Second Round of Voting on Retiree Health Agreement Begins Friday, September 9

MEA Strongly Recommends A “YES” Vote

Didn’t I Already Vote On The Retiree Health Agreement?

Yes.

Last May, MEA members overwhelmingly ratified this Retiree Health Agreement with 97.5% voting in support. In separate voting, the members of the other five (5) City labor organizations also ratified this same Retiree Health Agreement.

But, as we explained at the time you ratified the Tentative Agreement, your vote is needed a second time in this Citywide election under Charter section 143.1 before the agreement can be implemented.

Telephone Voting Begins 9/9: Don’t Wait!

Arrangements have been made for the San Diego City Employees Retirement System (SDCERS) to conduct this second round of voting in which all City retirement system members are eligible to vote. SDCERS will mail a package of information and instructions to your home address this week. Follow the instructions for utilizing the telephone voting system to vote YES when the voting begins on September 9. The voting period will remain open until September 23^rd. But don’t wait – you may forget. Vote YES as soon as the voting period opens!

Don’t Leave It To Others To Decide This Important Issue: Vote YES!

MEA’s attorney Ann Smith and your elected MEA Negotiating Team strongly recommend a YES vote. This Retiree Health Agreement includes concessions which were necessary for a compromise to be achieved but it is a far better outcome for employees than the alternatives we face. A majority NO vote would mean that the Retiree Health Agreement would NOT take effect and a whole new cycle of bargaining will begin. The Mayor and City Council will be free to shape a brand new proposal with a worse outcome than what we faced with the Mayor’s bad “last, best and final” offer this past May. In fact, because the City Attorney continues to argue that retiree health benefits are not “vested” like pensions and may be lawfully reduced or even eliminated, there is every reason to fear that, if employees reject this compromise Agreement, the Mayor’s new proposal might be to eliminate the retiree health benefit altogether.

This would leave us with litigation as our only alternative. But “rolling the dice” on legal action would mean that MEA members will suffer the consequences of a bad outcome (including the possibility of no retiree health benefit at all) while litigation takes its course in the courts over the next several years. And the reality is that the legal landscape has been made significantly worse by a federal court case which the Police Officers Association initiated and its attorneys mishandled such that an adverse ruling related to retiree health benefits has now been entered.

In contrast to this very worrisome picture, a majority YES vote will mean that the next steps will be taken to implement the Retiree Health Agreement and the risks of a worse outcome will be avoided.

Getting Re-Acquainted With the Details of the Retiree Health Deal

The information packet which SDCERS is mailing to you this week contains a significant amount of information. As you know from the information MEA distributed prior to the ratification vote, there is no “short answer” to the question: what are the new Retiree Health benefits under this Agreement?

MEA urges you to read through the SDCERS’ materials for more information. In addition, for your convenience, we have attached to this message a copy of the actual Retiree Health Tentative Agreement (“Retiree Health TA”) and another copy of the detailed explanation we distributed prior to MEA’s ratification vote last May (“Retiree Health TA Ratification Information”).

You Are Voting the Deal “Up” or “Down” – You Are Not Choosing an Option

Please keep in mind that this second round of voting still does NOT involve the selection of your own individual retiree health option. Assuming that this Citywide election under Charter section 143.1 results in a majority YES vote, your individual decision about whether to choose Option A (limited eligibility), Option B or Option C, will be made sometime before February 1, 2012. Before that time, MEA will be providing additional information to help you make the best decision.

Additional Information about the New “Defined Contribution Option C”

Even though you are not choosing an option with your upcoming telephonic vote, MEA offers this additional information for those who continue to have questions about “Option C.” This is the new “defined contribution” option which many employees who are not eligible for Option A will likely be selecting (in addition to some employees who would be eligible for Option A). If a majority YES vote finalizes the Retiree Health Agreement, Option C will be available to every health eligible employee hired before July 1, 2005. Option C is a “defined contribution” funded by the City upon reaching retirement eligibility, with a projected average annual payout of $8,500 during the retired employee’s life expectancy depending on when the employee actually retires. Once the City funds an employee’s account, the City has no further responsibility to provide additional funds if, for example, the employee does not earn the assumed investment return (6%) on his/her invested funds, or if the employee exhausts the funds in his/her account before death.

For example, if an employee becomes eligible for the retiree health benefit (i.e., achieves the required 20 years of creditable service) at age 55, the City will make a defined contribution to his/her individual retiree health account in the amount of $101,505 (for females) or $98,987 (for males). Again, this money is deposited into the employee’s account upon retirement eligibility without regard to when the employee actually retires from the City.

What this means is that for those employees with 20 or more years of service credit at age 55, the projected retiree health account balance at the time of actual retirement would grow as follows:

Therefore, while each employee’s retiree health account will be funded at the time of retirement eligibility, the projected annual benefit payable from the lump sum deposited by the City will depend on (1) how well the employee’s investments perform and whether the 6% annual return is achieved; (2) the date the employee actually retires and begins to make withdrawals from the account; and (3) the amounts which the employee withdraws annually.

According to the City’s expert consultant, assuming the projected investment gains of 6% are realized annually, the projected payout amount will be $8,500 annually, on average, during an employee’s life expectancy. However, the “life expectancy” projection which the City’s consultant used in making this projection is also based on the assumed average age of retirement for General Members of SDCERS in effect for 2011 which is age 58.

Therefore, for those employees who actually retire before the average retirement age of 58, the projected annual retiree health benefit payout would be lower than $8,500 (approximately $7,600 annually for those who retire immediately at age 55). Conversely, for those employees who actually retire after the average retirement age of 58, the projected annual retiree health benefit payout would be higher than $8,500 (more than $10,000 annually for those who retire at age 60, and substantially more than $10,000 annually for those who retire between 60 and 65).

Although these projected annual payout amounts assume that an employee utilizes the same amount of money each year during his or her life expectancy after retirement, one important advantage of Option C is that, once retired, the employee retains complete flexibility to make withdrawals as needed. For instance, an employee may make larger withdrawals from this account during the pre-Medicare-eligibility years and reduce the amount of any withdrawals after Medicare-eligibility begins. Also, under the IRS rules applicable to this type of account, withdrawals for qualified medical expenses (including but not limited to health insurance premiums) may be made for the retiree, as well as for a retiree’s spouse or other tax dependents. And upon the retiree’s death, withdrawals for qualified medical expenses may continue to be made from any remaining funds until the retiree’s spouse or other tax dependents have all died.

If you will NOT have 20 years of creditable service at age 55, or if you plan to retire before you have 20 years of creditable service, please consult the attached chart “Option C Retiree Health Funding” which shows the modified amount of Option C funding which you will receive based on your individual circumstances of age at retirement eligibility and years of creditable service at actual retirement.

Again, be assured that this upcoming vote being administered by SDCERS does NOT require employees to make a selection of one of the three retiree health options as defined in the Retiree Health Agreement. You are voting the Agreement “up” or “down” as described above and no more. However, we wanted to clarify some aspects of the “Option C” benefit before you cast your vote – a vote we strongly recommend should be a YES vote!

As always, please do not hesitate to call your MEA representative at 619-264-6632 if you have any questions regarding the Retiree Health Agreement or the SDCERS voting process.

Retiree Health TA Ratification Information
Option C Retiree Health Funding
Retiree Health TA