Following the spring 2013 budget season, the Mayor (Pedro Segarra) and the Court of Common Council President (Shawn Wooden) created the City of Hartford Task Force on Healthcare, OPEB, and Pension Benefits to study the City’s employee benefits structure and make recommendations about how to improve it. The final report was issued on May 14, 2014 and can be found here.
The Task Force produced a detailed report that begins with an Executive Summary before elaborating on individual recommendation. In total there are 282 pages of material between the 45 page report and the four additional PDFs containing the appendices (Part I, Part II, Part III, Part IV). There is a significant amount of information, and supporting analysis, in the documents. What follows is a summary of the Executive Summary.
Before getting into recommendations, the Task Force identified causes for recent increases in the cost of the three benefits programs.
- The 2008 financial crisis caused a large loss in the pension fund, which had previously been 100% funded. As a result, the Actuarially Required Contribution (ARC) jumped from $9.6 million per year to $47.8 million.
- Hartford has funded Other Post Employment Benefits (OPEBs) on a “pay as you go” basis and accumulated an unfunded liability of $273 million.
- Healthcare costs are rising nationally. The City “has provided good benefits to employees with comparatively low employee contributions and co-pays.”
In reflecting on their findings about the current state of the benefits programs, the Task Force noted that, “It is not an overstatement to say that the situation has already reached a critical stage, which urgently requires corrective action.”
The Task Force recommended that the City and the Employees work together to accomplish the recommended changes. They felt that the proposed structure of the benefits system must have common interests between the City and the Employees.
Specifically, they felt the benefit system:
- Must be able to remain in place for the long term yet still be financially sustainable.
- Must offer benefits that allow total compensation to attract talented employees.
- Must make employees healthier while also reducing costs.
- Must maintain a viable replacement income rate after employment with the City ends, and not just shift costs to other government assistance programs.
- Must not shift all risk to the City, nor to the employees.
- Must account for the increasing life expectancy of retirees.
The Task Force made detailed recommendations for each of the three benefits programs. Again, these are a summary of the summary, and much more information is available in the full report.
Health Benefits: Open a dialog with the employees about making changes to the plan. Emphasize preventative care. Try to consolidate all employees onto a single plan. Follow up more aggressively on the treatment of chronic conditions.
Other Post Employment Benefits: Create a Trust Fund for these liabilities, transfer existing money into the Trust Fund, and begin paying into the Trust Fund annually. Consider merging the Fire Fighters VEBA into the Trust Fund. Increase the employee contributions to the program and/or delay the age at which the benefits can be claimed.
Pension Benefits: Do not try to replace the defined benefits plan with a defined contribution plan for new employees. Instead, keep the defined benefits plan for the first $XX,000 of income (a negotiated, fixed amount for all employees) and stack a defined contribution plan on top to provide the retirement benefit for income above the threshold. Adjust the existing defined benefits plan to reduce the plan’s overall costs.
Most of the Task Force’s recommendations are subject to collective bargaining with the various employee unions, which they noted in the report.