OCEAN CITY – The question of whether Mayor Rick Meehan will veto ordinances involving newly hired town employee retiree benefits lurks overhead today.
In January, the mayor vetoed a series of ordinances involving newly hired town employees’ pay and benefits. The two ordinances that have been in the spotlight most recently involve retiree pension and health plans.
The majority of the council has formed a new retiree pension plan ordinance, stating that the plan for new hires will be a defined contribution plan, a change from the current town employees defined benefit plan. The level of mandatory employee contribution is 5 percent of annual straight time pay with employer match and the employee may contribute up to an additional 2 percent of annual straight time pay, with employer match. The vesting schedule will be upon an employee’s first year, with the employee receiving a vested amount of 20 percent of the town’s contribution. That amount will increase by 20 percent every year, reaching 100 percent after five years.
Councilman Joe Hall said that it has “been put out there that this hurts the employee” and he does not see it that way. He said that the defined benefit plan has worked for the current employees and understands why those employees like the plan, but he feels there are fewer guarantees than the defined benefit plan will provide to them down the road.
“There is nothing a future council can do to take that money [defined contribution] away but each and every budget year, whatever council … can do what they want to a defined benefit plan … it’s the defined benefit plan that is at risk,” he said. “The defined contribution plan that is going to be put in place now is in the employee’s hands and it’s in the employee’s risk of how they decide to invest their money.”
Meehan responded that the council at any time can change the town’s contribution of the defined contribution plan as well.
“It still has the vulnerability that a defined benefit plan would have,” he said.
Meehan added the potential extra cost the defined contribution plan is going to create is going to be about $50,000 in the first year and through the next five years it is gradually going to go from about $51,000 to a little over $200,000 a year.
“When we get to the year of 2030, the extra cost to the tax payers will be about $950,000,” he said.
The council voted to approve the ordinance in second reading by a vote of 4-3, with Councilmen Doug Cymek and Lloyd Martin and Councilwoman Mary Knight in opposition.
The majority of the council also formed a new retiree health care option stating that if an employee elects to participate in the high deductible health plan, Ocean City will contribute an amount to the employee’s Health Savings Account (HSA), which the employee can utilize to satisfy deductible charges and allowable medical expenses. The plans include single coverage with a $1,200 deductible, and a $1,500 contribution to the HSA, couple coverage requires a $2,400 deductible and a $2,800 contribution to the HSA, and family coverage includes a $2,400 deductible and a $3,000 contribution to the HSA. It also states that employees hired on or after Jan. 1, 2012, upon retirement or after 25 years of service, the retiree may participate in any of the municipal health plans by paying 100 percent of premium cost.
The mayor adamantly opposes the proposed ordinance. He said that the high deductible has its place in the system but does not agree with the closing of the current retiree health plan.
“I think that’s a mistake and I don’t think it is good business,” he said. “If we change this plan and amend it … to go and utilize a soft cap program, we can reduce our long-term liability by about $12 million. That’s a good business decision.”
Meehan said by placing a soft cap on the current plan it would cap the town’s costs over a period of time and gradually shift the share in expense from an 80-percent cost share made by the town and a 20-percent cost share made by the employee.
“I think that everybody understands the increased cost in health insurance and how difficult it is for companies and municipalities to continue to maintain those costs and those portions of that cost,” he said.
Meehan added that it is going to cost the town an additional $1.3 million this year if the ordinance is passed. If the town were to go with a soft cap plan, there is a projected savings of about $314,000 this year and moving forward that saving will be in excess of $1.5 million a year.
Councilman Joe Hall said he agrees with the mayor on the savings a soft cap would create for the town, but the majority of the council has been working to lessen the risk made on the employees and have maintained that. He added that a discussion on a soft cap would be appropriate during budget time.
“I hope you allow us to move forward with new hires by not vetoing these ordinances,” Joe Hall said.
The mayor responded by saying it is budget time. He added that the high deductible plan was never meant to be a retirement health plan but an option of health care. He said that if an employee does choose the high deductible health option it will save the town money over the cost of the HMO.
“We all know what health costs are today and those high deductibles if there is any expense at all will go very quickly,” Meehan said. “I think we can compromise, get the health savings account in place, don’t close the current plan, reduce our long-term debt, and continue to supply three choices of health care for our employees that are currently employed, and a good health benefit that is going to decrease the cost to the town moving forward and we should do it today.”
Joe Hall took his plea for the mayor to withhold any veto action to the media this week, taking out an ad seeking the community’s support.
The ad read, “Mayor Rick Meehan please don’t veto the defined contribution plan and new healthcare saving plan … Please join in the wisdom of FOP Lodge 10 in allowing the business of the Ocean City to move forward.”
Council President Jim Hall said that in “discussion with my fellow colleagues”, the majority of the council agreed with the mayor’s recommendations.
“It was our intention all along to make these changes for only new employees so we can get the new employees hired for the summer season and that’s why we pushed ahead on this particular ordinance,” he said.
The council president added that he agreed with the mayor on instituting a soft cap but that Monday night meeting was not the time to do it.
“We were hoping that we could pass this tonight and then amend and change it with a soft cap and have some more discussion because it is going to need more discussion to put a signature on it,” he said. “I think the consensus up here is we will go with a different plan as you have suggested, and we were hoping to get through this ordinance with the health savings account tonight.”
The council voted 4-3 to approve the ordinance to establish a HSA for new employees, with Councilmen Doug Cymek and Lloyd Martin, and Councilwoman Mary Knight in opposition.
In an interview yesterday morning, Meehan said using the veto was not his intention at this time.
“That’s not my plan. I don’t agree with everything that’s in both of the ordinances but I’m hoping I can work with council in resolving these issues,” he said. “I plan to talk to the council president and work with the council, I believe we need to make changes, I believe we need to know what the ramifications really are and have good understanding what the costs associated with those changes are and right now the changes to the retiree health plan that are being proposed will cost us…and I really don’t think that is the direction that the taxpayers want us to go.”