Grosse Pointe City
City retirees worried about reductions in health care benefits
October 9, 2012
GROSSE POINTE CITY — Proposed changes to the retiree health care plan have more than a few retirees angry about what they feel is an unwarranted reduction in benefits that they say they earned during their years of service to the City.
At an Aug. 20 City Council meeting, Mark Manquen of Cornerstone Mutual outlined possible options for the City with regard to its retiree health care plans. City officials say they can no longer afford the steep costs associated with the old plan, and Manquen noted that in many collective bargaining agreements, the City isn’t required to pay for benefits that are better than those enjoyed by current employees.
The options he offered the council featured increased deductibles, and higher co-pays for prescriptions, emergency room and office visits. In one of the models, retirees would go from plans with deductibles of $0, $100 for individuals or $200 for families, or $1,000 that gets reimbursed by the City, to a new plan with a $2,000 deductible for individuals or $4,000 for families, with half of that — $1,000 or $2,000, respectively — to be covered by a health savings account reimbursed by the City.
During a Sept. 17 City Council meeting, several retirees addressed the council, voicing opposition to the proposed changes and pointing out that other Grosse Pointe city managers rejected a reduction in their retiree health care when City Manager Peter Dame suggested it. Some also said the City should have seen the need to set aside more money for these expenses.
Karen Johnson, who retired as the finance director, treasurer and pension system administrator more than two years ago after working for the City for more than 34 years, said that retiree health care premiums were paid directly out of the pension fund for years, a practice that’s no longer allowed. Until the last two fiscal years, she said the City hadn’t had to contribute to the pension for more than 15 years, and until 2012-13 — when the City budgeted a $200,000 contribution for retiree health care — she said the City never directly contributed to that fund.
While she said HSAs can benefit younger employees, retirees don’t have time to build them up and earn interest on them. Johnson said she retired earlier than she had planned in order to preserve her retiree benefits before the City instituted HSAs.
Retired Public Safety Director James Fox, who retired in 2011 after a 28-year City career, said many of the City’s retirees are on fixed incomes and can’t afford to cover more medical expenses.
“Some of our most senior retirees are in nursing homes or are invalids and already pay for a portion of their health care, including prescriptions,” he told the council. “It is obvious to the retirees that when this decision was made, it was solely based on City financial considerations and did not take any humanitarian factors into account. This is a shameful way to treat the people who have dedicated their careers of service to the citizens of the city of Grosse Pointe.”
Comparing public and private sector employees is unfair because, as Johnson pointed out, public employees get no profit sharing or stock options, and typically are paid less than their private sector counterparts. She said the trade-off for lower lifetime wages is security from knowing they would have a pension and health care benefits upon retirement.
Paul Onderbeke, a public safety lieutenant who retired after 28 years in 2011, said the actuarial report showed that the retiree health care fund wouldn’t be self-sustaining, and he criticized the City for not contributing to it in recent years, even though he said officials knew the account would be empty by the end of the year.
“This fund appears to have been underfunded from its inception,” he told officials at the September meeting.
By email, Dame said that when the first analysis of the City’s retiree health care liabilities was completed in 2006, only 22 percent of the expected cost of the benefits was funded. That year, he said the City placed those funds — then totaling just over $1.4 million — into a new 401(h) retiree health care trust, along with a 420 transfer of $1,543,474. Johnson said the 420 transfer came from the pension fund, which was roughly 140 percent funded at that time.
“That trust was set up to ensure that those funds could only be used for paying retiree health care benefits,” Dame wrote. “That is exactly how they have been used since that time.”
Retirees like Fox and Johnson also criticized the City for not giving retirees — many of whom now live outside of metro Detroit — adequate notice about a Sept. 13 meeting to discuss proposed health care changes with them. Johnson said the letter they received was dated Sept. 7, and Fox pointed out that many retirees who live in other states didn’t even receive it before the Sept. 13 session.
“It is the impression of the retirees that the short notice was an attempt by (Dame) to push this through with little opposition, knowing that a majority of the retirees would not be able to make the meeting,” Fox said. “We also believe this is the same reason that we were not notified that council was discussing and voting on the issue. I know that when this issue came up several years ago, it was uncomfortable for council to face many of the seniors that showed up to express their concerns. Unfortunately, the retirees have to depend on council to represent them in matters of retiree benefits. They are not represented by current employees, unions, and certainly not the city manager.”
Dame said by email that the City “is available at any time to answer questions … about these changes.” He said retirees are welcome to call, email, visit City offices or attend an upcoming meeting.
In his email, Dame said the City is operating with 25 percent less revenue than it did during its peak in 2008, while retiree medical expenses are roughly $500,000 — more than twice what they were in 2006. The City has reduced its costs by trimming staff and making other changes, but can’t raise the millage rate because it’s at its Headlee cap, he said.
“The City has had to quadruple the contribution to the general pension due to the decline in the markets, when before the 2008 crash, the projection was that the City would not have to contribute anything to the general pension fund for at least 20 years to meet those constitutionally protected pension benefits,” he said.
During the Aug. 20 meeting, Mayor Dale Scrace said given the ongoing costs they face, he was “personally in favor” of making these changes.
“It makes sense to me at this moment in time to do this,” he said.
Scrace said the change didn’t require council approval.
“I don’t think we have a choice — we have to do it,” City Council member John Stempfle said in August.
Although she said she didn’t believe the council had acted on this issue yet, during the Sept. 17 meeting, City Council member Jean Weipert said whatever might have been done by the council was done because of the need to explore every option, given the City’s financial challenges.
City Council member Christopher Walsh said they have to operate a budget after losing 35-40 percent of their revenue in recent years and seeing health care costs rise about 18-20 percent annually. He said one of the problems with municipal budgets is that they’re “ill-suited for a contracting budget.” Like Weipert, he urged retirees not to blame these proposals on Dame, who he said “becomes the fall guy” in times of bad news.
“What we’re trying to do is evaluate all of the options before us. … We’re trying to do our best to find a solution … that is the best fit for all parties involved here,” Walsh said Sept. 17.
The City understands it has an obligation with regard to its retirees, City Council member Christopher Boettcher said, but they’re also facing a huge loss in revenue.
These changes would reduce the City’s cost by about 20 percent, Dame said. Even with the changes, he said the City still expects to incur at least $400,000 annually to cover retiree medical benefits in the coming years. The proposed plan would bring retiree health care in line with benefits received by current employees.
“I believe these are reasonable changes intended to assist in allowing the City to be able to financially afford to honor its commitments into the future,” Dame said.
Dame has asked the council for administrators to be able to transfer any excess surplus into the retiree health care account receivables to help cover the costs, but that still won’t foot the entire bill.
If implemented, Dame said the changes would take effect Jan. 1, 2013.
During the Sept. 17 meeting, Scrace said officials are “doing the best we can to make the best decision for the greater good.”
“We spend a tremendous amount of time trying to do what I call the ‘greater good.’… These are not easy decisions, and you agonize over them,” Scrace said.
But, as worried retirees demonstrate, City officials aren’t the only ones agonizing.
At press time, the next City Council meeting was slated to take place at 7 p.m. Oct. 15 in Council chambers at City Hall. Visit www.grossepointecity.org for more information.
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