Cutting retiree health insurance
May 31, 2017
Money is a great problem solver, especially for governments. For a mere $211 million, we could fix Lansing's streets. For another $25 million, we could fix our sidewalks. Lansing doesn't have that kind of money, however, and Mayor Bernero is seeking a tax increase to raise it. (source: March 27 press release)
Lansing doesn't have any money because pensions and health insurance for City retirees are sucking up every spare penny. Bernero said at the May 11 meeting of the Financial Health Team that retirement payments take one-third of the budget. (That includes the money put away for retirement of current employees as well as payments on the unfunded accrued liability - the pre-funding shortfall.)
At that May 11 meeting, Segal Consulting presented separate studies of Lansing's pension and retiree health insurance plans. They said the unfunded pension liability is $250 million and the unfunded OPEB (other post-employment benefits - mostly, health insurance) liability is $351 million. The following are graphics from the Segal presentation:
For pensions, the City's annual contribution is $21.8 million, $5.5 for benefits earned in the current year and $16.3 as a payment on the unfunded liability. For OPEB, the annual contribution is $20.5 million. Pensions are 62.5% funded and OPEB is about 9.9% funded. (The pension funding figure is from the latest actuarial valuation reports, released in October 2016; the OPEB figure is from reports that are over 2 years old. New OPEB reports should be available in early June, I'm told.)
Employee unions have agreed to some cuts in retirement benefits over the last few years, but most apply to new employees and won't impact retirement costs for decades. Cuts to pensions already being received are prohibited by the state constitution. Retiree health care, on the other hand, is fair game. The Segal report lists 36 possible cuts and their estimated impact on the accrued liability.
If ALL retiree health/dental/vision/life insurances were eliminated, the City would not only have at its disposal the $20.5 annual payment for those benefits, but the $60 million already set aside. In just 9 months, we'd have the entire $236 million we need to fix our streets and sidewalks - without a tax increase. (That $60 million figure is from those 2-year old actuary reports. It is probably low.)
How much of a hardship for City retirees would it be to lose health insurance? Hardest hit would be those who haven't reached age 65, when they become eligible for Medicare. But many of those who retired young have gone on to other careers which either provide health insurance or the means to buy it. Here are a few:
The circumstances of most the above retirees became known because they were management-level employees whose new jobs made the news. The average City retiree is not nearly as well off, and it would be unfair to eliminate the health insurance they are counting on. But it is also unfair to the people of Lansing - 31.6% of them with incomes below the poverty level - to have to come up with $20.5 million a year to pay for it. They were never asked if they wanted to pay for lifetime health insurance for City employees (and their families) who retire at age 50 or younger. They had no clue what they were in for. The benefits were negotiated long ago in collective bargaining sessions closed to the public - closed even to city council.
The big issue for Lansing leaders is whether to cut health insurance for City retirees or continue making Lansing residents pay the $20.5 million a year and put up with bad roads and sidewalks and diminished city services. Mayoral candidate Andy Schor makes it clear on his campaign website that he is on the side of the retirees:
On her website, Judi Brown Clark doesn't address the issue. Or any other issue.
Go here to see how much pension debt has been incurred in your name (as a Lansing resident) by the State of Michigan, the County of Ingham and the City of Lansing.
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