Retiree Notes: December-January 2015
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- City of Chicago retirees urge action on skyrocketing health costs
- State and university health care premium refunds expected by spring
- Study: Pensions more effective than 401(k) plans
- AFSCME Retiree subchapter steps up big in food drive
City of Chicago retirees urge action on skyrocketing health costs
City of Chicago retirees are urging the Emanuel Administration to take action now to prevent crippling health insurance premium increases set to go into effect next year.
In 2013, the Emanuel administration announced the phase out of subsidized health care for City retirees. Despite strong opposition from AFSCME Retirees Subchapter 60, the City Council approved the plan which will result in increases in retiree health care costs of as much as 79 percent.
“The city is abandoning its responsibility to retirees who devoted their working lives to providing important services to the city,” said Mary Jones, president of Subchapter 60, at a press conference in November.
“This is not a question of resources,” Jones said. “The city clearly has the resources for private corporations, TIF districts and big projects. This is a question of priorities.”
Without any action, health insurance premiums for many retired city employees would end up doubling over the course of two years, hitting more than 2,500 non-Medicare-eligible retirees especially hard. Many would wind up having to pay 25 to 30 percent of their annual pension – which averages a little more than $27,000 – on insurance premiums.
The Emanuel administration has claimed that retirees can “avoid these increases” by selecting an alternate plan. However, the alternate plans offered by the city provide inferior benefits to the original plans, such as dramatically increased out-of-pocket costs or reduced network access.
At AFSCME’s urging, the Emanuel administration announced it would double the funding for subsidies to low income retirees. These subsidies only help a very small group of retirees, but the move from City Hall shows that further progress may be possible.
AFSCME is urging all members who live in Chicago to call their alderman with the message: “The budget has passed but retirees still need help. Work with us for a fair solution to skyrocketing health insurance costs.”
State and university health care premium refunds expected by spring
State and state university retirees should start receiving refunds for unconstitutional health insurance premium increases by early spring.
Retirees in the SERS and SURS retirement systems were forced to begin paying larger premiums for health care benefits starting in July 2013. This stemmed from a state law passed in 2012 that effectively ended the guarantee of affordable health care for those retirees by allowing the Department of Central Management Services to unilaterally set rates.
The union immediately challenged the law in court, arguing that it constituted a violation of the constitution’s prohibition against diminishing or impairing retirement benefits. This past July, the Illinois Supreme Court sided with retirees and ruled that the law was unconstitutional. A lower court then ordered that insurance rates return to the affordable levels that existed before the law’s passage.
Union attorneys are now working to ensure that money already paid for health care premiums is refunded in an orderly and accurate manner. The state has collected, and will likely have to refund, more than $59 million from state and university retirees for health insurance premiums.
As On the Move went to press, the next hearing on health care premiums was set for December 18 in Sangamon County, where final arrangements for the refund schedule are expected to be put in place.
Study: Pensions more effective than 401(k) plans
New research conducted by the National Institute on Retirement Security shows that defined-benefit pensions, like the ones earned by most public sector retirees, are more efficient and cost-effective than 401(k)-style private accounts.
The research showed that pensions deliver the same retirement income at a 48 percent lower cost than 401(k)-style accounts. Defined-benefit pensions achieve these savings through pooling risk among a larger group of workers and generating much higher returns than 401(k)-type plans.
This is evident in states like Michigan, which closed its pension system and began enrolling all new state employees in 401(k)-type plans. Since then, unfunded liabilities have skyrocketed from $697 million in 1997 to $5.4 billion in fiscal 2012. The funding status of the plan dropped from a healthy 92 percent to 60.3 percent. The result? Because of their switch to 401(k) plans, Michigan must now cut the monthly pension checks of current retirees.
Similarly, in West Virginia, the state switched from a defined-benefit pension plan for public employees to a defined-contribution 401(k)-style plan in 1991. As a result, the costs of retirement to the state skyrocketed, and the pension funding level dropped to 18 percent. In 2005, West Virginia reversed course and switched back to a defined-benefit pension plan. As a result, the state is projected to save $1.2 billion and its pension funding level is up to 60 percent.
AFSCME Retiree subchapter steps up big in food drive
AFSCME Retirees from Southwest Illinois are stepping up in a big way to support their community during the holiday season. In what is now a five-year long tradition, members of Retirees Sub-chapter 56, which represents Randolph, Washington, Perry, and Monroe counties, organized a food drive to fill the shelves of local food banks.
“We collect non-perishable food items all year and give them away in November, and every year we have surpassed the previous year’s goal,” said Larry Brown, president of both Subchapter 56 and AFSCME Retiree Chapter 31.
“One of the reasons the local food pantry is so successful is because of the efforts of our members,” Brown said. “AFSCME retirees spent their career ably and professionally serving the public, so it is only natural that we continue to stay involved in such a meaningful way.”