Manteca is moving to avoid future retirement health insurance liabilities from ballooning to $2 million a year.

The City Council Tuesday voted to cap municipal contributions for health insurance premiums for city workers who retire after Dec. 31, 2011. The move is expected to reduce future city costs by 70 percent.

Keeping things status quo would have meant the city’s annual cost for paying health insurance premiums for retired city workers would go from $900,000 today to $2 million by 2015.

The move could trigger an early stampede of retirements as those eligible to retire could end up paying hundreds of dollars more each month in health premiums if they wait until after Dec. 31 to stop working.

City Manager Karen McLaughlin noted there is no set cost for each of the city’s existing 122 retirees based on health care insurance premiums. The city is now paying between $300 to as much as $700 per month for retiree health care premiums based on the coverage they had when they retired.

For those who are retiring after Dec. 31, 2011, the city will contribute only $112 a month. That amount would increase $2 annually in subsequent years.

Finance Director Suzanne Mallory based future costs on how long the remaining 342 municipal workers have until retirement and applying actuality tables in terms of how long they would live. Just for retirements that the city would be liable for by 2015, it would more than double the annual costs had the city not changed how they were contributing to retiree insurance.

“The city is going to honor the commitment they made to existing retirees,” McLaughlin noted.

Those who retire within the next 113 days will continue to receive benefits that were locked into 2011 levels just as existing retirees will. The changes apply only to those retiring starting in 2012.

The council was able to change how future retirees insurance premiums are funded by taking advantage of Assembly Bill 2544 that recently went into law. It allows cities to opt to lock in their cost for future retirees insured through the California Public Employees Retirement System (CalPERS). The city has contracted with CalPERS since 1989 to provide health insurance for retired and active municipal employees.

The cost savings aren’t part of the $4.2 million in cuts that included employee compensation concessions that were needed to balance this year’s budget and to end the city’s structured deficit of spending more on employee costs in a year than what they are collecting in revenue.

What the move does is avoid retiree health insurance cost escalating to the point the city would have to cut severely into services in order to meet their financial obligations.

Retiree costs are assigned to the specific fund that a city employee worked for before retiring. That means only a part of the $900,000 annual cost the city now pays in retiree health benefits is assigned to the stressed general fund. If the person had worked for enterprise operations such as wastewater, the fees collected for sewer service foots the city’s share of the retiree’s health insurance costs.

Mayor Willie Weatherford and Councilwoman Debby Moorhead did not participate in the discussion or the vote. Weatherford is one of the existing 122 living Manteca retirees as he served as the city’s police chief before retiring. Moorhead currently takes city benefits as a council member. None of the remaining three council members take city health insurance benefits.