Retiree health bill hearing draws big crowd

OPEB Hearing

Gardner Auditorium in the State House was packed on October 31 with public employees, state and municipal leaders, retirees and legislators testifying for and against House 59, the governor’s bill to reduce the unfunded liability for retiree health insurance by changing certain eligibility requirements and increasing the health insurance premium share paid by some future retirees.

MTA President Paul Toner acknowledged that there is a serious fiscal issue regarding other post-employment benefits – or OPEB – and that the MTA is in a “bind” on this issue because the association wants to protect benefits for current employees but also wants to support a sustainable system capable of providing benefits to retirees in the future as well as prevent future layoffs and service cuts.

The governor’s bill is based on the recommendations of a special commission co-chaired by former MTA President Anne Wass that concluded the current level of benefits is unsustainable. The projected unfunded liability for retiree health insurance is $30 billion for municipalities and another $16 billion for the Commonwealth over the next 30 years.

“I’m here to say that we support the recommendations [made by the special commission] but we want to work with you to improve upon this bill,” Toner testified at the hearing before the Joint Committee on Public Service.

“At my Annual Meeting, I’ll be honest with you, I took a lot of flak from a number of people,” he said. “However, even at the Annual Meeting, people recognized that something has got to happen.” 

Toner said he would love to see benefits remain the same and urged the legislators to consider new revenues to support current benefits. However, he added, if legislators are not going to advocate seriously for new revenues to fund these benefits, then he urged them to support legislation that protects current retirees, those about to retire in the near future and long-term public employees who work in the public sector for 20 years or more.

Paul Toner OPEB Hearing
MTA President
Paul Toner
Toner also argued that the legislators should not postpone deliberation by sending the bill to study. He urged them to work with the MTA, the governor and other stakeholders to get legislation passed soon.

“Please don’t kick it down the road,” he testified. “If you send it to a study and it dies there, we’re going to be back here in two years, five years, struggling with the same issue.”

Toner did, however, outline three areas in which the MTA hopes the Legislature will consider improvements to protect MTA members who could be adversely affected by the bill’s requirement that public employees work longer to become eligible for retiree health benefits:

  • Vocational/technical education teachers, who are often hired in middle age after they have significant experience in their trades.
  • Higher education faculty, who are often hired later in life because it takes them many years to obtain an advanced degree.
  • Education support professionals, if they work in a municipality that only gives them credit for 10 months of work each year, thus making it significantly more difficult for them to become eligible for retiree health benefits.

A wide range of views was expressed by others who testified at the hearing, including some who argued that the governor’s bill goes too far in cutting benefits and others who claimed it does not go far enough.

Glen Shor, secretary of administration and finance, said that the governor is not wedded to all the provisions in H. 59, but strongly believes changes along the lines outlined in the bill are needed to prevent massive fiscal problems for both the state and municipalities, as well as preserving the quality of public service in the future.

Those who said H. 59 goes too far were mainly from the state Department of Correction and the Massachusetts Association of State Engineers and Scientists. They argued that “a deal’s a deal” and the state should not change the rules for people who were hired believing they would be eligible for full retiree health benefits after 10 years of service.

Toner and others who testified maintained that reducing the retiree health benefit, when coupled with the loss of Social Security benefits for public employees in Massachusetts, may drive some good employees out of the system and make it more difficult for the state and municipalities to attract highly qualified employees in the future. They argued for amendments to the bill to reduce the likelihood of that happening.

Those who said the bill does not go far enough pointed to the magnitude of the unfunded retiree health insurance liability, pegged at $30 billion for cities and towns and $16 billion for the state over the next 30 years.

Michael Widmer, president of the Massachusetts Taxpayers Foundation, said that if retiree health benefits are not reduced, cities and towns would either have to increase property taxes by an average of $2,000 per year on a single-family home – something that would be very unpopular with taxpayers and extremely difficult to implement under Proposition 2½ – or lay off public employees and reduce public services in the future.

“We have taken on obligations we cannot afford,” Widmer said.

Geoff Beckwith, executive director of the Massachusetts Municipal Association, concurred, noting that only 8 percent of private-sector retirees receive retiree health care benefits and that most would be unlikely to support a Proposition 2½ override to fund such benefits for public employees.

The governor’s bill

Under current law, most state and municipal retirees are eligible for health insurance benefits after they retire if they have completed 10 years of creditable service. The employer pays a portion of the premium – at least 50 percent and often more – which is termed the maximum benefit.

Under H. 59, future employees and some current employees would need at least 20 years of creditable service to be eligible for health insurance benefits when they retire. The employer’s share of the retiree’s health insurance premium would be prorated for those with more than 20 years but fewer than 30 years.

The following is a summary of key provisions of the bill. More details are available here on the MTA website. The bill itself is available on the Legislature’s website. Click here to be directed there.

  • Current retirees would retain all benefits and municipalities would be forbidden from reducing benefits for retirees once they qualified for a given level of benefits.
  • The 60 small communities that do not provide retiree health benefits to surviving spouses would have to do so.
  • There would be no change for those eligible for accidental disability benefits.
  • The following would be grandfathered in: Full benefits for current employees with 20 years of service who are within five years of retirement eligibility and for those who are at least age 60 who have completed nine years of service; partial benefits for those who are at least age 50 and have completed 15 years of service.
  • For new employees and current employees who are not grandfathered in, health benefits would only be available to retirees who have at least 20 years of creditable service. Employers would pay 50 percent of the premium for those who have 20 years of service.
  • The employer’s contribution for those who have more than 20 years of creditable service would be prorated until the maximum benefit level was reached for those with 30 years.