County may slash retiree benefits
Friday, June 22, 2007
The county government may cut the insurance subsidies that employees can expect from the county when they retire, in order to conform to new accounting standards, the director of finance and budget Terry Shannon announced Tuesday.
A new requirement by the Governmental Accounting Standards Board has told governments to account for the costs of retiree benefits other than pensions in their budgets. Under the new requirements, the county must contribute $10 million annually to fund its retirees’ health insurance subsidies, a change that has strained the county budget. The county will contribute only $4 million this year, a figure which will increase by $2 million annually until the full requirement is met in fiscal year 2011, Shannon’s presentation said. In the meantime, the shortfall will be made up by using $12 million in financial reserves.
‘‘It wasn’t a pretty picture. I’ll be honest with you,” Shannon said of the numbers.
Currently, the Calvert County government provides a maximum 90 percent health insurance subsidy to retirees eligible for benefits. Employees earn 4 percent of that amount each year that they work, reaching the maximum after 25 years, Shannon said.
‘‘Due to the dramatic rise in the costs of benefits, GASB felt it would be prudent to recognize the cost of post-employment benefits while the employee is working and ‘earning’ that benefit,” Shannon’s presentation read.
‘‘One of the things I equate it to is saving money for your child for college. If you put away a little every year, it’s not so painful,” Shannon said.
Shannon presented three alternative measures for keeping costs down. The first, upon enactment, would cap new hires’ maximum subsidy upon retirement at 50 percent, leaving the retiree to pay the other half. An employee who had worked for the county for less than four years when the change went into effect would be entitled to a 65 percent maximum subsidy; this maximum would increase with the number of years the worker had been with the county before the new plan was enacted. This would reach the full 90 percent for those who have worked for the county for more than 25 years.
The second alternative is the same, except that it would go into effect immediately for new hires, but three years later for those already employed. Both plans would save about $375,000 a year once enacted, the presentation said.
The third alternative would also raise the subsidy for current county employees. Under that system, current employees would be eligible for a maximum subsidy of 75 percent, while anyone who had worked for more than seven would be entitled to a maximum of 90 percent. New hires would be capped at a 50 percent subsidy.
This plan would save about $90,000 annually.
In all three plans, the employee would continue earning 4 percent of his maximum subsidy each year, reaching any maximum after 25 years.
Shannon acknowledged that the change could be tough for workers but said that refusing to address the problem could hurt the county and possibly bring down its credit rating.
‘‘Do I really believe our credit rating will go down? I don’t think it will. ... But we have to be cautious, proceed in a prudent fashion, a responsible fashion,” Shannon said.
But Calvert employees spoke against the proposal.
Olivia Vidotto with the Calvert Employee Representative Committee said there was ‘‘no urgency” and the county shouldn’t make any benefit changes. Vidotto asked the Calvert County Board of County Commissioners to do more research into the issue and accept ‘‘insignificant savings that do not justify cutting benefits. ... [The cuts would be] not even a drop outside [sic] the bucket. However, it would have a huge impact on your employees,” she said.
‘‘What I don’t understand is the need to move quickly with cuts to benefits for all current employees. ... We were never told until these rounds that our health benefits were subject to change,” Lynn Kuhn said.
Dina Davis, who works at the office of personnel, said the subsidies should be maintained for all current employees.
Board of Appeals planner Roxana Whitt said the change ‘‘might not hurt some of the more [highly] paid employees, but could be a significant burden for struggling families. [Retirees could face] sad choices in the future between keeping and abandoning their health plans.”
Planner Miriam Gholl advocated cutting the benefits for new employees but leaving hers and her co-workers’ intact.
The government could ‘‘start fresh with every new employee. That’s fair, they know what to expect. I don’t think it’s fair to cut those who are already working for you,” Gholl said.
Commissioners president Wilson Parran (D) said the county workers are suffering from the fallout of corporate scandals which led to widespread tightening of accounting standards.
‘‘It is a complicated situation and it has spilled into government from what happened in private industry. ... When the [benefits] bill came due a lot of companies backed away from it, leaving those people with nothing,” Parran said.
‘‘It is a real conundrum,” said Commissioner Linda Kelley after the presentation. ‘‘You know we’ve obviously got a problem that has to be fixed and the problem is how to do that without a negative impact on the employees. ... This is a very tough situation. You want to do what’s fair but you also have a problem that needs to be solved. I understand the employees’ concerns but I also understand the real world of ‘We’ve got an issue.’ There’s no easy answer on that one, there really isn’t,” Kelley said.
The commissioners left the record open for public comment until close of business on Monday, July 9.
E-mail Erica Mitrano at firstname.lastname@example.org.