Corina Lee

August, 2011

Over the last several months, I have written about City Council’s ordinance, effective July 15, 2011, that would freeze future increases to the retiree medical subsidy for active members. Members have asked why the implementation date was July 15th and not the 1st, the start of the fiscal year. The answer is that the City’s contribution toward the retiree medical subsidy was due to the pension fund on July 15th. The ordinance’s details are still being worked out. The information below is what we know as of the writing of this article. We will immediately notify the membership of more information as it becomes available.

1. If members agree to opt in, the maximum cap is 2 percent of base pay, and it will never increase beyond 2 percent.
• The 2 percent base pay contribution is post-tax, and members will be vested in all future increases to the retiree medical subsidy.
• The reason the 2 percent is taken post-tax is because participation is optional, not mandated. Attorneys advising the city administrative officer (CAO) stated that had the contribution been mandated for all members, it could have been made pre-tax. The optional portion goes against Internal Revenue Service (IRS) general rules of accounting.
• The League and (CAO) are attempting to get a private letter ruling from the IRS to see if the 2 percent can be pre-tax.

2. The 2 percent contribution ends when you retire or after you have contributed into the program for 25 years.

3. The opt-in is non-revocable. The ordinance may allow for additional opt-in periods in the future; however, the terms and conditions may not be the same as today’s. Again, the ordinance may allow future opt-ins, but this is not guaranteed. If additional opt-ins are approved, the subsidy will start at $1,097.

4. The ordinance also states that City Council can periodically review the program, depending on the economic conditions, to discuss modification or elimination of the plan. Modification does not mean increasing the 2 percent for members who opted in during the open enrollment period.

5. The tentative opt-in period has not yet been set. Once the opt-in period has been set, members will have 45 days to opt in.

6. Members who are on active military, IOD or off payroll will have 45 days to opt in to the program once they return to work.

7. After July 14, 2011, if a member goes into DROP, the member would have to continue to pay the 2 percent of base salary until the member actually retires and exits DROP.

8. The Dispute Resolution Committee will be made up of one member each from the League and the Department, as well as the CAO.

9. The committee’s decisions are final. (Example: member divorces, etc.)

10. At this time, the Pension Department will be responsible for administering this program.

Please see the following list of questions and answers that members have been asking.

This summarizes the pending changes to the retiree health subsidy to help you understand your retiree benefits and options. It is not intended to advocate any one position. The answers reflect the most current information available as of July 8, 2011. The League is continuing to negotiate unresolved issues with the City. This document will be updated as the League becomes aware of any additional information.

Q: Who will be affected by the retiree health subsidy freeze?
A: The freeze will affect anyone retiring or entering DROP on or after July 15, 2011. Members intending to retire or enter DROP before the July 15, 2011, subsidy-freeze date must submit their paperwork to Los Angeles Fire and Police Pensions (LAFPP) in person or by notarized fax by 1700 hours on July 14, 2011.
Q: Will the retiree health subsidy freeze also impact the dental subsidy?
A: Yes, your medical and dental subsidies in retirement will be impacted by the freeze.
Q: What is the 2 percent contribution based on?
A: The 2 percent post-tax contribution will be based only on your base pay and not on any bonuses that you receive, such as longevity, hazard, special, bilingual pay, etc.
Q: Why is the 2 percent contribution post-tax and not pre-tax?
A: Unlike your pension contribution, the 2 percent contribution is calculated post-tax because it is a voluntary contribution. Per IRS guidelines, such voluntary contributions are not tax-exempt.
Q: What will the 2 percent contribution guarantee?
A: Members who choose to make the voluntary 2 percent post-tax contribution will become vested in future retiree health subsidy increases that are authorized annually by the LAFPP board. The LAFPP board has the authority, without City Council’s approval, to increase the retiree health subsidy by up to 7 percent annually, based on the rate of medical inflation.
Q: When does the opt-in period begin?
A: The opt-in period has not yet been determined, but is anticipated to begin within the next couple of months and will last for 45 days.
Q: Is the 2 percent contribution retroactive to July 15, 2011?
A: No. However, the 2 percent contribution will be retroactive to the first day of the opt-in period, which has not yet been determined.
Q: How does this freeze impact members who retire on or after July 15, 2011, but before the opt-in period begins?
A: It is unknown at this time. The League is currently negotiating this with the City and will provide information as soon as it becomes available.
Q: If I elect to opt in and make the 2 percent contribution, how long will I have to contribute 2 percent?
A: You must contribute to the fund for 25 years or until you retire. Contributions will also continue if you elect to opt in and subsequently enter DROP.
Q: Does the 2 percent contribution end after 33 years of service, like my pension contribution?
A: No, your pension contribution ending date will have no impact on your 2 percent contribution ending date, which will occur after 25 years or when you retire.
Q: Can the City raise my 2 percent contribution rate after I opt in, and can I opt out after I opt in?
A: Your decision to opt in will create a binding agreement with the City and will not be increased above 2 percent. However, while your 2 percent contribution rate cannot be increased, you also cannot opt out after you opt in.
Q: What options will I have if I choose not to opt in during the upcoming opt-in period?
A: The way the ordinance is written, the City could have another opt-in period in the future. However, that would be negotiated separately with the League, and there is no guarantee that it will happen or that the terms will be the same. Furthermore, you would not be entitled to any retiree health subsidy increases that occurred during that time period. Any increases for which you become eligible would be based on the currently frozen benefit level of $1,097.41.
Q: What happens if I opt in but retire at 50?
A: You will stop making contributions when you retire, and although you are not eligible to receive the subsidy until age 55, you will be vested in the benefit increases that occur from your opt-in date.
Q: Will any exceptions be made if I do not opt in during the 45-day opt-in period?
A: The Dispute Resolution Committee (comprised of representatives from the League and the Department, as well as the city administrative officer) can consider requests based on personal hardships and will render decisions on a case-by-case basis. The Dispute Resolution Committee’s decision will be final. If an employee does not opt in and is later killed in the line of duty or becomes totally disabled during the course and scope of duty, the affected parties will be entitled to receive the retiree health benefit, along with any annual increases authorized. If an employee did not opt in because the employee was on a military deployment, off on long-term disability or off payroll, the employee will be allowed 45 days to opt in upon their return to work.
Q: What happens if my spouse/domestic partner and I both work for the Department?
A: Because the retiree health subsidy covers two-party plans, you may choose one of three options:

1. One spouse/domestic partner pays 2 percent and the non-paying spouse/domestic partner receives cash in lieu; or

2. both spouses/domestic partners pay 2 percent; or

3. neither spouse/domestic partner pays 2 percent.

If only one spouse/domestic partner contributes the 2 percent and the marriage or partnership terminates, the non-contributing member can request to opt in through the Dispute Resolution Committee, which will consider the non-contributing member’s request to opt in on a case-by-case basis. If approved, any increases the spouse/domestic partner becomes eligible for would be based on the currently frozen retiree health subsidy benefit of $1,097.41.

If you have any questions, feel free to contact me at (213) 792-1089 or send an email to corina@lappl.org. Be safe.