Item 8B
AGENDA ITEM #8B
FEBRUARY 23, 2004
CITY OF ATLANTIC BEACH
CITY COMMISSION MEETING
STAFF REPORT
AGENDA ITEM: Approve renewal of Health Insurance with BlueCross BlueShield
(BC/BS) of Florida effective April 1, 2004 for a one year period,
retain the current benefits and employee contribution rates, and
change the effective date of coverage for new employees.
SUBMITTED BY: George Foster, Human Resource Manager
DATE: February 17, 2004
BACKGROUND: In Apri12002, the City changed it's health insurance from AHL to
BC/BS after a proposal was received from BC/BS and other health
insurance providers declined to bid.
BC/BS has advised that based upon the City's potential claim
experience, that they are unable to reduce the City's premium
!~' rates; however, there will be no rate increases.
In July, 2003, a Pension Committee provided a report to the
Commission for changes to the City's benefit programs (see
attached). One recommendation was to delay the effective date of
health insurance coverage from "the first day of the month
following the month of hire" to "the first day of the third month
following the month that the employee. is hired". This action was
recommended to discourage individuals from seeking employment
with the City for the primary reason of obtaining immediate health
insurance coverage. The most opportune time to implement this
change is upon renewal of our insurance April 1, 2004,
FUNDING: Funds for these actions are currently within the approved budget.
The implementation of a delay to health insurance coverage will
result in an estimated savings of $35,000 annually.
RECOMMENDATIONS: 1. That the City Commission authorize the City to renew health
insurance with BCBS effective April 1, 2004.
2. That the City Commission retain the current benefits and
City/employee contribution amounts.
~•
3. That the City Commission authorize a change to the effective
date of health insurance coverage from "the first day of the
month following the date of hire" to "the first day of the third
month following the month that the employee is hired".
,~,, ATTACHMENTS: 1. City /Employee premium cost comparison
2. Pension Committee Report and Recommendations
~,,, CITY MANAGER:
~, -BLUE CROSS /BLUE SHIELD
HEALTH INSURANCE PREMIUM
APRIL 1, 2003 -MARCH 31, 2004
e••
BC/BS HMO B1ueCare #14 effective April 1, 2003
Coverage
Monthly Employee
Pas City
Pays
Employee 497.82 00.00 497.82
Em /Children 958.29 107.28 851.01
Emp/Spouse 1,020.52 153.20 867.32
Em /Famil 1,480.99 317.60 1,163.39
BC/BS B1ueChoice Plan #108 effective April 1, 2003
Coverage
Monthly Employee
Pays City
Pays
Em loyee 547.60 00.00 547.60
Em /Children 1,054.13 195.34 858.79
Emp/Spouse 1,122.57 245.74 876.83
Em /Family 1,629.10 509.28 1,119.82
AGENDA ITEM #SB
FEBRUARY 23, 2004
Note: The above rates are the same as the rates from April 1, 2002 -March 2003.
H:\oldpc\MyFiles\02-Health Insurance\Elealth Cost For 04-01-2002.doc
AGENDA ITEM #8B
FEBRUARY 23, 2004
PENSION COMMITTEE REPORT AND RECOMMENDATIONS
JULY 14, 2003
BACKGROUND AND OBJECTIVES:
On. October 14, 2002, the City Commission established a Pension Review Committee
consisting of Commissioner Mike Bomo and Pension Board Member Ed Lipscomb to
review the benefits provided to City employees, specifically: Should the City add a 30
year, any age, retirement option to the current General Employee retirement eligibility of
Age 60 with at least 5 years of service. -The scope of the review was subsequently
expanded to include a broader evaluation of the employee benefit packages as changes in
any one benefit may have a direct, or indirect, affect on other benefits.
The committee was not charged with recommending a means of reducing the current cost
of the exis~ing benefit plans.. Therefore, the focus was on identifying opportunities to
~'"' reallocate current costs to better achieve the objectives of the benefit plan (listed below).
In evaluating the existing benefit plans, the following criteria were considered. These are
not in priority sequence.
1. Employee Retention -How important are each of the benefit plan components to
employees and what is the current degree of satisfaction of employees with the
existing program.
2. New Employee Recruiting - Do the individual components of the benefits plan
provide an effective tool for management to attract the level of talent needed and
compete effectively against other employers.
3. Workforce Behavior - Do the existing benefit programs contribute toward
aligning the economic. interests of the city and its employees in order to encourage
behavior which is in the best interest of both.
4. ~ Current and anticipated changes or trends which will influence the future ability
to deliver a current benefit.
The individual elements of the benefit plans for both general employees and police which
~. ..were evaluated by the committee. included the. following.
1. Pension
2. .Employee Supplemental Investment
~ 3. Health and Medical Insurance '
4. Flexible Spending Accounts
5. Paid Time Off
6. Holidays
7. Life Insurance
8. Short Term Disability
9. Long Term Disability.
10. Overtime Policy
~„ -1-
~.
AGENDA ITEM #SB
FEBRUARY 23, 2004
The above elements of the benefit package were evaluated with respect to the four criteria
of employee retention, employee recruiting, workforce behavior, and anticipated future
~' trends affecting the benefit.
Recommendations proposed are based upon six meetings of the- committee and after
presentations of representative from Palmer & Cay consulting group .and the Pension
. Board attorney Bob Sugarman of Sugarman & Susskind. Recommendations bring
Atlantic Beach's benefit package more in line with those of other area employers, to
improve the City's ability to recruit and retain employees and better utilize funding
available for employee benefits. It is not intended for there to be either a significant
increase in the City's cost of benefits or an overall change in the amount of benefits
provided, but rather a shift to reflect the local market. Phasing in these changes is
.recommended both to minimize any adverse effects on individual employees and to-allow
for identifying funding sources available to the City.
PENSION PLANS:
The general employee pension plan is a generous benefit and is very rich by virtually
every measurement. It is a Defined Benefit plan which guarantees a certain payout. All
actuarial and investment risk is bom by the city. With a multiplier of 2.85% per year of
service, an employee can, with 35 years and 1 month of service, retire with a city pension
of 100% of his last 5 year average compensation. The benefit payable to ari employee is
capped at 100% of his last 5 year average compensation. Therefore, with a few longterm
employees, they continue to pay into the pension plan with little to no, increase in benefit
after 35 years.
In addition, employees are entitled to a social security benefit (50% funded. by the city)
which provides a total retirement compensation potential well in excess of their final
,~~„ compensation at the time of retirement. The plan calls for the employee to complete 5
years service before being vested within the retirement plan.
,,. Employee Retention -The existing plan is highly valued by employees with significant
years of service and those with the knowledge and- sophistication to understand to value
of the benefit provided
Employee Recruiting -City management does not believe that the pension plan is a
significant decision factor in the recruiting of new employees. The lack of portability in
the plan requires a commitment exceeding that generally contemplated by new hires. The
portability issues can be addressed in a defined contribution plan with a step vesting
schedule.
Workforce Behavior -The existing plan provides a strong incentive for an employee to
plan a lengthy career with the city. This can provides awin/win for city and employee as
it encourages continuity. It also can increase costs resulting from over-qualified
individuals remaining in positions that could be filled by lower cost new hires.
~, -2-
,a•
AGENDA ITEM #8B
FEBRUARY 23, 2004
~..
Anticipated Trends -Over the coming years, it is expected that the actuarial tables that
determine in part the city's cost of the pension plan will be revised. This is to reflect the
~• increased life expectancy of retirees. This will increase the cost to 'the City as it will
anticipate a longer payment period for retirees. In addition to actuarial tables, investment
assumptions also drive the cost of the pension plan. If, as a result of investment
performance, there is a decrease in investment earnings assumptions, this could increase.
the cost of the plan. On the other hand, an improvement in .investment earnings could
reduce the cost of the plan.
Pension Plan Recommendations
~" a. General Employees:
(1) Retain the current Age 60 with 5 Years of Service (YOS) criteria for
'~" retirement eligibility.
(2) Discontinue.employee contribution of two percent (2%) once an employee
reaches their maximum accrual date (currently at 35-years and 1 month of
~"' service).
(4) Establish a cost neutr-al 5 year Deferred Retirement Option Plan (DROP).
(5) Establish a Defined Contribution {DC) plan for. all new employees while
'"" retaining the Defined Benefit Plan for current employees..
Note:
A Defined Contribution (DC) plan is a plan where the contribution is defined
'"~ and the benefit is based upon the individual employee's account balance.
A Defined Benefit (DB) plan is a plan-where the benefit is defined and the
contribution depends on the variables in order to fund the "promised" >
~.
.benefit.
If a Defined Contribution Plan is not established for new employees:
(1) Increase the contribution rate for all employees. ,
~„ (2) Decrease the multiplier for new employees Lo 2.5% (currently 2.85%).
b. Police Employees:
~•
(1) Add additional benefit items as required by FS185 based upon receipt of
sufficient Section 185 funding.
,. (1) Retain the Defined Benefit plan. The City would lose State Section 185
funding ($85,719 received for 2001) if changed to a Defined Contribution
plan.
,,.~ (2) Establish a cost neutral 5 year Deferred Retirement Option Plan (DROP).
(3) Increase the employee contribution rate for current employees by a one-
time employee salary increase.
~. (4) .Increase the employee contribution rate for new employees.
~ -3-
*" AGENDA ITEM #8B
FEBRUARY 23, 2004
EMPLOYEE SUPPLEMENTAL INVESTMENT PLAN:
±~ The City provides an additional voluntary retirement planning vehicle for individuals
interested in accumulating additional retirement savings. This is similar to a traditional
401K plan and includes no city contribution other than the administrative cost of the plan.
Recommendation
+~"' No changes to the current voluntary employee ICMA 457 plan.
HEALTH AND MEDICAL INSURANCE.:
The city currently provides HMO and PPO medical insurance plans either of which may
be selected at the option of the employee. The City currently pays 100% of the cost of
'~"" the employee coverage and a portion of the cost of dependent coverage. The coverage is
effective on the, first day of the month following the official hire date. The dependent
coverage contribution by the employee is based on historical dollar amounts and is no
~" longer commensurate with the total cost of the coverage.
As a result of recent claims experience .and relatively small size of the. insured employee
~' population, the premium rates are extremely. high, with the PPO exceeding the HMO in
cost.
"~ Employee Retention -The existing plan is highly valued by existing employees and is
believed to be a key reason for the retention of employees.
Employee Recruiting -The current plan is a significant tool in attracting new employees:
to work for the City. Management believes that it is sometimes the primary reason for an
~ employee seeking employment. The experience rating which has driven up the cost. of
.medical insurance to the City may well be .evidence of that:
~ Work Force Behavior -'.The medical insurance plan provides options that allow access to
medical care and prescription drugs at minimal cost. The interests of both the employees
and City are served by.maintaining a healthy workforce with minimal absenteeism. The
~„ current plan provides two options including an HMO and a PPO plan. While the cost of
the PPO exceeds that of the HMO, ;the cost to the employee for employee only coverage
is the same -Zero.
~,.
Anticipated Trends -The annual escalation in medical .insurance premiums has
significantly affected the cost of the employee benefit plan. Management believes that
„~ there is a potential for cost reductions based on improved claims experience. However, it
is prudent to anticipate the potential that costs may. stabilize briefly at their current level
and continue the trends .seen over the past years. With no cost participation by the
employee, there is no incentive for an employee with other available coverage to decline
participation in the City funded plan in favor of another plan. If only healthy employees
°., - 4 -
~,.+
rw
AGENDA ITEM #8B
FEBRUARY 23, 2004
opted out because of alternate coverage, some of the benefit of reduced premiums maybe
lost.
Recommendation
There is the potential that the City of Jacksonville may allow the City employees to join
their plan. This has major implications and action on recommendations pertaining to
health insurance and related employee benefits (flexible spending accounts, life, vision -
and dental insurance) should be delayed pending receipt of a decision from the City of
Jacksonville on a proposal to allow the City to join Jacksonville's health and benefit
plan(s). Recommendations are as follows:
a. Change effective date from the first day of the month following the month in
which an employee is hired to first day of the third month following the month
that the employee is hired.
b. During future premium rate increases/decreases, adjust the percentage that the'
City pays for employee only coverage with a goal of the City paying 90% of
the HMO employee only premium. This would .discontinue the current policy
of the City paying more for an employee that selects the PPO plan over the
HMO plan and would also result in a cost share between employees and the
City for basic health insurance.
~•
c. Change the percentage that the City pays for employees that select additional
insurance to be a standard percentage. Note: Currently the City pays 67.70%
,~, percent of the difference for Employee/Family coverage, 70.69% of the
difference for Employee/Spouse coverage and 76.7,0% of the difference for
Employee/Child(ren) coverage.
FLExIBLE SPENDING ACCOUNTS:
~• The City provides the opportunity for employees to pay certain child Gaze and health caze
expenses out of pre-tax earnings. This program is consistent with the benefits provided
by many employers and is consistent with the objectives defined for the benefit plans in
*~ terms of enhancing employee retention and recruiting. It is cost neutral to the City.
The City should publicize the benefits of the FSAs .during the next open enrolment period
and hold group meetings with employees..
.PAID TIME OFF:
The City has a program for paid time off that combines sick leave, vacation time and
personal leave. Twice a year, the City pays employees for all leave that exceeds the
~'"' maximum accrual limit as established by the employee.
~ -5-
~.+
AGENDA ITEM #8B
FEBRUARY 23, 2004
Employee Retention/Recruiting -The current plan provides flexibility to employees to
utilize their paid time off as is appropriate for the individual circumstance. This is an
^"' important benefit to employees and is well received by new hires.
Work Force Behavior -The current plan is beneficial to employees and the City in that it
~"' allows the appropriate allocation of personal leave time to be defined by the employee.
The policy of paying. employees for unused leave may have the result of discouraging.
employees from taking leave. This may not be a good thing as it increases payroll
"'"' expense and reduces reliance on cross training to cover periods of leave time.
Recommendation
Consider modifying buy back policy to require taking a certain amount of leave. This
reduces cost except where absence is required to be covered by overtime and encourages
cross training.
LIFE INSURANCE:
The City's "one time annual salary" rounded up with a maximum of $50,000 life
insurance is an average to below average benefit. Most employers offer a basic benefit of
~ 1 %z to 2 times annual salary.
Employee Retention/Recruiting -While the current plan is somewhat below competing
plans, it is unlikely to adversely affect either retention or recruiting of employees.
Recommendation . '
Consideration should be given to' increasing basic life insurance to 11/~ to 2 times annual
.salary upon identification of a source of funding.
SHORT TERM DISABILITY:
The City currently provides no short-term disability coverage. Employees may utilize
their personal time for this purpose or may receive .contributed days off-from .other
employees.
Recommendation
An optional employee paid short-term disability insurance policy should be provided.
LONG TERM DISABILITY:
The City currently provides no long -Terre disability coverage. Employees may utilize
'their personal tune for this purpose or may receive contributed days off from .other
employees.
-6-
AGENDA ITEM #8B
FEBRUARY 23, 2004
Recommendation
Long-term disability insurance is a valuable benefit, and should be provided upon
identification of a source of funding.
OVERTIME POLICY:
(a) General Employees:
(1) Overtime:
Change the current policy of paying overtime for all hours worked that
exceed the employee's normal scheduled workday to paying overtime in
accordance with the Fair Labor Standards Act for all hours worke_ d that
exceed 40 hours in any 7 calendar work period.
(2) Hours Worked:
Change the current policy-of considering all hours paid to the employee
(including holidays, personal leave and compensatory time) as hours
worked to considering only hours actually worked in determining
overtire.
(b) Police Employees:
(1) Overtime:..
Change the current policy of paying overtime for all hours worked that.
exceed the employee's normal schedule workday to paying overtime 5n
accordance with the Fair Labor Standazds Act for all hours worked that
exceed 80 hours in any 14 calendar work period.
(2) Hours Worked:
Change the current policy of considering all hours paid to the employee
(including holidays, personal leave- and compensatory time) as hours
worked to considering only hours actually worked in determining
overtime. .
EMPLOYEE BENEFIT STATEMENTS:
The City should enhance communication for benefits available, as well as their cost (on
an individual basis), to all employees by use of an Employee Benefit Statement.
Summarizing employee benefits and their related cost is considered a valuable method to
~• provide employees with a summary of benefits, as many employees do not know-the
benefits that they receive or their related costs.
~, -7-