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Cuts for retired teachers' healthcare benefits

Posted by dinouye  August 11, 2009 03:44 PM

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Announcement from Town of Hingham

Seeking savings for the town in a time of austerity, the Board of Selectmen has taken steps which significantly reduce Hingham’s long-term liability for retiree health benefits.

“Our forecasts showed that we had a huge financial obligation to our employees and this Board wanted to keep its commitment to our retirees. Ignoring the obligation is not something this Board would do,” said Selectman Bruce Rabuffo. “We believe we have readjusted our commitment to be one which we can actually keep.”

“Soaring health care costs threaten to overwhelm the town budget in the next decade,” said Board chair Laura Burns. “This action is necessary to keep the ship afloat.”

Town employees receive 50% reimbursement for their health insurance costs. “Hingham already pays the lowest percentage of its employees’ health care costs allowed,” said Selectman John Riley. “There is no room for savings there. However, a difference in the benefits received by retirees offered an opportunity.”

While non-school town employees continue to receive a 50% benefit after retiring, teachers and school administrators who retire have been receiving a 90% benefit since the mid-eighties.

The Board of Selectmen and the Hingham Education Association have signed an agreement which will progressively return teachers’ health benefit on retirement to 50% over time, and which will save $322,000 every year for the next thirty years. The administrators’ group and the Board have signed a similar agreement. The total savings should amount over $9.6 million.

The disparity in benefits originally resulted from an accident of history. In 1972, the Board of Selectmen voted to move teacher and school administrator retirees from the town’s health care plan to the state’s Group Insurance Commission (GIC) for “convenience of premium withholdings.”

At that time, all retirees received a 50% benefit. But in the mid-eighties, the GIC unilaterally raised its required contribution rate to 90%. While the difference in contributions for school and non-school employees was not highly significant then, as health care costs have skyrocketed over time, the difference between the two reimbursement rates came to represent a very large portion of the total liability.

“It was an option for the Board of Selectmen to simply set the reimbursement rate to 50% for current teacher retirees immediately,” explained Burns, “but the Board felt strongly that current retirees could not absorb such a drastic change, and it would be wrong to require it when they had already made their plans and retired based on different expectations.”

Instead, the plan calls for maintaining the current reimbursement rate for current retirees and for teachers and administrators who have at least thirty years of service in the Massachusetts School Retirement system as of August 31st.

Other teachers and administrators with fewer years of service will receive a lower reimbursement rate at retirement, depending on their years of service as August 31st. All new hires from now on will receive a 50% benefit upon retirement.

For legal reasons, the goal of paying different reimbursement rates based on years of service required an agreement between the town and the Hingham Education Association to set up a trust fund for making the payments.

“We would like to thank the Hingham Education Association and the administrators’ group for their cooperation in making the plan work,” said Burns. “Losing part of an employment benefit is a blow, and the unions worked with us to help soften it to the degree that we were able.”

“This was a difficult decision, and not one the Board took lightly,” said Selectman Bruce Rabuffo. “But like many towns, we knew that our rate of reimbursement was unsustainable, and we needed to pull back to a level of commitment which we felt the town could truly meet going forward. Leveling the benefit across all employees seemed like the fairest way to create savings.”

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