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June 27, 2013
CITY OF GROSSE POINTE — Employees in the public service department agreed this month to cancel their open-ended retirement health benefits.

New terms apply to current employees, except those within two years of retirement.

A second change in benefits applies to new public service employees.

New hires won't receive defined benefit retirement packages. They'll get 401(a)-style defined contributions instead.

Both packages, retiree health and retirement plans, now require employees to pay into the municipal retirement system.

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Their participation takes some pressure off the revenue-strapped city budget.

City Manager Peter Dame thanked the employees.

He cited their "understanding financial challenges the city has gone through and continues to face, in terms of what we've historically promised to employees."

Those promises, made years before the real estate bubble burst and caused municipal property tax revenue to plummet, are "simply unaffordable under the system of finance in the state of Michigan for local governments," Dame said.

Although it is becoming more common for employers to change retirement packages for future hires, the city's new public service heathcare policy breaks ground because it applies to employees currently on the payroll.

"The agreement is a landmark agreement in the city's history," Dame said. "It is important to the financial stability of the city moving forward."

Defined contribution pension plans reduce variables in budget forecasting.

"A defined contribution pension program is a much easier means for the city to manage its future financial demands because we know exactly how much we're going to have to set aside every year," Dame said.

Health

The new health plan replaces defined benefits with health retirement accounts, or HRAs.

"The new HRA will require employees to contribute 2 percent of their salary to the account, while the city will be required to contribute $150 per month," said Kim Kleinow, finance director.

The city also must deposit $1,800 in the account of each employee for each year of employment.

"They'll get $1,800 for every year they've been here," said Councilman John Stempfle.

"We'll prorate it for partial years," Kleinow said. "This program is vested immediately. All the employees in here will be vested at 100 percent."

Retirement

New retirement terms apply to future hires, not current employees.

New hires receive defined contribution plans.

"New employees will be required to match 5 percent of their wages," Kleinow said. "The city will match that by 5 percent. This program has an eight-year vesting. Once (employees) reach eight years, they'll be entitled to their contributions and the city's."

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