District Steps Out of Health Insurance Business, Will Save $6.2 Million

The Menomonee Falls School District is getting out of the business of providing health insurance for its retirees.

The School Board on Monday approved creating a tax sheltered annuity to provide employees payments upon retirement rather than health benefits. The change is expected to save the district roughly $6.2 million over the next 30 years, and $558,000 over the next five years.

The tax-sheltered annuity plan is a five-year payment for teaching and administrative retirees who have 20 years of service in the district, and are at least 57 years old. Teaching and administrative retirees would receive the benefit in monthly payments for five years to pay for their own health insurance, or whatever they want to apply the benefit to.

The change continues a concerted effort by district leaders to reduce the long-term, post-retirement benefits liability for district. The liability stood at $26 million, but the district decided to shift the benefit from 10 years, to five years, which reduced the benefit by $8 million. The tax-sheltered annuity adds another $6.2 million in savings onto that.

The district has roughly $1.2 million in reserve to fund the outstanding retirement liability.

Willis, a benefits consulting firm working with the district, recommended shifting to to the tax sheltered annuity for employees’ post-retirement benefits. The annuity will reduce claims costs, yet allow employees to purchase health insurance with the available funds. 

The move to a tax sheltered annuity would save the district some $6 million long term. This is a district benefit that is separate from an employee's retirement savings. The plan only grandfathers in employees who are eligible for retirement this year, and choose to retire this year. After June 30, all employees will be under the annuity plan. 

The new plan would be effective June 1, and the district has delayed retirement declaration till May 15 to accommodate the changes.