The City Council governance committee advanced a change to Denver’s retirement plan Tuesday despite opposition from Denver Health, the contractual entity that would be affected by the change.
If passed by the full council, the ordinance would make Denver Health solely responsible for the costs of pension promises to its employees and force the hospital system to pay as much as $195 million to the Denver Employees Retirement Program, according to City Attorney Robert McDermott.
McDermott said the ordinance intends to pay off Denver Health’s accumulated unfunded liability that DERP has been working to address since 2019. However, Denver Health CEO Robin Wittenstein said the ordinance is “unnecessary” and the $195 million estimate is inaccurate.
“We have always paid all amounts requested. There is no doubt that Denver Health will continue to act in good faith, including discussions related to unfunded liability,” Wittenstein said, “however, we have serious and well-founded concerns about the work related to this issue by DERP.”
She said in 2019, DERP gave Denver Health a report on its unfunded liability that contained $100 million in errors, including $70 million of liability for employees who had provided service before Denver Health existed.
“If this ordinance had already been in place, we would have been faced with a call to pay up to $100 million in liabilities that didn’t exist,” Wittenstein said. “The proposed ordinance provides no protection or safeguards against a continuation of the poor management of DERP that has gotten us to this point.”
Denver Health requested the ordinance be voted down to allow more time to negotiate with DERP about how much money is owed and when it must be paid.
Heather Darlington, executive director of DERP, called Denver’s Health’s claims “outrageous.” Darlington said the $100 million discrepancy was not an error, but a result of a change of methodology and an ongoing debate on $70 million of liability associated with Denver Health employees before the hospital system separated from the city in 1997.
McDermott said the ordinance is meant to address holes in Denver’s retirement system to put an end to ongoing debates and disagreements between Denver Health and DERP.
“The intention of this ordinance is to do away with, as much as we can, the back-and-forth of the annual ‘what methodology is being used,’ ‘what (unfunded liability) goes to Denver Health,’” McDermott said. “We’ve identified a few areas where we can improve the structure.”
Denver Health became a contractual entity in DERP in 1997 when the hospital system separated from the city to operate independently. In 2001, Denver Health closed the city retirement plan to new members.
Around 240 Denver Health employees are in DERP, with the hospital system’s pensionable payroll decreasing by about 10% each year. This has created issues as Denver’s retirement plan was designed under the assumption that new members would always be added over time, McDermott said.
Though the ordinance received unanimous approval from the council committee, several council members said they did not want to be put in between ongoing issues with Denver Health and DERP.
“It’s clear that these parties have a lot of bad blood between them,” Councilwoman Robin Kniech said. “You cannot come here and claim that one of the strongest pension funds in the country is being mismanaged. … We need to get a neutral expert.”
Kniech asked that both parties commit to getting a third party to help decide how much unfunded liability Denver Health owes. Wittenstein said she wouldn’t have a problem with the addition of a third party, but maintained the ordinance would put Denver Health at risk.
Denver Health’s Chief Legal Officer Enid Wade said the hospital system would consider taking legal action against the city if the ordinance passes, saying it violates the U.S. and state constitutions.
“It is illegal, it would be unenforceable and it would make it necessary for us to bring legal action,” Wade said. “The law states that an ordinance cannot interfere with existing contractual rights. We have existing contractual rights which would be tremendously interfered with by virtue of this provision.”
The proposed bill does not have specific requirements for how much or how quickly Denver Health would have to pay the unfunded liability; however, once payment amounts are negotiated, the payments must begin within 180 days after the year’s end.
The full City Council will hold two final votes on the bill in the coming weeks. If approved, the changes would go into effect Jan. 3, with the first negotiated payment due before July 1, 2023.
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