News Story

City Pays Pension and Benefits to Almost Twice As Many Retired As Current Workers

Allen Park's benefits busting the budget

Allen Park is well known for the fiasco surrounding a failed $30 million movie studio the city government got involved in, but that's only part of the problem.

Allen Park also is being held hostage by a pension and a retiree health insurance program that is only a dream to people who work in the private sector.

Typically, Allen Park's government union workers retire in their 50s, earn close to full salary with mid-career overtime loading, and get lifetime health, dental and vision care for themselves and their dependents for no more than $1,100 a year, according to city documents. 

The city is trying to reform the health care package but retirees are threatening to sue.

Allen Park, however, may have some leverage on health care. The city's charter gives the city the right to modify its retiree plan as long as it provides another comparable one. 

The city says it could save at least 18 percent on its annual $3.73 million retiree health care bill by getting retirees to pay up to $25 more on their prescription co-pays. Currently, the maximum co-pay on drugs for most retirees is $5. Allen Park also is trying to get retirees to pay a $20 copay on office visits and $150 for emergency room care. 

"Not only could this plan save the city over $1.5 million a year, there is the added benefit of behavioral change," said Veronica Poremba from Advisors Financial Group, the agency that put together the new plan, adding that higher co-pays discourage unnecessary care. 

The city is hoping to also get some control on retiree health care costs because there is none when it comes to promised pensions. Pensions are liabilities that can be enforced by courts.  If a city runs out of money, a judge can order taxpayers to pay more. 

Right now, Allen Park has moved to a defined contribution plan for new employees, similar to a 401(k) plan, but police and firefighters are exempt. Police and firefighters make up the largest percentage of the city's staff. 

The city charter allows the city to "provide a board of trustees to independently administer the retirement system," but there is debate about the word "independent."

Five people sit on the board — a person appointed by the police and fire departments, a person appointed by the city’s other union workers, a person appointed by the mayor, the city financial director and a retiree. 

"Our role is not to make changes to contracts; we don't make those decisions," said Ellen Templin, who represents the city's union workers.

In its most recent year, Allen Park paid $6.9 million dollars for pensions, which represents nearly half of the city’s proposed operating budget. The city pays pensions out of a separate fund, but ultimately the money comes from taxpayers. 

Nearly half of all retirees collect more than $30,000 a year, according to city documents. The top pension earner collects $81,660 annually, or $2.04 million over a 25-year period. Police and firefighters can ramp up their pensions by accumulating overtime shortly before they retire. Their contracts allow them to average the best three out of their previous 10 years of work.

In 2008, employees collected nearly $346,000 in overtime. One employee had an overtime bill of $8,680. He is now collecting a pension check of $6,427 each month.

The city employs 115 people. It pays pensions and benefits to 229 former workers.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.