More than 700 retired city employees will soon no longer have their insurance policies subsidized, a move that will potentially save Glendale hundreds of millions of dollars.
Retirees have historically paid the same rate for their healthcare as active employees, a practice known as blending. But with a 5-0 vote, City Council members voted to end the benefit by the end of 2016.
A two-party PPO plan under Anthem, for example, costs $2,454 per month with the city covering $1,049. The decision means retirees would pay the full amount.
Some former workers complained to the council that the move would cost them between $6,000 and $12,000 per year, costs that are difficult to bear on a fixed income. In addition, some said they were explicitly promised the benefit for life.
Former Assistant City Manager Bob McFall said blending was around when he first starting working for the city back in the early 1970s.
“There was never a time that this benefit was expressed to say ‘as long as we have money, as long as things continue to go right,’” McFall said, who received more than $154,000 in pension benefits last year. “It was expressed as an obligation that the city has and will continue to make.”
But the blending of rates has never been stated in a labor contract, which would have to be adopted by the City Council, City Manager Scott Ochoa said.
Council members said they don’t know who made the promise.
Mayor Ara Najarian said he had gone over labor agreements with McFall years ago, and blended rates were never mentioned.
“It’s just not fair to put it on the council and for everyone out there to think the council knew about this,” he said. “I take issue with that.”
The change comes about during the impending arrival of a new standard established by the Governmental Accountant Standards Board. Beginning in 2017-18, cities will be required to start listing the unfunded liability of retiree insurance premiums on their balance sheets.
For the city of Glendale, the estimate is $240 million because the amount must encompass the subsidies over all retirees’ lifetimes.
City officials say having an unfunded liability that big would hurt the local bond rating and impair chances of receiving government grants.
In order to pay it off, the city would have to shift about 20% of the annual payroll budget. Other services and departments such as parks could take a big hit to cover the cost, said Ochoa.
“There has to balance all of those interests; the retirees, the active employees and again, most importantly, the taxpayers as to how best safeguard community resources,” he said.
Halting the insurance subsidy would eliminate nearly all of the unfunded liability, Ochoa said.
But in an effort to ease the transition for the retirees, the change won’t be enacted until next June so they can either decide to stay with the same coverage with an unblended rate or find a plan elsewhere.
Through end of 2016, the city will also pay $200 subsidy a month for retirees with household incomes of more than $100,000 and $300 a month for those earning less than $100,000, according to a staff report.
The item was brought once to the council in 2009, where it was rejected. Councilwoman Laura Friedman voted against it at the time, but said since then, the arrival of Affordable Care Act has been a game changer—it’s the only reason she said she’s entertaining the discussion again.
“The one thing I will not do is to jeopardize the health of our employees,” she said. “I will never put an ex-employee in a situation where they have to jeopardize their health because of us trying to balance our budget.”
The city’s health benefits broker, Keenan & Associates, has already started working with retirees to help find a plan and continue to do so over the next 14 months.
“This will give you more time to make your decision,” said Councilwoman Paula Devine.
She said while the choice was the difficult one, she had to take all residents into consideration and unblending would have a positive impact on long-term municipal sustainability.
But for retired police captain Mark Distaso, the transition, he says, won’t be very easy. According to the website Transparent California, Distaso received more than $160,000 in pension benefits from CalPERS in 2014.
He said his wife suffers from non-life-threatening medical conditions and has doctors that know her and are familiar with treating her.
“It’s not just a matter of changing plans, it’s a matter of reinitiating your whole course of treatment,” he said.