Retiree Healthcare

The City of San Jose provides retiree healthcare benefits to eligible employees. As contained in the San Jose Municipal Code, employees are eligible for retiree medical insurance coverage at fifteen (15) years of service. Even employees with 15 years of service in the Federated City Employees' Retirement System and 20 years of service in the Police and Fire Department Retirement Plan who leave City service prior to retirement can qualify for retiree medical insurance upon retirement. For eligible retirees, the benefit provides for 100% of the premium cost for the lowest priced plan available to active employees.

Since the current benefit is tied to the cost of the premium rather than a fixed-dollar amount, the long-term costs of providing this benefit is integrally tied to the rising cost of healthcare, which is both a local and a national issue. In 2007, the City and bargaining units began discussions on how to address retiree healthcare costs, as the funding ratio for retiree healthcare benefits in the Police and Fire Department Retirement Plan was 5% and 10% in the Federated City Employees' Retirement System.

In 2009, the City and employees in the Federated City Employees' Retirement System began to phase into making the full Annual Required Contribution (ARC) for Retiree Healthcare over a five (5) year period by increasing the contribution by 0.75% each year. At the end of the five (5) year phase-in the City and the employee would be required to begin making the full ARC payments. The ARC is the amount of money that would need to be contributed on an annual basis in order to cover the estimated costs of the retiree healthcare benefit for current and future retirees.

In 2009 and 2011, the City and the employees represented by the San Jose Police Officers' Association (SJPOA) and the San Jose Fire Fighters, IAFF Local 230, began to phase into making the full ARC over a five (5) year period by increasing the City's contribution by 1.35% and the employee's contribution rate by 1.25% each year. Once 10% was reached in employee retiree healthcare contributions, it was agreed that the parties would meet and confer.

Retiree Healthcare Negotiations (Federated City Employees' Retirement System)

Based on the actuarial valuation for the Federated City Employees' Retirement System on June 30, 2011, the City is facing an approximate $800.5 million unfunded liability for retiree healthcare and the plan is only 14% funded.

In February 2012, the Federated Board's actuary, Cheiron, provided projections for the contribution rates for the City and employees in the Federated City Employees' Retirement System. In Fiscal Year 2013-2014, the total contribution will be projected at 32.34%, which is more than double the current rate of 15.17% (Please note that the contribution rates for Fiscal Year 2013-2014 have not been determined and are set to be based on the June 30, 2012, actuarial valuation once it is completed).

As the City recognizes the concern employees have expressed regarding the substantial increase, the City has reached out to bargaining units indicating the desire to meet to discuss potential options and solutions to mitigate the financial impact on both the City and its employees, including cost saving solutions.