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Special commission recommends changes in health benefits for future retirees

Labor representatives and the association representing retired public employees in Massachusetts have signed on to recommendations made by a special commission that protect current retirees from changes in post-retirement health benefits but do make changes for certain current and future employees to make the system more sustainable. The MTA, the Massachusetts AFL-CIO and the Massachusetts Retiree Association all sided with the majority in the 11-1 vote, which was taken on December 20 after months of meetings and negotiations. A final commission report, including these and other recommendations, is expected to be released in January.

“The retiree health care system has been a ticking time bomb for many years,” said MTA President Paul Toner. “Unlike the pension system, future retiree health benefits have never been funded, and the unfunded liability is now estimated at $46 billion over 30 years. To put this in context, that is more than all state spending on local and state services in a year.”

The commission was co-chaired by former MTA President Anne Wass. The only “no” vote was cast by the Massachusetts Municipal Association representative. The MMA opposes the proposed limits on municipal leaders’ ability to make deeper cuts in the retiree health benefits.

“We and the other labor and retiree representatives were convinced that if modifications are not made, we risk jeopardizing health care benefits for both current and future retirees and employees,” Toner said. “The consequences of failing to grapple with this massive liability could include cuts in health benefits or other compensation for active employees, cuts in benefits for current retirees and significant staff layoffs.

“Changing benefits is just one side of the equation,” Toner said. “Municipal and state governments must do a much better job of setting aside funds for their future health care obligations, as they do for pensions.”

Background

The state Commission to Study Retiree Healthcare and Other Non-Pension Benefits was established in 2011 and charged with analyzing actuarial data and recommending changes in non-pension benefits (referred to as Other Post-Employment Benefits, or OPEB), the most expensive of which by far is retiree health insurance. The report recommends changes in retiree health benefits that more closely tie years of service to the level of benefits received, as is done with the pension system.

MTA Position

The MTA has joined the other labor and retiree representatives on the commission in supporting the recommended benefit changes. Key to our support was protecting benefits for all current retirees and for the longest-serving current and future retirees.

Proposed Benefit Cuts MTA Fought

While on the commission, all of the labor and retiree representatives were united in fending off proposals that they considered unacceptable, including:

  • Eliminating all retiree health benefits (now the norm in the private sector).
  • Changing benefits for current retirees.
  • Eliminating spousal coverage.
  • Allowing a community to go below the 50-percent-coverage level for retirees.
  • Permitting automatic plan design changes in response to future healthcare inflation.
  • Capping employer contributions at a fixed dollar amount.
  • Requiring employees to contribute a percentage of their salaries to help fund future retiree healthcare costs.

New Benefits MTA Supported

In addition, the labor and retiree advocates won several significant benefits and protections that do not exist under current law, including:

  • Freezing employee premium contribution rates at levels in effect on 1/1/2013 for three years from the effective date of the law.
  • Following the three-year moratorium, the ability to reduce contributions shall be returned to local option; however, any municipality that exercises this right shall grandfather existing retirees at their contribution level at the time of implementation. (This was a big win for labor and retiree advocates and is strongly opposed by the MMA.)
  • All future surviving spouses, and current surviving spouses who are enrolled in the municipal health plan at the date the new law takes effect, will be entitled to a minimum 50 percent employer premium contribution.

 

Changes Included in Commission Recommendation

Before any changes can take place, the plan will need to go through the legislative process. We expect a bill to be filed in January, and, if passed could take effect during 2013. Below is an outline of the proposal, as adopted by the commission.

Exempted Employees and Retirees (Grandfather Provisions)

Retirees:

  • All current retirees.
  • All “Accidental” disabilities (future as well as current).

Current employees: Current employees who fall into one of the categories below on the effective date of the legislation are grandfathered in and exempt from any changes.

  • Any employee within five years of minimum retirement age at the effective date of the legislation who has completed 20 years of service. This includes current MTA members and other Group 1 employees aged 50 and above who have completed 20 years of service.
  • Any current teacher participating in Retirement Plus and who retires at a full pension benefit (80 percent) and is age 57 or above.
  • Any employee who is within five years of Medicare eligibility (currently age 65) and is within 12 months of vesting in the pension plan at the effective date of the legislation.

Partially Exempted Employees

  • Any current employee who is age 50 and has completed 15 years of service shall be eligible to receive a 50 percent premium contribution.
  • Any current employee who is age 55 and has completed 10 years of service shall be eligible to receive a 50 percent premium contribution.
  • Future retirees under “Ordinary Disability” are exempt from any changes until the 2014 Affordable Care Act Exchange is available. At that time, Ordinary Disability retirees shall receive a 50 percent premium contribution if they have 10 to 20 years of creditable service. Beyond 20 years of service, proration (described below) shall apply

In the event these employees work beyond 20 years of service, pro-rating (see below) would prevail upon retirement.

Proposed Changes for Non-Exempt Current Employees and All Future Employees

Years of Service with Age Requirement

Future Group 1 retirees shall be required to complete 20 years of service and have reached the age of 60 to be eligible for any retiree health benefits.

Pro-Rating Contributions

Future retirees shall receive an employer contribution that is pro-rated based on completed years of service upon retirement, as follows:

 Years of Service  

 Premium Contribution

20 50 percent of premium
23-26 1/3 of the difference between 50 percent and the Maximum Available Benefit
27-29 2/3 of the difference between 50 percent and MAB
30 Plus 100 percent of MAB

Note: For communities that already have a 50/50 split or were planning to move there in the future, pro-rating will have no impact.
(Example for illustration purposes);

Community A provides 70 percent of the premium contribution to retiree

 Years of Service      Premium Contribution
20 50 percent of Premium
23-26 56.7 percent of Premium
27-29 63.3 percent of Premium
30- Plus 70 percent of Premium (100 percent of MAB)

Special Commission Members

Members of the special commission were Al Gordon, representing State Treasurer Steve Grossman; Assistant Senate Majority Leader Jack Hart; Representative John Scibak; Senator Michael Knapik, Representative Jay Barrows; GIC Executive Director Dolores Mitchell; Assistant Secretary of Administration and Finance Greg Mennis; Henry Dormitzer, co-chair of the commission; former MTA President Anne Wass, co-chair of the commission; Shawn Duhamel of the Mass Retirees Association; Andrew Powell of AFT Massachusetts, representing the Massachusetts AFL-CIO, and Shrewsbury Town Manager Dan Morgado, representing the Massachusetts Municipal Association.