OCEAN CITY – For the second time this year, Mayor Rick Meehan vetoed two ordinances concerning retiree benefits, due to the additional costs they will bring onto the town and taxpayers compared to other options the council can choose to save money.
“The council passed two ordinances 15 days ago … that addressed the pension plan and the retiree health plan. I thought a lot about those ordinances and we have come a long way but I have to tell you in good conscious I can’t support the two ordinances that were passed because of the increased costs they pass on to the general fund and the taxpayers this year, next year, and many years to come,” Meehan said on Wednesday morning at the conclusion of a budget meeting.
The ordinances the majority of the council passed through second reading included a pension plan for newly hired town employees that will be a defined contribution plan, which is a change from the current 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 with employer match.
The vesting schedule is upon the employee’s first year, receiving 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 other ordinance is a new retiree health benefit that offers newly hired town employees a high deductible health plan and 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. The plan includes single coverage that requires a $1,200 deductible, and a $1,500 contribution to the HSA, couple coverage requires a $2,400 deductible and a $2,800 contribution to the HSA and family coverage includes a $2,400 deductible and a $3,000 contribution to the HSA.
“I do believe we can move forward with the defined contribution plan and reform the retiree health plan without incurring these additional costs,” Meehan said.
The mayor said that the defined contribution plan has come a long way, although he still has reservations of how it will affect the town’s recruiting and long-term sustainability of employees. He is also concerned that the pension plan costs the town more money this year and years to follow from now up until 2030.
“There are two components to retirement and that is the pension plan and the health plan, and both have to be in sync in order for them to work. If we can come to an agreement on a retiree health plan that doesn’t cost the taxpayer’s money and hopes to cover the additional costs that are going to be created by the defined contribution plan I can support both,” Meehan said. “At this point in time because of my concerns primarily over the retiree health plan, I am going to veto those ordinances.”
Last week, the mayor offered the council a compromise. If the council could come to an agreement with him over the retiree health benefit, he would not veto the ordinance concerning the pension plan.
Meehan has repeatedly projected the costs affiliated with the changes the two ordinances will bring onto the town and its taxpayers, which is around $1 million this year to close the current retiree health plan and about $50,000 this year to close the current defined benefit pension plan.
The mayor has come up with a plan that he hopes the council will take into consideration over the next few days. He has proposed not to close the current retiree health plan, but to offer the high deductible and HSA to all employees both existing and new. This would create a soft cap program that caps what the city spends today per employee plus up to a three percent increase each year for all current employees with less than 15 years of experience. That soft cap would only carry new employees up to the age of 65, at which time the town would stop medical coverage and Medicare could take over.
“If we do that, that will take away that extra $800,000 cost this year and next year because the amortization schedule will be the same,” Meehan said. “What it will do is keep that plan open … it will reduce our long-term debts dramatically over a period of time.”
Council President Jim Hall said that one of the key things the council would like as the discussion continues is to have it open to the public.
“We spoke amongst ourselves and we were trading back and forth but we never really spoke together,” he said.
Jim Hall and Pillas also expressed concern over how the mayor’s recommendation will affect current employees.
“We started out with only trying to do the new employees and now in order to save money you have suggested we bring in some of the present employees but I think we can get this hammered out,” Jim Hall said.
Pillas agreed that the discussions need to take place publically. She said that it is important that the current employees understand what will happen to their benefits.
“Part of what I recommended as a soft cap on the employee health plan is really to preserve the benefits for the current employees even those with less than 15 years because the current 80/20 split that we have for the retiree health you’re not going to see that 15 years from now,” Meehan explained.
The Mayor and City Council decided to schedule a special work session to discuss the retiree health benefits on Monday, May 9, at 9 a.m.