Executive Neuman Raises Red Flag on 'Unsustainable' Retiree Benefits

In a letter to county employees, County Executive Laura Neuman called for sweeping changes to employee retiree benefits, after a looming $1.3 billion is estimated to be paid out over the next 30 years due to underfunded benefits.

Neuman hosted a series of town hall meetings for county employees throughout the month in an effort to take their temperature on issues of concern—among them the county's retiree health care benefits.

A committee consisting of three County Councilmen, and representatives of the county's collective bargaining unions recently released their report to Neuman on the issue, and she in turn drafted a letter outlining the problem to employees.

Neuman's complete letter to employees follows:

Dear Colleagues:

When I became County Executive in February, one of my first priorities was to  communicate better with employees and citizens; I wanted to have open and frank discussions. I learned early on that we have dedicated employees who care deeply about the work they do and about our County.

One thing that I found alarming was that the retiree health care benefits promised to County employees had not been adequately funded. In fact, three members of our County Council along with representatives from employee unions have studied this issue for two years; and I applaud their hard work. It is clear from their report that this situation will only worsen if it is not addressed now! Talking to you about this issue is one of the reasons we have been holding a series of employee town hall meetings. If we have a concern, I want you to hear about it from me – not in the press and not from word of mouth.

When you retire, the cost of your health care insurance is an expense that, as you age, only becomes more important to you and your family. County employees have come to expect health care benefits in retirement so, as a result, we must take the necessary steps to ensure that our workers will have health care insurance available to them.

To date, the County has underfunded the amount needed to pay the costs of retirees’ health care benefits – commonly referred to as the OPEB (other post-employment benefits) unfunded liability. The number most often discussed is an annual funding need of $72 million. The latest actuarial figures, however, put this need at a much higher level; in fact, we will need $110 million annually – 53% more than the $72 million we originally thought. This has resulted in retirees’ health care benefits being underfunded by $1.3 billion.

Just to put the numbers in perspective, $1.3 billion is the equivalent of $2,400 for every man, woman and child in Anne Arundel County. If we just funded the annual shortfall, we would need to have every man, woman and child pay $160 each every year for the next 30 years. That $1.3 billion deficit grows every month and puts us all at risk.

Today, County employees and their spouses are receiving, upon retirement age, a health care benefit for which the County pays 80% of the health insurance premium costs.

Important to note is that retirees are eligible to receive that benefit after having worked for the County for only five years. Public safety workers are eligible after 20 years of service.

The cost of providing that level of benefits is simply unsustainable. Benefit costs need to be managed through changes to the amount Anne Arundel County will share in the employer’s costs, as well as the number of years an employee has to work before becoming eligible for this particular retirement benefit. This is the conversation that we must have.

Working together – the County Council, my administration and employee unions – have some ideas for putting the retiree health insurance program on a sound financial footing and are looking for suggestions that might be even better. The only bad idea is failure to act which would put all of our futures at risk.

Lately, there have been a lot of stories about Detroit going bankrupt. For many of us, we think something like that couldn’t happen here. Our employee retiree benefits crisis puts us closer than you think.

There will likely be legislation proposed in October affecting the County’s retirees’ health care benefit program to bring the County’s costs under control. So that you can make informed health care decisions, I will continue to update you on this matter.

In the meantime, we will have additional employee town hall meetings on October 10 from 7:30-9 a.m. at the Utility Operations Center, First Floor Lobby, 445 Maxwell Frye Road, Millersville, and from noon-1:30 p.m. at the Heritage Complex, Courtyard.

I encourage you to submit questions at myquestion@aacounty.org, or make a suggestion at mysuggestion@aacounty.org.

Sincerely,

Laura