Public Policy
  Analysis, opinion & ideas from Steve Harry



Cutting retiree health insurance

Originally posted May 31, 2017; updated July 12, 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.) I got the latest reports July 11. That $60 million figure has gone up to $74.5 million as of January 1, 2016.


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:



New Salary


Mark Alley, Lansing's former chief of police, retired in March of 2010 to take a job as senior director of risk management for Emergent BioSolutions Inc. in Lansing. His title now is Vice President of Global Protective Services and Public Affairs. We don't know his new salary, but we do know that his pension from the City is $90,356. Alley retired at age 48. He had only 24 years and one month of service, so he purchased another 11 months at a cost of $107,812.





Police Lieutenant Bruce Ferguson retired in 2010 at age 50 with a $66,507 pension. In January 2013, he became chief of police for the City of DeWitt at a salary of $65,000. (Lansing State Journal, 1/26/2013)





David Ford and Walter Holden retired from the Fire Department in June 2010 to run First Due Fire Supply in Mason - established April 2007. Ford's pension is $70,356 and Holden's is $62,288. Employees also include Lansing firefighter Chris Wheeler and duty disability retiree Dan Hamel (retired 7/20/2010, pension $45,560). Ford and Holden later sold the company to Hamel and are "working on some other ventures."











State Rep. Tom Cochran, D-Mason, retired as Lansing's fire chief in January, 2012 at age 58. He receives a pension of approximately $77,000 from the City to supplement his $71,685 salary as a state representative.


$77,000 $71,685 $148,685

Lansing police captain Ray Hall retired in February 2012 at age 49 to take a job with University of Michigan-Flint as chief of police. According to this response to my FOIA request, his new salary is $103,000. His City of Lansing pension is $73,178. He was 16 months shy of the 25 years needed to qualify for a pension, so he purchased 16 months.


$73,178 $103,000 $176,178

In July 2013, former Lansing police chief Teresa Szymanski landed a job as the Lansing School District's chief operations officer. She retired from the Lansing police force on April 19, 2013 at age 50, with 26 years of service. Her salary on her new job is $120,000. Her annual pension from Lansing's Police and Fire Retirement System is about $90,000, based on what her predecessor Mark Alley got when he retired in March 2010.


$90,000 $120,000 $210,000

In February 2014, Lieutenant Noel Garcia retired from the Lansing Police Department after 24 years (LSJ, 2/28/2014). He immediately took a job as law enforcement instructor for the Lansing Area School District at a salary of $62,631. His pension is approximately $60,000.





In November 2014, at age 45, assistant fire chief Trent Atkins accepted the new position of Emergency Operations Manager at the Board of Water and Light. His salary was $130,000. He was 9 months short of the 25 years needed to qualify for a City of Lansing pension, so he purchased them. His pension will be "around $70,000." (LSJ, 11/25/14) He resigned from the BWL just recently, saying "he has offers to do consulting work and wants to spend more time with his family." (LSJ, 5/20/17)





Daniel Oberst was chief of training for the Fire Department when retired April 18, 2015. His pension is about 80% of his base salary, according to an August 13, 2017 story in the LSJ. He is now fire chief for Bath Township, where his salary is $61,675.





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:



As mayor, I will continue to work with the Fiscal Health Team to reduce the City of Lansing legacy costs over time.  I will not look to solve our current problems on the backs of City retirees, who spent their careers serving the public and are now on fixed incomes. 



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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