George Orzech, chairman of the Detroit Police and Fire Retirement System and a battalion chief in the fire department, is a year-and-a-half away from qualifying for a full pension but says he plans to retire now. (Max Ortiz / The Detroit News)
Should they stay or should they go?
Those are the questions hundreds of Detroit police officers, firefighters and other city workers are asking themselves as they try to choose between retiring now to lock in drastically reduced health care benefits, or waiting to see what might be offered in new union contracts coming later this year.
George Orzech, chairman of the Detroit Police and Fire Retirement System and a battalion chief in the fire department, says he isn’t taking any chances and plans to retire now. Orzech is a year-and-a-half away from qualifying for a full pension.
“I will leave,” Orzech said. “My wife has no health care benefits, besides mine, and you used to be able to have some health plan when you retired. I have two kids in college, but I have to have something. I’m going to take my chances and roll the dice with the group plan they’re going to design going down the road.”
Of 840 working union members, 235 firefighters qualify for a full pension now — most of them senior employees, said Jeffrey Pegg, president of the Detroit Fire Fighter Association. “A lot of actives think the health care is not going to be there,” Pegg said.
Unionized city workers who retire by the last day of the year would lose their guaranteed retirement health benefits, but would be enrolled in one of two health care trust funds.
The funds — called a voluntary employee beneficiary association, or VEBA — would be financed with $450 million from the city, one for police and fire employees and one for other city workers. In exchange, the city gets out from under its $4.3 billion retiree health care liability.
The VEBAs will decide what benefits would be provided, who would be covered and how to pay for it all for the rest of the members’ lives. The trusts will be established with less than the full amount needed to cover all future retirement benefits and could run out of money.
Because city unions still are negotiating contracts with Emergency Manager Kevyn Orr, workers don’t know what benefits they’ll receive if they retire after Jan. 1. Like Orzech, some think the VEBA is a better bet.
Between 200 and 250 police officers have filed preliminary retirement applications, according to Mark Diaz, president of the Detroit Police Officers Association. And with the police force at its lowest level in decades, he warned that the sudden loss of 250 senior officers — and their replacement with low-paid rookies who could quickly be recruited away — could deal a serious blow to efforts to improve policing in the city.
“We’ve been bombarded with questions from our members trying to find out what their options are at this point, and there are some significant variations in play for retirement benefits,” Diaz said. “If these guys want to retire with insurance they have to find employment elsewhere or retire before the end of the year.”
The fears of current workers weren’t eased by last week’s announcement that the city was offering current retirees who aren’t eligible for Medicare — which includes retired firefighters and police offers — a temporary insurance plan until the VEBA kicks in next year, featuring premiums as high as $3,128.93 for a couple.
But with union contracts coming, Detroit workers should wait and see, said Michael VanOverbeke, general counsel for the General Retirement System, who’s been deeply involved in negotiations during the city bankruptcy proceedings.
As of Friday, bankruptcy mediators announced they’d reached a tentative agreement on a new contract with American Federation of State, County and Municipal Employees Council 25, which included a promise that council leaders will urge their members to vote yes in balloting on proposed cuts to pensions and retirement benefits. The unions have until the end of June to hold their ratification votes on the contracts.
AFSCME represents 2,523 active employees, roughly 70 percent of the non-uniformed city workforce, and about 5,000 city retirees are former AFSCME members. Details of the proposed contract won’t be made public until after union members vote. But for now, at least some workers can compare the limited benefits of the VEBA against what they’ll get if they keep working, and what the new retirement benefits would be.
“I certainly wouldn’t say retire now,” VanOverbeke said. “I would think the motivation would be to retire in December when you can see what’s being offered. It could well be that the retirement program that goes into effect for future retirees will be better than the VEBA, especially since it will be funded today and for the long term.”
Another reason is that health care plans for active workers are likely to beat the VEBA offerings, which are likely to consist of stipends to allow retirees to purchase their own health care policies. Working longer also would mean current employees will continue receiving paychecks, shortening the amount of time they’ll draw on their pensions, which are being reduced in the bankruptcy.
“I know several people who have made the decision not to retire, and their decision was based on wanting active health care instead of retiree health care,” VanOverbeke said. “Most people want to receive the active health care now and for the next few years, which is much better than the retiree health care.”
City managers got a glimpse of what a mass retirement would look like a few weeks ago, when about 100 water department workers temporarily retired after they misinterpreted information they got as part of the voting process on the city’s plan for exiting bankruptcy.
Workers in the pension plan are creditors in the bankruptcy, and information in the city’s densely worded, 406-page plan of adjustment appeared to apply new, lower pension benefits to the pensions benefits earned in the past, said Mike Mulholland, 66, vice president of AFSCME Local 207, which represents about 950 water workers.
“It prompted a lot of people in management, particularly since they have the most seniority,” Mulholland said. “They were leaving fast, including whole management crews in some of the maintenance repair yards that fix the water mains. The sewage plant was a ghost town regarding management.”
Water managers called an emergency meeting with union officials, which lasted 4.5 hours, to clear up the confusion.
“Many of the people ended up coming back,” Mulholland said. “But for a minute there, it looked like total chaos.”