Korshak Settlement Agreement and the Retiree Healthcare Benefits Commission
September 19, 2012 - 1:48pm
Since 1988, the City of Chicago and its four pension funds have been party to the settlement of City of Chicago v. Korshak regarding how much the City, the funds and annuitants pay for healthcare. The settlement agreement expires June 30, 2013. The four pension funds are the Firemen’s Annuity and Benefit Fund; the Chicago Policemen’s Annuity and Benefit Fund; the Municipal Employees, Officers and Official Annuity and Benefit Fund and the Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund.
The settlement also calls for the creation of the Retiree Healthcare Benefits Commission (RHBC). Before the settlement expires, the Commission is required to make recommendations with regard to the state of retiree healthcare benefits, their related cost trends and issues affecting the offering of any healthcare benefits after July 1, 2013. The Commission plans to present a set of recommendations to Mayor Emanuel in the fall of 2012.
The four members of the RHBC were appointed by Mayor Emanuel and are as follows:
• Amer Ahmad, City of Chicago Comptroller;
• Leemore Dafny, Associate Professor of Management and Strategy, Kellogg School of Management at Northwestern University;
• Will Irving, President/Secretary Treasurer, Laborers Union, Local 1001; and
• Michael Knitter, Executive Director, Benefits, University of Chicago.
The first meeting of the RHBC was held on June 22, 2012 and to date, six meetings have been held on a bi-monthly basis. The Commission meetings are subject to the Open Meetings Act, meaning members of the public may attend and provide comment at designated times. Agendas and related information can be accessed here.
Status of Retiree Healthcare
In FY2010 the City’s contribution to annuitant healthcare was roughly 55% of the premium cost, with the remainder to be paid by the annuitant. State statutes also authorize the four pension funds to subsidize the participant portion of retiree health insurance premiums for those annuitants participating in the City’s retiree health insurance program until June 30, 2013. The Fire, Police, Municipal and Laborers’ pension funds each contributed roughly 32% of the annuitant contribution, effectively subsidizing 13% of the total premium cost. The pension funds provide $95 per month for non-Medicare eligible annuitants and $65 per month for Medicare eligible annuitants. The City of Chicago’s financial statements reported a FY2010 unfunded other post-employment benefits (OPEB) liability of $477.9 million for the portion subsidized by the pension funds and a FY2010 unfunded OPEB liability of $533.4 million for the portion subsidized by the City. The total combined unfunded OPEB liability for the City portion and the pension fund portion is approximately $1.0 billion.
 The settlement agreement refers to the Commission as the Retiree Health Benefits Commission; however, the Commission currently refers to itself as the Retiree Healthcare Benefits Commission.
 Cost allocation estimates provided to the Civic Federation by Sulan Tong, City of Chicago Department of Finance, April 6, 2012.
 City of Chicago, Comprehensive Annual Financial Report for the year ended December 31, 2010, p. 87.
 City of Chicago, Comprehensive Annual Financial Report for the year ended December 31, 2010, pp. 87 and 89. The City does not report a combined total liability for both the pension fund and the City OPED subsidies, nor does it break out its liabilities by pension fund.
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