A Letter to Retirees Regarding Agreement Questions
January 17, 2015
There have been questions and concerns raised that I feel that I need to respond to from some of you. Before I do that I would like to inform you that our team has been working hard to take steps to keep as many benefits as we can unchanged. We are working on now are some of the detail items for the consent decree trying to protect us from any misinterpretations from anyone years to come with regard to what we are agreeing to.
I would first like to have you reflect back on where are at and how we got here. The system is underfunded on the pension trust side and the city has decided only to contribute dollars, less than is required, to the pension trust. The “current” status of the healthcare trust is slightly over 100%.
With the city not making its required contributions to the pension trust the bottom line is there WILL NOT be sufficient funds in the pension trust for it to be solvent for 30 years. That translates into at some point the pension trust will run out of money and we (meaning members of our group who live to that point) would no longer get a pension check.
With the City not contributing to the healthcare trust there are some concerns with that trust as well for us and future retirees. Like most things when there is a hole and nothing used to stop the leak from the hole it will eventually bleed out as well unless something is done. The City knows that it can stop providing healthcare benefits so they are not concerned about the healthcare component any longer. We retirees on the other hand have concerns about healthcare as indicated by the many responses that we received.
In mediation we tried to address both needs that retirees indicated in their responses to us. Locking into healthcare and stabilizing our pensions.
Some of you have argued that our pensions are protected. I agree with you and so did Judge Nadel. Some argue that our pension that are protected included our cost of living increases. I agree with you, but Judge Nadel did not go as far as state that as a fact. There have been cases argued in many courts recently that have sided with the fact that the cost of living adjustments (COLA) is not included as being protected. A few have agreed that it was. So if we were to take a risk and say we are going to fight any changes to our cost of living adjustments and argue that it is part of our pension as we were promised we would be in the court system for several years and need to raise a half million dollars plus with no guarantee of a victory at the end of the proceedings. In the meantime, the City would implement the changes and take some more of our healthcare benefits away leaving us with fewer dollars to pay the increasing healthcare costs.
Some of us retired with a 3% simple COLA and others retired with a 3% compound COLA. If we fought for giving us what we left with everyone would not necessarily be happy with that decision. Those who left with the 3% simple would argue that the excess funds in the system were used to support their right to the compound COLA so the money was there and they were getting the short end with us supporting that approach. Remember, as members of the mediation team we had to think about the fairness to all members of the team and not be concerned about our particular situation.
I agree with all of you that this is not a fair situation that the City has put us in. It is morally wrong and possibly legally wrong depending on the legal outcome. But in reality that is the situation that we are in. We are between a “rock and a hard place” as the expression goes. Most of the people who are very outspoken about what is going on put little money towards our first legal fight and I suspect they would put little money into the pot if we had another.
Putting all of this in mind our legal team wanted to stabilize our healthcare, as indicated above that could be abolished, as well as our pensions.
To many of you any type of concession is not good. We were going to be forced to take a concession no matter if we agreed to it or not. So the point is which concession would provide us with the best stability for all of our needs and hurt us the least.
We knew going from a compound COLA to a simple COLA would be a big hit on our pensions. In particular if we live 10 to 20 more years. Likewise if we would experience any major changes in our healthcare the increased cost would be a major hit for many of us retirees who are currently experiencing poor health. (The reality is the longer we live eventually most of us see the medical providers more often. This translates to increasing healthcare cost.)
As I explained in my previous correspondences what we came up with we believe adds some certainty to our retirements. A certainty backed by a federal court. We have never had that certainty before. We might have thought we did but we found out in our healthcare case we were misled by those we trusted.
I would like to address some of the questions that were raised recently.
Our current 401(h) healthcare fund and the proposed 115 healthcare fund are both trust funds recognized by IRS.
How can the City change the funding from a 401(h) to a 115 fund? Through the approval of IRS. The City has been working on this and has the necessary approvals to do this from what we were told.
How can the City take our money that is in the 401(h) fund now and transfer it to the Pension Trust? The City can do this through the consent decree and were going to do this whether or not we were parties to it or not. The funds would be transferred before the remaining dollars in the healthcare trust moved to the 115 fund trust.
Why is it necessary for this transfer to take place since our healthcare fund is funded over 100% funding? The problem that we all face is the shortage of funding in our Pension Trust. According to the City’s actuary the funding is not sufficient to keep the fund solvent for all members of the system for 30 years. If the funds were not transferred, eventually the Pension Trust would run out of money and we would be left with no pensions. For those of you who question this move would that be what you would desire for yourself or possibly your spouse with no Social Security and no pension to live on.
We have already heard from the courts that the City could reduce or eliminate our healthcare completely. This would leave many of us without healthcare in the future. Is that something we really want?
As you are aware one of the lawsuits that got us to where we are at was filed by AFSCME that wanted the City to pay their required contribution. That lawsuit is being settled through the consent decree. We all know that over half of the problem with the unfunded liability is attributed to the City’s failure to pay their required contribution. No court in the past held the City to make their contributions. Had any of you filed a lawsuit against the City for failing to pay their contribution would have cost you approximately $500,000. Do any of you have that kind of money to fight the City?
Many of you keep stating the Ordinances that state that the 401(h) cannot be used for anything else other than for healthcare. Ordinances are changed every day and the City could get agreement from the IRS and the court to permit them to transfer the funds because of the state of the Pension Trust. For anyone to fight that would once again cost you approximately $500,000 with no guarantee that you would win the case in court.