As North Riverside searches for dollars to fund its police and fire pension obligations, officials have proposed privatizing the fire department, slashing police overtime expenses, deferring capital projects and reducing staff hours in other departments.
But there’s one source of funds village officials so far have avoided, a huge expense that the village is under no obligation to continue — lifetime health insurance for non-union employees and firefighters hired prior to 2011 and to police officers hired prior to 2014. The perk extends not only to the employees, but to their spouses as well.
New hires are not afforded the retiree health insurance perk.
“To me it’s a good first step to have ended it,” said North Riverside Mayor Hubert Hermanek Jr. “It’s been addressed, but we will not see the benefits from that decision for many years.”
Retiree health benefits are part of the police union contract and were part of the firefighters’ contract, which expired on April 30. But those benefits, unlike pensions, are not mandatory subjects for collective bargaining and they are not protected by the state of Illinois’ constitution.
Because retiree benefits fall under the heading of “permissive” subjects for collective bargaining, if the village wants to modify, phase out or eliminate retiree health insurance from future collective bargaining agreements, it can.
The village could also modify, phase out or eliminate retiree health insurance for non-union employees who either currently receive the benefit or are grandfathered into the plan per village policy.
There was some thought that a July 3 Illinois Supreme Court opinion regarding changes to state pension systems might also extend to strictly municipal post-retirement health insurance plans like North Riverside’s.
But lawyers for the both North Riverside Firefighters Union and the village itself agree that the perk is not one the village is obligated to continue to provide. The village itself has modified the benefit already by eliminating it for new employees.
“The state systems are different from municipal systems,” said J. Dale Berry, attorney for North Riverside Firefighters Union Local 2714. “I don’t think it applies to municipally provided plan [like North Riverside’s].”
North Riverside Village Attorney Burt Odelson agreed.
“It is permissive subject matter for bargaining,” Odelson said. “It could be modified, and with the rising cost of health insurance it’s something that’s always on the table.
“The constitution doesn’t guarantee you post-retirement health benefits.”
According to the most recently available village financial audit, from fiscal year 2012-13, there are 54 retirees taking advantage of this perk and 62 village employees who will be eligible for the perk once they decide to retire.
An actuary hired by the village estimated in 2013 that the future burden of retiree health insurance would amount to more than $27 million. That is $10 million more than an actuary estimated the plan would cost the village in 2010.
According to its 2013 financial audit, North Riverside between 2010 and 2013 contributed more than $2.3 million to fund the post-retirement health insurance plan. During that same time, the village contributed just $500,000 to its police and fire pension funds, combined.
That same report indicated that in 2013, the village’s annual required contribution to the retiree health insurance plan was $2.2 million (the village actually contributed $613,348) — which is more than the roughly $1.9 million combined police and fire pension obligation budgeted for the 2014-15 fiscal year.
The difference between the two benefit plans is that while the police and fire pension contributions are required by law, the post-employment health insurance payments are not.
The village, judging by the amount it contributed to the plan in 2013, could save itself more than $600,000 annually by discontinuing the retiree health insurance plan altogether.
By privatizing the fire department, the village estimates it can save at least $700,000 per year.
However, modifying or eliminating the post-retirement health benefit in North Riverside has not been proposed. Instead, officials are concentrating on their proposal to privatize the fire department.
“Right now [retiree health insurance is] beyond the realm of something we’d act on,” said Hermanek.
But if the choice was between slashing services and looking at changes to that perk, said Hermanek, it could be considered.
“If it’s between that and more drastic cuts, it should be addressed,” Hermanek said. “It’s going to depend on what happens in the next year or so.”