown on this map that the Pew Center on the States released this week:

Rhode Island’s retiree health liability – which includes benefits for state employees, teachers, judges, state police and state lawmakers – is also much smaller than the roughly $7 billion unfunded liability the state faces for pensions.

Retiree health costs are a much bigger issue on the local level. Rhode Island’s cities and towns faced a $2.6 billion unfunded liability to provide employees with medical coverage as of last year, based on estimates by the state and WPRI.com. The New York Times reported last year that governments are more likely to default on their retirees’ health benefits than their pensions because the former come with less legal protection.

The scale of state and local governments’ obligations for retiree benefits has only come to light in recent years, after the Government Accounting Standards Board issued new rules requiring them to account for the future cost of medical, dental, vision and life insurance coverage the same way they do with pensions.

3 thoughts on “RI taxpayers to pony up $48m for retiree health in 2011

  1. Good article, but i am wondering what has happened to the deduction from each state employees pay check every two weeks for the purpose of providing financial support for retiree health benefits? I think this has been going on for at least the last 20 years?

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