City to cut contributions to future retirees
The city will curb its contributions to future retiree benefits for city workers to try to cut a massive and growing liability on city finances, Mayor Sylvester Turner announced Wednesday.
The changes focus on trimming the city’s share of medical, life and prescription drug insurance costs for retired city workers and their dependents and survivors, known as other postemployment benefits, or OPEB.
The city spends tens of millions of dollars on those benefits every year and faces an unfunded liability of more than $2.2 billion after years of deferred contributions and growing medical costs. Houston uses a pay-asyou-go system for paying those benefits, which is like making a minimum credit card payment.
The benefits for current retirees will not change, Turner emphasized. The city, though, will stop subsidizing part of those benefits for employees hired after this year. For current workers, the city’s contributions will be based on their years of service in 2022, and some may see a reduction in their subsidies.
The liability was expected to grow to more than $9 billion over 30 years. With the changes, Turner said, his administration expects to cut that by more than half, to $4.3 billion.
The changes are “lifting another significant financial barrier for the city,” Turner said. “I think it’s very important for us to enhance our financial viability and stability in the city as we move forward, so I’m very pleased to make these announcements.”
Roy Sanchez, president of the Houston Organization of Public Employees Local 123, said the
municipal employees’ union still was reviewing the changes and planned to discuss them with city’s Human Resources Department on Thursday.
In his first term, Turner shepherded a pension reform plan — approved by Houston voters and the state Legislature — that sought to tackle an $8.2 billion liability. He said Wednesday the package has trimmed that liability to roughly $1.5 billion.
The mayor said Human Resources will hold meetings for current workers to educate them about the changes.
The revisions come after two consultants recommended a slew of potential changes to address the deficit. PFM, a Philadelphiabased firm that helped the city craft a 10-year financial plan in 2017, said the city should eliminate the coverage altogether for retirees and dependents who have access to other coverage.
Turner then hired Segal Consulting to study the OPEB liability in particular.
It recommended, among other ideas, capping the amount the city pays to the less expensive, privately administered Medicare Advantage plans, which requires less than half the subsidy the city pays for traditional Medicare. About two-thirds of the city’s retiree health care payments go to workers over the age of 65, who are eligible for Medicare.
City officials cheered the change.
“This is another huge stride in keeping Houston from a financial nose dive with these kinds of unsustainable, structural problems within our budget,” said At-Large Councilmember Sallie Alcorn, who has focused on implementing the city’s long-term financial plan. “I think this goes a long way toward Houston achieving a structurally balanced budget.”
At-Large Councilmember Letitia Plummer offered the mayor “huge kudos.”
“It is so great to hear that, it’s amazing to be able to enter the new year with more of a balanced budget,” Plummer said.
Controller Chris Brown, who has called for action to trim the deficit, said his office looks forward to reviewing the plan and monitoring its progress.
“Although it has been more than three years since the controller’s office sounded the alarm on this issue, we’re glad to hear the administration and council are moving forward with a plan to secure retirement benefits for city employees and address another growing unfunded liability,” Brown said.