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Minnesota Supreme Court sides with Duluth over retiree health benefits

In a decision that will save the City of Duluth millions of dollars, the Minnesota Supreme Court has ruled that city retirees are guaranteed "the same health insurance benefits that the City provides to current employees."

A group of retirees had argued that the city should provide them the health benefits it provided to them at the date of their retirements.

The Supreme Court released its decision this morning.

The decision is a victory for the city, which has been working to reduce its unfunded health-care liability.

A 2005 actuarial study projected that Duluth's unfunded health-care liability was on course to grow 35 percent, reaching $378 million by 2012 if left unchecked.

Projections now say that city of Duluth will enter 2012 with a $192 million unfunded liability related to retiree health-care obligations.

Earlier this month, Mayor Don Ness attributed the liability reductions primarily to a couple of key developments:

Moving current employees from four health plans to one

Moving all retirees to the same health plan that current employees use

Previously, city retirees received the same health-care package they had as of their last day on the job for the rest of their lives. This resulted in a complicated system that left the city with the expensive job of managing about 100 different health-care plans.

In May 2008, two city retirees and a retiree's spouse filed what became a class-action lawsuit against Duluth, claiming the city did not have authority to change the health benefits it provided to them at the date of their retirements.

Duluth took the position that it is required by contract only to provide retirees with the same type of insurance coverage that current employees receive. District Court Judge Kenneth Sandvik ruled in October 2009 that the city may modify the retirees' benefits whenever and however benefits for active employees are modified. The retirees appealed Sandvik's ruling, but the Minnesota Court of Appeals largely upheld his decision in September 2010.

Supreme Court justices heard arguments May 2 from the attorneys representing the city and the retirees who sued the city over the issue three years ago.

Minneapolis attorney John "Mac" Lefevre Jr. argued the city's case; Duluth attorney Shelly M. Marqardt argued the retirees' case.