Shelby County school board hears options for addressing ballooning retiree benefits liability

Calling retiree benefits “a huge gorilla around our neck,” leaders of Shelby County Schools discussed options Monday evening to reduce the cash-strapped district’s swelling $1.5 billion liability.

As dozens of retired educators listened, administrators presented the Board of Education for Tennessee’s largest public school district with four main options — from cutting spouses from the plan to providing incentives to purchase health insurance through the federal Affordable Care Act.

Administrators say the district must pay down its liability costs for Other Post Employment Benefits known as OPEB, which are retirement benefits such as health and life insurance but excluding pensions. Last year, the legislature passed a law that requires local governments to pay their OPEB actuarial costs by 2020.

Currently, the self-insured school district pays for retiree health insurance costs as they occur rather than paying actuarial costs that amount to $124 million annually.

The district, which already has cut $125 million from its 2015-16 budget and asked the Shelby County Commission last month for additional funding for operational costs, was told by commissioners that any extra money received should go toward paying down its OPEB liability.

Administrators say the debt, if not reduced, will become an impediment to achieving the district’s mission of educating children and serving employees.

“We have a huge gorilla around our neck and it’s called OPEB liability,” Superintendent Dorsey Hopson told board members. “We’re going to have to make the best of some bad choices.”

Administrators are asking current teachers and retirees for feedback on options outlined on the district’s website including:

  • Writing retirees a monthly check in the amount of $10 for every year served — to go toward private insurance or insurance purchased through the Affordable Care Act — reducing the debt by about $430 million;
  • Switching district employees and retirees to the state’s employee health insurance plan at a cost savings to the district of $233 million. Administrators said the state plan provides better benefits than the district’s current plan. A switch would have to be voted on and approved by a majority of the district’s 10,000 employees;
  • Cutting all retirees’ benefits in 2020, reducing the district’s debt by $255 million;
  • Cutting district spouses from the plan, at a cost savings of $166 million

Board members questioned how the changes would affect teacher recruitment, how retirees would be impacted, and whether other options exist.

“It needs to be crystal clear that this board will not kick the can down the road,” said board member Kevin Woods.

Daisy Cleaves, outgoing president of the 8,000-member Shelby County’s Retired Teachers Association, said she was pleased that the latest proposed cuts aren’t as drastic as earlier proposals that would have reduced the district’s contribution to retirees’ premium by almost 50 percent. She also noted that district administrators and board members recently have been more communicative with her and other association members about the challenges and options faced by the district.

“At least they know that we’re here and alive and we’re going to fight,” she said.

Monday’s meeting was informational and did not include public comment. Public hearings on the issue will be scheduled.