Court Rules in Favor of County on Retiree Medical Benefits

Posted: Friday, August 17, 2012 1:31 pm - Voice of Orange County

John Moorlach, chairman of the Board of Supervisors, earlier this year compared a lawsuit by retired employees over medical benefits to a torpedo aimed at the ship of state.

Moorlach and other county officials were concerned because they had estimated savings of $1 billion from a 2006 deal negotiated with the Orange County Employees Association that capped retiree medical benefits.

Following that deal, the Retired Employees Association of Orange County (REAOC) sued the county, and the issue of whether retiree medical coverage was akin to a pension promise had been tied up in the courts ever since.

On Thursday, federal Judge Andrew Guilford helped the county budget avoid that torpedo, deciding that retiree medical benefits could be capped and that the county was no longer required to subsidize retiree medical benefit rates by pooling them with active employees.

“Although I do not have the exact amount of what the additional unfunded liability would have been to the county had the court ruled in REAOC’s favor, I would estimate it at about $500 million,” Moorlach wrote Friday morning in his constituent newsletter called the Moorlach Update.

“This is significant. So significant, in fact, that it would have required an additional $42 million per year in required contributions to pay down this liability. A torpedo of this magnitude would have ripped a hole in the hull of our ship large enough to make it nearly impossible for us to stay afloat. Judge Guilford’s ruling is an answer to prayer as the County’s solvency was at stake.”

REAOC officials could not be immediately reached for comment.

However, REAOC officials had consistently argued that the new grant level for retirees was too low and that many workers had retired with the implied promise that retiree medical benefits would be funded.

Union officials struck a rare chord of agreement with Moorlach over the impact of the legal decision.

“The decision clearly demonstrates that OCEA took the right leadership course and protected retiree medical by the course we chose,” said OCEA General Manager Nick Berardino. “The decision shows we chose the right path, and our leadership paid off in preserving retiree medical benefits for all employees.”

Altering retiree medical benefits is extremely controversial in labor circles. Nontheless, Berardino said, his board of directors opted to cooperate with county officials because they estimated that it could not be protected in court and opting for a lower benefit would actually preserve some form of retiree medical benefit.

“It was one of the most difficult choices we’ve had to make in recent years,” Berardino said, “but after this legal opinion, I’m glad we paid the price of leadership.”