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Retiree Benefits Presentation Handouts
Changes to retiree health benefits going to City Council on September 29
City staff has evaluated several options that will help reduce the City’s costs of retiree health benefits but also allow us to continue to provide quality health care benefits for retirees in the future.
After careful consideration of several options and four well-attended meetings with retirees, City staff will make the following recommendations to the City Council:
- Increase contributions - Increase retiree contributions for health care from 30 percent to 50 percent of the cost of the selected plan. The increase will be gradual, 2 percent each year starting in January 2010 until the 50 percent is reached in January 2019.
- Change the eligibility for health insurance benefits to retirees who are immediately eligible for a pension and who are at least 55 years of age with at least 15 years of service from the current 55 years of age with five years of service. (An Ordinance for this change will be presented later with the change being effective July 1, 2010.)
- Continue to evaluate options - Evaluate additional changes to retiree health plans that will keep choices for retirees and limit the long-term financial liability to the City.
- Annually meet with retiree representatives to determine whether significant changes have occurred in the healthcare arena which require changes to the retiree health insurance program.
The information below explains our challenges:
Unfunded Liability
The City, just as many other cities, pays for retiree health benefits on a pay-as-you-go basis. This means current retiree health benefit costs are budgeted and paid for on a year-to-year basis. But the costs for future years have not been accounted for, nor have they been funded. This is different from pension costs where the future liability is stated and funds set aside each year to ensure those benefits can be paid.
A few years ago, the Governmental Accounting Standards Board (GASB) issued new accounting standards that required cities to begin reporting the expected future cost (liability) of their retiree health care benefits on their financial statements. This became effective for Oklahoma City in 2008.
The problem
In complying with the requirements, we learned that our liability (costs) for retiree health benefits was growing faster than our budget could accommodate it.
It therefore became imperative that we take steps to control and better manage our retiree health benefits liability so that in the next 10 years it will not overwhelm our ability to provide services or require that retiree health benefits be eliminated altogether.
The City Council begins studying the problem
The City Council first discussed the retiree health insurance liability issue at a budget workshop in January 2008. Soon after the workshop the Council asked staff to research and develop options, policy changes and recommendations for them to consider to address the liability.
On February 3, 2009, staff presented to the Council and they discussed several recommendations and alternatives for addressing the liability. This was just the beginning of discussions -- no decisions were made. Watch February 3, 2009 presentation to Council.
The Council recognizes that this is an important decision that requires a balance between our stewardship for tax dollars and care of our employees. They have asked for more information and additional alternatives. They will continue to study the issue until we are able to come up with viable alternatives to help control our growing retiree health benefits liability.
So far the alternatives considered include moving to an option for the City to participate in HMO coverage only, increasing retiree contribution rates over time, eliminating or reducing the City’s coverage for Medicare-eligible participants, and many others.
Frequently Asked Questions
Q. What does the City pay for retiree health care?
A. Currently, the City pays 70% of the cost of health insurance for retirees and their dependents. Retirees pay 100% of the cost for dental and life insurance.
Q. Who is eligible for retiree health care benefits under the City’s healthcare plan?
A. Employees who retire with 25 years of service; employees who are 55 years old with 5 years of service; police officers with 20 years of service; firefighters with 20 years of service who retired before 2003.
Q. Why is the City raising the issue of the retiree healthcare liability now?
A. The Government Accounting Standards Board (GASB) issued new guidelines for how government agencies should account for liabilities associated with the cost of providing retiree healthcare. These guidelines do not require the City to fund the liability, but they do require us to report it.
Q. What is GASB?
A. The Governmental Accounting Standards Board (GASB) is the private, nonprofit organization that works to create and improve the accounting rules federal, state and local governments follow when calculating and reporting financial information.
Q. What happens if we do nothing and continue to pay as we go?
A. If the City does not set aside enough money to adequately fund these future costs, we see negative consequences for the City including: negative impacts to our bond rating resulting in higher interest and borrowing costs, thus reducing the amount available for construction of bond projects; indirectly passing costs to future years where the impact will be greater and at some point, the City may even be unable to pay for retiree benefits.
Q. How will changes to the retiree health care plan affect me?
A. At this time we do not know. We are not at a point where we have identified solutions. Right now, we are just trying to gather ideas about potential ways to address the liability.
Q. Is the City going to take away retiree healthcare benefits?
A. The City is researching alternatives with the goal to maintain a quality benefit program for retirees while reducing the liability for these benefits over the long term. No determination has been made to eliminate retiree healthcare benefits.
Q. Is the City changing the eligibility for retiree healthcare?
A. Current eligibility requirements have not been changed. The City is looking at various alternatives to retiree health care plans to address our growing liability. Some of these alternatives include changing eligibility but only for employees who retire in the future. Healthcare benefits for retirees are not required. The City Council may change the benefit plan at any time.
Q. If I retire now, will my healthcare benefits change or be taken away?
A. The City has not made any decisions to change healthcare for current retirees.
Q. Why can’t the City leave benefits the same for current retirees and reduce the benefit just for future employees?
A. If benefits were only reduced for future retirees there would have to be such drastic changes to impact the liability that retiree health benefits may have to be eliminated for that group. Preferred alternatives would not create inequities between employee groups based on the timing of their retirement. The City has not made any decision to change healthcare benefits for any segment of the employee population.
Q. Doesn’t The City budget money to pay for retiree healthcare?
A. Yes. The City pays for retiree health benefits on a pay-as-you-go basis; current retiree health benefit costs are budgeted and paid for on a year-to-year basis. But the costs for active employees who will retire in future years have not been funded.
Q. Will the retirees and employees have input before decisions are made?
A. You are invited to be a part of the discussion by attending one of four retiree meetings listed at the top of this web page. Information will continue to be posted on this Web page.
Information will be updated
We will keep retirees and employees updated as options are discussed and solutions developed. Information, as it becomes available, will be posted on this site.