Ballard Spahr LLP: Court Bars Act 111 Arbitrators from Reducing Post-Retirement Benefits

By Patrick J. Harvey and John P. McLaughlin

In efforts to control ever-escalating post-retirement health care costs, many Pennsylvania municipalities have sought decreased post-retirement health benefits for current employees in Act 111 interest arbitration. Now, in Fraternal Order of Police Lodge 86 v. City of Johnstown, the Commonwealth Court has ruled that the Home Rule Charter Law prohibits such reductions for home rule municipalities.

In Johnstown, the Act 111 arbitrator had adopted the City's Act 47 Recovery Plan by changing current officer post-retirement health coverage to solely cover the officer, rather than covering the officer, his spouse, and dependents. The officer would also be responsible for paying any post-retirement increases in premium costs.

The court found that the reduction of post-retirement health coverage for current employees violated Section 2692(c)(3) of the Home Rule Charter Law, which provides that a municipality shall not "[b]e authorized to diminish the rights or privileges of any former municipal employee entitled to benefits or any present municipal employee in his pension or retirement system."

While the Johnstown decision is limited to home rule municipalities, it raises serious issues for all Pennsylvania municipalities attempting to control the costs of post-retirement benefits. The court did not address the constitutional issue of diminishment of post-retirement benefits for current employees, but the ruling presents obstacles for home rule municipalities seeking to redesign benefits under Act 47 distressed status.

This decision makes it more important than ever for municipalities to limit or sunset any increases in post-retirement benefits. It also emphasizes the need for municipalities to be creative in seeking alternate means to control health care costs.

If you have questions on the decision or its implications for your municipality, please contact Patrick J. Harvey at 215.864.8240 or harveyp@ballardspahr.com, John P. McLaughlin at 215.864.8241 or mclaughlinj@ballardspahr.com, or the Ballard Spahr attorney with whom you work. 


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