Cities get warning to save now

The San Jose Mercury News reports:

For years, people have been hearing about staggering health care costs looming in retirement and the need to start saving right away.

Now, San Jose and cities across the country are grappling with those same warnings. Starting next year, an arcane new national accounting rule requires governments to start squirreling away against future costs for retiree health benefits, money that could otherwise pay for things like parks or potholes. If cities ignore the costs, they risk a weaker bond rating, which makes borrowing more expensive.

Employees who have worked for the city for 15 or more years are entitled to free or reduced-cost health care coverage in retirement starting at age 55. The coverage lasts for life, though Medicare becomes the primary provider once the employee turns 65.

Two long-awaited actuarial reports indicate San Jose may need to set aside an extra $100 million or so every year -- or more than 10 percent of its general fund -- to cover the future costs of providing health care to thousands of current and future city retirees.

That's more than six times the $15 million amount that the city and its employees contributed toward retiree health care benefits in 2004, with the city picking up about 55 percent of the costs.

Big changes are coming.Not all these government workers are going to get the deal of a lifetime.