If municipalities offer post-retirement health insurance to employees, the municipality must account for this liability by a) carrying it on the books as an unfunded liability or b) establishing a trust and funding it.
Unfunded liabilities may negatively affect bond ratings; therefore, funding the liability is often preferable. GASB regulations require a separation of the assets from general revenue dollars in order for these assets to be used to off set the liability. Consequently, a separate trust must be established to house the money whose specific and only role is to fund the post-retirement health plan obligations.
One example is a Voluntary Employee Beneficiary Association (VEBA) trust, which can house post-retirement medical insurance funds and pay them to the plan recipients on a tax free basis.
We can assist your municipality in managing your post-retirement health insurance liabilities to help insure your ongoing fiscal solvency.