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Retirees fret as Shelby County Schools eyes retirement benefits

From left: Daisy Cleaves, president of Shelby County's Retired Teachers Association, discusses retirement benefits with teachers union president Keith Williams and retiree LaVerne Dickerson.
From left: Daisy Cleaves, president of Shelby County's Retired Teachers Association, discusses retirement benefits with teachers union president Keith Williams and retiree LaVerne Dickerson.
Daarel Burnette II

When Daisy Cleaves became a special education teacher in Memphis almost 50 years ago, she knew the $500-a-month job wouldn’t make her wealthy but she expected a steady income and, one day, a comfortable retirement through her pension and benefits.

Now 70, retired and president of Shelby County’s Retired Teachers Association, she finds herself on the verge of a fight in behalf of 8,000 retiree members who depend on financially strapped Shelby County Schools in their retirement.

Next Tuesday, Superintendent Dorsey Hopson is expected to present proposed changes in the district’s retirement plan at an estimated savings of $9 million. The proposal would increase the amount retirees under age 65 contribute to their health care insurance from the current 34 percent to almost half. He also wants to drop all retirees’ spouses from the district’s self-insured plan.

“They’re trying to balance their budget on the backs of the people who can least afford it,” Cleaves said this week, noting that some retirees live at or below the poverty level and suffer from chronic diseases such as diabetes, Alzheimer’s or cancer.

The district is responding to pressure from the state and Shelby County government to pay down its liability for Other Post-Employment Benefits (OPEB), which are retirement benefits such as health care and life insurance but excluding pensions. Last year, the district’s OPEB liability rose to $1.4 billion — close to the amount the district spends on K-12 education in an entire school year.

By not paying down the liability, the beleaguered district could face bankruptcy, according to Mike Swift, director of administration and finance for Shelby County government.

Hopson has said the district has no choice but to revise its retirement benefits and has suggested that those who are impacted should sign up for the federal Affordable Care Act, which was signed into law in 2010 and expands Medicaid coverage to millions of low-income Americans.

“Someone made a decision 40 to 50 years ago to offer more benefits to employees,” Hopson said during a recent radio program. “At the end of the day, we’re feeling the effect of those decisions because nobody put the money aside for those benefits.”

Formed in an historic 2013 merger of two large school districts in Memphis and Shelby County, Shelby County Schools is beset with financial and academic challenges. During the last two years, Hopson and the district’s Board of Education have worked to get the school system’s house in order under the weight of dwindling student enrollment, expensive academic intervention programs and decreasing property tax revenue. Last month, the board voted to cut $125 million from next school year’s budget by laying off more than 350 employees, closing schools and pulling $25 million from its savings account.

The merger consolidated two districts that were self-insured and for decades had pledged to maintain employees benefits in retirement. Medicare would pick up a portion of those costs once retirees turned 65.

In the last decade, however, health care costs have outstripped inflation while the area’s population has aged. The former districts, meanwhile, failed to keep up with the cost of health care and allowed their actuarial costs to balloon. For example, the former Memphis City Schools paid just $12 million toward its $1.1 billion liability, while the former Shelby County Schools paid $3.8 million toward its liability estimated at $342 million. Last year, the merged district paid $12 million toward its $1.4 billion liability.

A 2014 state law requires local governments to pay 100 percent of their actuarial pension plan costs in the next six years. It stipulates that a district cannot change its pension plan but can revise health care benefits, according to county officials.

Swift wants the district to pay the “actuarial” costs of its health insurance program — estimated at between $30 million and $40 million annually — to have enough money accumulated to fund all benefits.

School administrators don’t know how much the district will have to pay this year toward its OPEB fund because health care costs and the number of retiring employees fluctuates annually.

During a budget hearing last week before the Shelby County Commission, during which school administrators asked for an extra $15 million in funding, several commissioners prodded Hopson to make larger OPEB payments.

“It’s important to us that they evaluate their priorities and deal with the issue,” Swift said.

Elected school leaders have urged administrators to explore how to make cuts. “We can’t ignore it,” said board member Chris Caldwell. “The big question mark is how much [do you fund it]? You have to balance at this juncture the needs of the children and the long-term consequences of not addressing it.”

Since the merger, several tweaks ordered by district leaders have caused the costs of insurance premiums and prescriptions to increase and teachers and retirees to gripe.

Earlier this year, the district changed its health insurance provider from Blue Cross Blue Shield of Tennessee to Cigna, at a cost savings of $3.8 million. Blue Cross Blue Shield recently filed a lawsuit over the bidding process.

Last month, David Pickler, a former school board member and the financial adviser for the Tennessee School Boards Association’s trust account for employee retirement benefits, resigned amid complaints that he didn’t properly invest the district’s contributions worth about $36 million, exposing the district to market swings.

Such issues are rarely discussed or shared with leaders of the county’s largest teachers union, even though they directly impact members, said Keith Williams, president of the Memphis Shelby County Education Association. “They’re doing this to the retirees because they don’t have to look them in the face every day,” said Williams, who suggests that district cuts come from the salaries of central office staff instead of from the pockets of retirees.

Proposed benefits changes that are expected this month from Hopson would be far more sweeping and permanent than previous tweaks. Among the items he’s suggested are the elimination of retirement health insurance for employees hired this year after July 1, and increasing premiums for retirees who smoke.

For her part, Cleaves has spoken with a lawyer but fears her 749-member organization, which charges annual dues of $10, won’t be able to afford a legal challenge. She plans to comb through the union’s past contracts to look for promises made.

“It’s not our fault that the district didn’t put enough money aside for the future,” Cleaves said.

Contact Daarel Burnette II at dburnette@chalkbeat.org or (901) 260-3705.

Follow us on Twitter: @Daarel, @chalkbeattn.

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