OCEAN CITY – Rather than go the veto route again, Mayor Rick Meehan is hoping to reach a compromise with the City Council majority concerning town employee pension and benefits.
In a 4-3 vote, the council voted to pass two proposed ordinances earlier this month involving the pension plan and health benefits for newly hired town employees through second reading. The next step for the ordinances to become law is the mayor’s signature.
The pension plan will be a defined contribution plan, a change from the current town employees defined benefit plan. The level of mandatory employee contribution is 5 percent of annual straight time pay with employer match and the employee may contribute up to an additional 2 percent of annual straight time pay, with employer match.
The vesting schedule will be upon an employee’s first year and he or she will receive a vested amount of 20 percent of the town’s contribution. That amount will increase by 20 percent every year, reaching 100 percent after five years.
The new retiree health benefit health offers a high deductible health plan, which Ocean City will contribute an amount to an employee’s health savings account (HSA), which the employee can utilize to satisfy deductible charges and allowable medical expenses.
Meehan now has to decide whether he will allow the ordinances, in which he does not completely agree with, to pass. By code, the mayor has 15 days upon an ordinance is passed to sign or veto.
“Well the 15 days have pretty much run out,” the mayor said on Thursday.
The ordinances were passed last Monday, April 18, and the mayor has until next Wednesday, May 4, to decide.
“The cost of closing the retiree health plan will cost today’s taxpayers almost $1 million this year and next year alone,” he said. “Changing from a defined benefit to a defined contribution plan will cost the taxpayers about $50,000 next year and up to $900,000 a year, 20 years from now. As the mayor, I find these changes unacceptable.”
Meehan said looking back on the past three years the town has reduced its budget by over $7 million and it is a result of good planning and sound decisions.
“This is what I think we need to continue to do moving forward,” he said. “I do believe we need to continue making changes … to the taxpayers benefit and making pension and benefit reform part of those changes but they need to be done responsibly.”
The mayor said that he has discussed the predicament with Council President Jim Hall, as well as, directly or indirectly with the other council members in regard to the ordinance that effects the retiree health plan and has made a recommendation.
It is to not close the current plan, but to offer a high deductible and HSA to all employees both existing and new employees. This would create a soft cap program that puts a ceiling on what the city spends today per employee plus up to a 3-percent increase each year for all current employees with less than 15 years of experience.
“That is because they don’t become fully invested until they are there for 15 years,” he explained. “This will define our costs moving forward and it will continue to offer a good health benefit to present employees. It will protect that benefit because if we don’t make these changes today and assessments drop and other revenue shortfalls take place I am concerned that those benefits could go away all together.”
The mayor believes his recommendation will protect the town and its employees from a marginal increase and it slowly shifts the cost from the town to the employee over a period of time. He said that new employees should fall under the soft cap program but only until they reach age 65 when they become eligible for Medicare.
“The cost of health insurance is increasing so rapidly and there is going to be so many changes over the next few years and nobody can look that far into the future,” he said. “If we do this, it will save us about $1 million in this year’s budget and if we go with the ordinance that was passed it is going to cost us over $1 million this year. So it is really a $2 million sweep…it will also reduce our long term debt by over $12 million.”
Meehan believes his recommendation accomplishes what the council had set out to do. “It caps the town’s expense, we know exactly what it is going to be, and over a period of time it reduces it just to the bridge to Medicare for new employees and we need to be able to provide that level of benefit,” he said. “If we can come to an agreement with that, we can move forward.”
The mayor still has reservations over the defined contribution pension plan. He said that as a result of his last veto on proposed town employee pension and benefits the additional discussion that needed to take place did take place and now that plan is clearly defined and the level of contributions is established.
“So as a form of compromise in moving forward in trying to protect not just the taxpayers but the employees, I told them [council] that I would not veto the defined contribution pension ordinance if we can come to an agreement on what I have proposed with regard to retiree health,” he said. “If the council would accept my proposal in regard to the retiree health ordinance, then there will be no vetoes. It’s not an ultimatum it’s just a compromise to get this done and do the right thing for our employees and for our taxpayers.”