Council Unites On Retiree Compromises; Hiring Freeze Lifted

OCEAN CITY – After months of deliberation, the Mayor and City Council have settled on two ordinances involving retiree benefits for newly hired town employees, although some discussion this week predicts additional changes to retiree health care in the future.

Mayor Rick Meehan last week vetoed two proposed ordinances for the second time concerning town employee retiree benefits due to the additional costs to the town and its taxpayers. The council agreed to meet this past Monday morning in an emergency work session to come to an agreement on the retiree’s benefits before this year’s budget was wrapped up.

Upon vetoing the ordinances, the mayor proposed a few options, one being not to close the current retiree health plan but to offer the proposed high deductible and HSA not just to new hires but to all employees. This would create a soft cap program that caps 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 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.

Over the weekend, City Council members discussed different options and settled on some sort of common ground. Entering into the emergency work session, Councilman Brent Ashley placed two motions on the table. He motioned to reinstate the previously proposed ordinance concerning town employee pension plans, which will be an Internal Revenue Service-qualified defined contribution plan with certain level of contributions and vesting.

Contributions will be employee mandatory contributions of 5 percent of the 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 is upon the employee’s first year 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.

Ashley then placed a motion concerning the town employee retiree health plan, which was the same as the previously proposed but with a piece of the mayor’s advice added to it. The ordinance states, if an employee elects to participate in the high deductible health plan the town will contribute an amount to the employee’s health savings account (HSA), which the employee can utilize to satisfy deductible charges and other allowable medical expenses.

Upon retirement from Ocean City, after 25 years of service, the retiree may participate in any of the municipal retiree health plans until the age of 65 years by paying a premium determined as follows: the dollar amount the Town of Ocean City contributes toward the total required premium determined as the town’s premium as of July 1, 2011 plus a maximum of 3 percent annually and the participating retiree will pay the difference between the required total premium and the town’s contribution.

“This is for new hires only,” Ashley said. “Present employees will not be affected at all.”

In attempt to compromise and pass the ordinance in order to hire new town employees, the entire council supported Ashley’s motion but discussion hinted at future discussions and changes to the retiree health benefit.

Meehan said the motion is not his preferred option to instate, saying, “It’s essential to address this issue and to reasonably reform our retiree health plan looking to the future and realizing those costs will continue to go up and reserve that benefit for our employees and save money today would be my preferred way to go.”

The mayor preferred the council to install his initial suggestion of a 3-percent soft cap for current employees or those under 15 years of employment. He added that it would even be acceptable to add a 6-percent cap for those employees employed over 15 years.

“I would support either one of those as well because as we move forward if we can solidify that and make some decisions and take away the unknown we would be doing everybody a favor in supporting their benefits and also saving the town significant money because I don’t think you’re going to see a 80/20 split 15 years from now or even 10 years from now,” Meehan said.

Councilman Joe Hall agreed with the mayor and explained that the current retiree health care creates a $32 million liability. If a 3-percent cap was to be placed on current employees with 15 years or less, that liability would be reduced to $28.5 million. If a 6-percent cap would be placed on current employees with 15 or more years, it would reduce the liability $25.8 million.

“I hope we do it now sooner in the discussion to save that money for the taxpayers,” Joe Hall said. “It would be the right thing to do for them. I hope we don’t close the discussion by this vote today.”

Councilwoman Mary Knight said that she looks at the possible additional savings in a different perspective.

“If we can reduce that liability, we’re insuring retiree health care for the employees and we’re making it a sustainable benefit by saving money,” she said.

Knight said that the town’s contract formed with the Fraternal Order of Police (FOP) involved no steps or cost of living adjustment (COLA) increase and town employees are promised no steps or COLA as well. She added that by saving money in certain areas, steps and COLA could become a reality again through the money accrued through those savings.

Council Secretary Lloyd Martin also supported a cap to be placed on current employee’s heath care, he said “this is not jumping the gun” and due to increased costs in health care a 75/25 cost share is in the future whether the town wants it or not.

“If we need to do it lets get proactive and do what we need to do today,” Martin said. “I still think the soft cap is the way to go for 15 years or less but if it’s the compromise that everyone wants to do I’m ok with it but I think we are going to have to address it at budget time next year.”

Councilwoman Margaret Pillas was not on board with passing an ordinance that affected the current employees. She said she understood the cost saving it would bring to the town but the town is also in partnership with its employees.

“I think this is a very fair plan,” Council President Jim Hall said. “I think the other items can be addressed when it’s appropriate.”

For the first time on these retiree changes, the council voted unanimously to pass the two ordinances concerning newly hired town employees retiree benefits.

Meehan said it was important for the council to agree on the issue in a unanimous vote but thought the votes were there to place a cap on current employee’s health care.

“Even though we may have been able to push through a soft cap and a change, I look forward to this discussion in the next year and I think we all need to realize that is a reality to consider moving forward into 2013,” he said. “I think the fact that we have a unanimous vote in making such a significant change is important for our employees and for our taxpayers.”

On Tuesday, the Mayor and City Council met in a scheduled work session and City Manager Dennis Dare explained that it is common for an employer to match the deductible to the HSA. He said that it was the council’s initial idea was to go above the deductible so the employee could accumulate savings in the health account to cover health costs in retirement.

“Given that retiree health is now available to new hires they don’t have that need,” Dare said and recommended for the council to reduce the contribution to match the amount of the deductible.

The proposed ordinance included 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 $,3000 contribution to the HSA.

Upon Dare’s recommendation the council agreed to amend the ordinance to reduce the town’s contribution to match the amount of the employee deductible.

Following the amendment, the council asked Meehan to pass the two ordinances in emergency form in order to lift the hiring freeze to fill 31 positions available at this time. The mayor complied with the request.