Council Takes First Steps on Pension, Insurance

By Bill Dries

The first votes by the Memphis City Council this week on righting the city’s financial affairs were tentative steps, making it hard to predict whether there will be seven votes to pass dramatic changes in city pensions and health care insurance.

Memphis budget season is moving into City Council decisions on changes in the city’s long-term financial trajectory, with first-reading votes Tuesday, June 3, on pension plan changes.

(Daily News File Photo)

The council approved, on the first of three readings Tuesday, June 3, a trio of ordinances that together would switch all city new hires and employees with less than 10 years of service to a 401(k)-like defined contributions plan effective at the end of the fiscal year that begins July 1.

Meanwhile, in Tuesday committee sessions, council members got their first detailed briefing from Memphis Mayor A C Wharton Jr.’s administration on changes to the city’s health insurance coverage.

The resolution, which the council could vote on as early as its June 17 meeting or sometime in July, removes the 70 percent medical premium subsidy the city pays for city retirees older than 65 who are on Medicare.

The city would replace the coverage with city-sponsored Medigap insurance or other types of coverage. The city would also eliminate the medical premium subsidy for city retirees younger than 65. Those retirees over 65 with partial or no Medicare coverage would continue to have their coverage subsidized by the city.

Council members quickly agreed that when they do vote on the resolution, it will likely be a set of votes on the elements of the proposal instead of voting on it as a package.

Quintin Robinson, the city’s personnel director, said some of the savings the city realizes from the change in health care coverage would be applied to the city’s unfunded pension liability and also remedy an “underfunded” health care plan.

“These are some of the tough choices we are having to make,” Robinson told council members.

“I understand that this is not just a math problem because we have human lives that are going to be impacted by the changes we make. … We’re trying to do this so it works for everybody, but quite frankly the benefits that retirees would have going forward – they won’t be the benefits they have now.

“The benefits they have now are some of the richest and cheapest out there. But they will be adequate and they will be sustainable from a financial perspective.”

After the presentation, council chairman Jim Strickland said he feels some parts of the health insurance reforms are too drastic.

“Yes, we probably need an increase in the premium rate,” he said. “But it can’t be 57 percent. I really doubt that.”

Robinson said the changes take a large step toward the unfunded liability the city has for its existing health care benefits and insurance, which, at an estimated $1.3 billion for retiree health care, is larger than the unfunded pension liability that has gotten more attention in the last two budget seasons at City Hall.

Strickland has also acknowledged the impact of that liability.

“Most taxpayers, when they leave their job, their work does not continue to pay for their health care,” he said. “You can’t really say it’s too unfair to city retirees, other than the fact they may have been promised that benefit. We have to balance all of these tough things. But we have to remember it comes with a cost.”

Some on the council were vocal in their opposition to any changes to insurance coverage for city employees and retirees.

“Everything is ‘no’; there’s no way I’m going to let anyone cut my wife out of anything,” council member Joe Brown said of the provision that bars city health insurance coverage for spouses of city workers when they also work and are offered health insurance coverage by their employer. “You’re not going to win. Some of you are rich anyway. I’ve got a wife that needs my support.”

Council member Shea Flinn tallied a $58 million deficit in the city’s health care plan if the council does nothing, before even taking into consideration the pension liability.

“If you’re not going to support these changes, you have to come up with the revenue to cover the cost differential,” Flinn said.

Council members hear from city retirees and municipal union leaders and members in June 17 committee sessions, with the council deciding at that point whether it is ready to vote.

Meanwhile, the council approved on the second of three readings the proposal by council chairman Jim Strickland to change the terms of the city’s Deferred Retirement Option Program – or DROP – that permits city employees to announce their retirement years in advance and receive pension payments while they continue to work for the city.