Memorial Health System has broken off negotiations with the state’s Public Employment Retirement plan – and is threatening legal action.
PERA claims that Memorial would have to pay $246 million if it becomes a private nonprofit, but that’s not the way Memorial executive see it.
The way Memorial views it: all Memorial employees would be terminated from city employment, and rehired by the nonprofit organization. Therefore, the hospital isn’t responsible for future pension payments for those employees.
The hospital says it will pay for fully vested employees, a total that would equal about $50 million, the figure the hospital used during the citizens’ commissions deliberations about the hospital’s future.
According to a press release from the hospital, negotiations with PERA are “at a standstill.”
“During this critical time, in which the city of Colorado Springs is trying to ensure continued access to affordable and high quality care, it is disappointing that a third party, such as PERA would attempt to tie the community’s hands in this way,” the relese said.
Memorial has spent months negotiating with PERA, and their last offer of $50 million was rejected by the organization’s board, with no counter offer given.
However, PERA did revise its orginal number downward, giving estimates of $150 to 4191 million. However, Memorial officials say even those numbers were estimates.
“PERA warned that those were early estimates and that it would not provide a final figure until an organizational change had occurred,” the press release said. “This too, would effectively kill the idea.”
Earlier this year, PERA spokeswoman Katie Kaufmanis said the pension plan’s position was supported by state regulations.
PERA must cover all workers — those who currently work at Memorial, as well as those who worked there in the past, she said.
“There’s not much room for discussion in the way it’s handled,” Kaufmanis said. “It’s pretty strictly laid out by state law. Our actuaries have to determine the future benefit both of retirees, and of people who are fully vested in the program.”
The actuaries determined the future benefit based on the number of vested employees, their average age, how long they worked at Memorial and how long they are expected to receive state benefits.
PERA divides its money into trust funds to be invested together. Memorial falls into the local government fund, and it is the largest employer there. Without Memorial’s contribution, the fund provides less money to be invested to benefit the programs as a whole.
Memorial has 4,183 employees, who represent 25 percent of the local government group. The next largest group is Boulder County, which has only 1,980 employees.
Without Memorial, there’s less money to be invested for all local government plans.
In recent years, PERA’s solvency has been questioned – and the legislature had to take steps to keep the pension plan afloat. Even with that fix, the plan still relies on 8 percent returns on its investments – and it cannot afford to lose the largest payer into its local government division.
Think tanks like the Heartland Institute and the Independence Institute, say PERA’s solvency troubles aren’t going away. In fact, the Heartland Institute gives the pension plan an F.
Memorial’s contribution is too large to simply go away. The hospital pays 12.8 percent of an employee’s salary into the plan – last year, that obligation equaled $26.2 million. Employees pay 8 percent.
In a letter to PERA’s executive director, Meredith Williams, McEvoy said the hospital doesn’t believe it has any liability to PERA.
“One effect of the reorganization would be that persons now employed at MHS facilities would cease to be public employees and active PERA members,” he said. “PERA has consistently recognized that when a city or other local government entity terminates employees, no liability accrues by virtue of such termination.”
McEvoy said PERA has yet to cite any statutory authority that Memorial has any liability. Memorial’s actual firm calculated the unfunded amount for current and former Memorial employees, a number that “would only be a small fraction,” of the numbers cited by PERA.