Lansing's police contracts: Raises, fitness bonus but no retiree health care for new hires

LANSING — City officials are touting the elimination of city-sponsored retiree health-care benefits for new police department hires as a major victory in the city's struggle to control legacy costs.

Lansing City Council approved the terms of three-year police contracts this week, which instead establish retiree health-care savings accounts for police union members hired after Nov. 1, 2019.

The contracts, which took effect immediately upon being ratified by the council, also give raises to police officers, starting with 3% this year.

One contract covers 167 non-supervisory members of the police union and another covers 46 supervisory members.

Lansing is saddled with more than $700 million in unfunded liabilities because the city has not invested enough to pay retiree health-care and pension costs that will come due over the next several decades.

The changes, which follow months of negotiation between Lansing's administration and the Capitol City Labor Program, Lansing's police union, will make a "significant" dent in those legacy costs, Lansing Mayor Andy Schor said.

The city does not have a monetary estimate of how the health-care changes for police will affect the city's overall unfunded liabilities, Deputy Mayor Samantha Harkins said.

"it’s difficult to determine what the exact impact will be without an in-depth actuarial analysis based on projected new hires," Harkins wrote in an email.

Retiree health care eliminated for new hires

In addition to their pensions, retired Lansing police officers currently receive city-sponsored health insurance.

The new contracts eliminate that post-employment coverage for new hires, who will have health-care savings plans instead. Existing employees will be given the option of dropping the traditional retiree health-care benefit in favor of the savings plan.

"Health-care costs continue to exceed the rate of inflation," said City Council Vice President Peter Spadafore, an at-large representative. "To get a handle on that is a big financial win for the city, for the taxpayers."

The city's contribution to the savings plans will be 4% of base wages and police officers must contribute at least 3%.

Additionally, the contracts stipulate that health-care options for officers who retire after July 1, 2020 will mirror the plans available to active employees. Officers who retire between now and July 1 won't be subject to changes in health-care coverage that may affect active employees in the future.

"We felt the (changes) were necessary to ensure a healthy retirement for our members and a good financial situation for the city," Tom Krug, president of the Capitol City Labor Program, said. "We have a young police department. We're going to have a lot of retirements going forward."

Raises, performance bonuses sweeten the deal

To sweeten the deal, the new contracts offer raises of 3% in 2019, 3% in 2020 and 2.25% in 2021. The previous contracts guaranteed raises for officers of 2.5% each year for two successive years.

Under the previous agreements, employees classified as "police officer 1" had annual base salaries ranging from $46,815 to $67,391 in 2019, according to information obtained via a Freedom of Information Act request.

The raises take effect retroactively to July 16 for supervisory officers and to July 1 for rank-and-file officers.

Those dates reflect the end dates of the union's previous contracts, which remained in effect while negotiations were ongoing.

The new contracts also give officers a new $200 performance-based bonus if they pass a fitness test and increase their annual gun allowance from $250 to $500.

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Changes to pension calculations for some officers

Additionally, adjustments to pension calculations for some officers could further reduce Lansing's unfunded liabilities, although city officials declined to quantify what the impact would be.

Lansing police officers are eligible for full pension benefits at age 50 or after 25 years of service. They may purchase service credits to retire early.

Lansing calculates pensions for many police officers using a multiplier based on total years of service and total compensation, including overtime, over a two-year consecutive period when the officer's pay was the highest. 

A new formula, that applies to officers hired after July 1, 1999, will instead use a multiplier based on three years of highest compensation.

The city's police and fire pension system was 69% funded in 2017, according to a report submitted by Lansing to the Michigan Treasury. Lansing's retiree health-care system for police and fire was less than 20% funded, however, which was low enough to trigger a review by the state.

In its corrective action plan, Lansing cited plans to reduce its liability by negotiating changes to health-care coverage. Shelbi Frayer, Lansing's chief restructuring officer tasked with studying legacy costs, did not return a request for comment.

Contract negotiations with Lansing firefighters are ongoing. Local officials declined to comment on whether the elimination of retiree health care for new police hires could set a precedent as the city negotiates with its other collective bargaining units.

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Many issues contribute to shortfall

City officials say several factors, including rising health-care costs and longer life expectancies, have fueled the city's unfunded liability crisis. Additionally, due to staff cuts, particularly during the Great Recession, there are fewer active employees paying into the city's pension and health-care systems. 

Earlier this year, Lansing finalized changes that officials say will further reduce the city's legacy costs.

Department heads, mayoral staff and all non-bargaining city employees hired after Aug. 1, 2019 now have defined contribution retirement plans, funded primarily by the employee with a matching contribution from the city, instead of defined benefit plans.

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Contact reporter Sarah Lehr at (517) 377-1056 or slehr@lsj.com. Follow her on Twitter @SarahGLehr.

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