Report Urges States, Cities to Treat OPEB Seriously

States and cities should place as high a priority on overhauling other post-employment benefits, or OPEBs, as they do on pension overhaul, according to a report by the Manhattan Institute for Policy Research.

While influential government unions partially account for the $1 trillion cost of long-term public retiree health care benefits, public-sector mismanagement of fiscal and worker-compensation policies are largely to blame, wrote the free-market think tank's senior fellows, Daniel DiSalvo and Stephen Eide.

In their commentary, "The OPEB Off-Ramp: How to Phase Out State and Local Governments' Retiree Health Care Costs," DiSalvo and Eide call for a phase-out of OPEB.

"There is a case to be made that defined-benefit retirement plans are never appropriate in the public sector because of how they tempt politicians into giving out something for nothing. But even if one rejects that argument, OPEB is more difficult to justify than pensions," they wrote. "When fewer and fewer private employers offer retiree medical insurance, governments' insistence on preserving this benefit seems increasingly wasteful."

They also urged issuers prepare for ensuing legal battles, not to establish trust funds to prefund OPEB, and to use the Affordable Care Act's subsidized exchanges.

In a separate paper for Manhattan Institute, "Inviolable—or Not: The Legal Status of Retiree Medical Benefits for State and Local Employees," University of Minnesota professor Amy Monahan reviewed 10 states, finding that OPEB protection, though generally less protected than pensions, varies significantly by jurisdiction and circumstance.

Illinois, New York and Pennsylvania, she said, provide significant protection for retiree medical benefits through explicit statutory provisions or through case law suggesting that retiree benefits vest for life in the absence of explicit language to the contrary.

California, Connecticut, Mich¬igan, New Jersey, and Texas, according to Monahan, provide moderate protection levels, though appellate courts California and Michigan have held that where the contract language is silent as to the duration of retiree medical benefits, the right to such benefits terminates at the same time as the collective bargaining agreement.

Alabama and Ohio, she added, lack sufficient legal precedent.

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