City’s retiree health-care problem mirrors feds' pension difficulty

Duluth’s obstreperous retired police chief Eli Miletich says the fight isn’t over yet, but the city may have found a partial solution

to the humongous finance hole it faced in paying

for retirees’ health-care benefits.

A District Court judge last month dismissed a class-action claim from a retirees group, including Miletich. Earlier, a state Supreme Court ruling had shot down another effort by ex-city workers to sweeten retirement health care.

Duluth Mayor Don Ness, who deserves great credit for taking on the issue, summed up the situation well. “It’s still a very generous benefit,” he said. “It’s far better than most Duluthians probably have.”

For most retired folks, post-work health insurance can be described in one word: Medicare. That’s the goal every government in America should have for retired workers. The nearly 50-year-old federal program works well (though it also needs financial reform).

In 2005, when the city began seeking to control costs, it had an unfunded liability estimated at $280 million, which was expected then to grow to $378 million by this year. With changes made since 2005, the unfunded liability is now estimated at $192 million.

I recently came across a similar problem facing another level of government and a different retiree benefit — a problem yet to be dealt with but which federal officials should worry a lot about.

The latest Kiplinger’s Personal Finance magazine discussed the retirement dilemma facing an Army sergeant. This was a regular feature in which editors counsel readers on financial issues, but it sheds light on a widespread financial problem for governments.

Army Master Sgt. Jason Alexander, 35, sought advice on when to retire, which he could do before age 40 after 20 years in the military. He wondered if he should stay for 30 years, when his pension would be much larger, but which would cause him to miss out on presumably higher income as a civilian in those 10 years.

Alexander now earns about $57,000 a year, with a housing allowance of $2,600 a month and pays no state income tax. I begrudge him none of that. The Army controls his life 24/7/365 and can send him to Afghanistan, where people might shoot at him.

But if he retires at age 39, he’ll get an annual pension of about $28,000 a year — and about $59,000 yearly if he stays for 30 years (when he’d still be under age 50) — and both pensions would rise with inflation.

Multiply this largesse by the millions serving in the military, money paid by a government that is trillions in debt and can’t find money to fix Medicare, Medicaid and Social Security. Congress can’t even deal with cuts it mandated for itself at the end of this year.

Obviously, the military can’t afford to retire people in their 30s and 40s to collect pensions for 40 years or more. A way must be found for them to do useful work on the federal payroll, with pensions beginning at a realistic age.

Sgt. Alexander is serving in Fort Belvoir in

Virginia as a hospital administrator. Clearly that work could be done by a civilian employee who’d retire much later. Or perhaps Alexander could do such work after his military career as he waited for a pension.

Local governments all over America face a parallel dilemma with police officers and firefighters who retire in their 40s or 50s. They must find a similar solution so public-safety workers can contribute after they’re too old to chase down robbers or enter burning buildings.

Surely our society is

capable of solving that problem.

Budgeteer opinion columnist Virgil Swing has been writing about Duluth for many years. Contact him at vswing2@chartermi.net.

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