Minnesota Supreme Court sides with city of Duluth on retiree health plansA divided Minnesota Supreme Court found in favor of the city of Duluth on Wednesday, ruling that the city was within its rights to switch the health-care package it offers retired employees to match what it provides to active employees.
By: Peter Passi, Duluth News Tribune
A divided Minnesota Supreme Court found in favor of the city of Duluth on Wednesday, ruling that the city was within its rights to switch the health-care package it offers retired employees to match what it provides to active employees.
City Attorney Gunnar Johnson said he’s optimistic the decision will resolve the case, which has been in contention for three years and seven months, with rulings at the district court and the Minnesota Court of Appeals, before the Supreme Court’s findings.
“Every decision narrows the avenues for them to pursue. You can never say someone is not going to continue to fight. But at some point they need to decide if their case is viable,” Johnson said. “In my opinion, this decision pretty much closes the door.”
Don Bye, one of the attorneys representing retirees in their class-action suit against their former employee, said no decision has yet been made regarding a possible appeal.
Three of the Supreme Court’s seven justices dissented with the court’s ruling to uphold a summary judgment in favor of the city. Justices Paul Anderson, Helen Meyer and Alan Page contended the case should have proceeded to trial because of contract ambiguities.
“It’s disappointing to work that hard on a matter that’s so important to so many individuals and to come that close,” Bye said.
At a news conference Wednesday afternoon, Mayor Don Ness hailed the Supreme Court decision. He said the city had to take action or its retiree health costs would have spiraled out of control, putting Duluth at risk of bankruptcy. Ness pointed to a 2005 actuarial report that projected the city’s annual cost of providing retiree health-care benefits would rise to $12.5 million by 2012 if left unchecked.
Since all city employees, past and present, were placed on the same health plan with higher deductibles and co-payments, the annual cost of providing retiree health benefits has fallen to $9 million — a savings of about $3.5 million per year.
A recent actuarial report indicated the city still faces a $192 million unfunded liability related to retiree health-care costs, but that’s roughly half of the $378 million shortfall a 2005 report had forecasted by 2012.
The city had previously allowed employees who retired between 1983 and 2006 to lock in their health benefits on the date of their departure. This led to a proliferation of health plans offering different levels of coverage. At one point, the city oversaw 129 different plans, leading to administrative headaches and inefficiencies.
Ness said that switching to a single plan has made a big difference.
“By these actions, we’ve been able to put the city on a more sustainable path,” he said.
Ness said that retirees stand to benefit from the Supreme Court decision as well, saying it maintains the city’s solvency and its ability to keep its health-care commitments.
While the city prevailed in the matter before the Supreme Court, Bye said there’s still an unresolved issue left standing at the district court level. A Court of Appeals decision in September largely upheld a ruling by District Court Judge Kenneth Sandvik in the city’s favor, but it found that the judge had erred in prematurely dismissing the retirees’ “promissory estoppel” claim.
Promissory estoppel is a legal term that describes when one party makes a false promise to gain advantage over another party, causing financial harm in the process.
“The question is whether the city committed itself to providing lifetime coverage as understood by the appellants,” Bye said.
Johnson said he believes the court’s decision to uphold Judge Sandvik’s ruling that the city was on contractually sound footing when it offered retirees the same set of benefits it provides to active employees will trump any argument of promissory estoppel.