The town has agreed to pay retirees $500,000 following an Appeals Court decision that a 2016 increase in health insurance premiums may have been unlawful.

Town Manager Andrew Flanagan said the town will owe approximately $500,000 to retirees — the calculated premium difference for two years.

"The town is prepared to compensate the retirees for the two years of higher premiums," he said. "We have been working with their lawyers on the logistics for getting that done."

Flanagan said the upcoming fiscal year budget, which was approved by voters at Town Meeting in April and which starts July 1, will not be affected by the payment to retirees. However, he said, it remains unclear how the town is going to pay the $500,000.

"The town has agreed to abide by the decision of the Appeals Court and allow some form of compensation for the money which was wrongfully taken from the retirees for their health insurance for the extra percentage of premium that they should not have had to pay," said Harold Lichten, an attorney from Lichten & Liss-Riordan, P.C. who represents the retirees.

Lichten said he hopes there will be a resolution of the matter "fairly soon" that will be satisfactory to everybody.

He previously said the town had three choices in the matter: sit down and negotiate, try to appeal the decision to the Massachusetts Supreme Judicial Court, or just pay up.

The decision to compensate comes after retired town employees challenged the ruling of a Superior Court judge, who originally ruled in favor of the town's decision to increase the percentage share that retired town employees had to pay for their health insurance.

According to court documents, in 2016 the Andover Board of Selectmen voted 3-2 for the increase, which would ultimately save the town money on other post-employment benefits, or OPEB. Board members Alex Vispoli, Mary O'Donoghue, and Bob Landry voted in favor of the motion, while Dan Kowalski and Paul Salafia voted against it.

Town Manager Andrew Flanagan said the decision was made at a time when the town was facing a $650 million OPEB liability in 30 years. The result of the vote by the board was a funding source that would fully fund the OPEB obligation in approximately 35 years, according to Flanagan.

He said the decision has yielded approximately $1 million in savings, which was re-directed in the OPEB trust which offsets the towns unfunded OPEB liability.

John Foskett, an attorney representing the town, could not be reached for comment.

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