HomeMy WebLinkAbout2009/06/23 Item 12
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morA ~STA Human Resources Department
Date:
June 23, 2008
To:
From:
Honorable Mayor and City Council
Jim Sandoval, City Manage~
Scott Tulloch, Assistant City ~~ger c::;-I
Kelley K. Bacon, Director of Human Resources ~
Via:
Via:
Subject:
Two Years Additional Service Credit: July 15-0ctober 12, 2009
SUMMARY
In an effort to significantly reduce the Fiscal Year 2009/2010 General Fund budget by
reducing the number of benefited employees throughout the organization, staff is
proposing that Council grant another Two Years Additional Service Credit for eligible
employees, and provide for a limited medical incentive program for those that retire during
the prescribed window period. The proposal is to offer this benefit to all Local
Miscellaneous and Satety employees, in all departments of the City.
To achieve that goal, it is recommended that the City offer another Two Years Additional
Service Credit pursuant to Government section 20903 for local miscellaneous and safety
members, who retire during the designated period of July 15 - October 12, 2009. The City
is also proposing a medical incentive program, through which the City will cover the
medical health insurance premium for the employee only, for two calendar years for those
employees retiring with two-year additional service credit. Employees that can no longer
take advantage of the two-year additional service credit because they have reached the
maximum retirement benefit will receive medical incentive for four (4) years. There will be
no cash equivalent paid for the medical incentive. The City will make a payment for those
under the age of 65 as a deduction to Aetna in 2009 for $380 or $411 per month, and
Kaiser for $359 per month. Future payment will be based on the contract amount for each
carrierfor employee only coverage. All incentive measures will end no later than 12/31/13.
The City will cease making medical incentive payments if the early retiree gets health
insurance from another source, such as future employment or coverage under a spouse's
plan. Early retirees are required to notify the City once they are covered under another
plan.
This information is being presented at a public council meeting on June 23, 2009. A
Resolution will be presented to Council for consideration and approval at the July 14, 2009
City Council meeting.
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Human Resources Department
June 23, 2009
RECOIVlIViENDA TION
It is recommended that Council direct staff to bring forward the Resolution to grant another
designated period of Two Years Additional Service Credit pursuant to Government Code
Section 20903 to all local miscellaneous and safety members and that Council support a
medical incentive program to further encourage eligible employees to retire within the 90
day window by October 12, 2009.
DISCUSSION
Numerous efforts are being implemented to reduce expenditures in fiscal year 2009/2010.
It is recommended that the City offer another Two Years Additional Service Credit
pursuant to Government Code Section 20903 for local miscellaneous members and safety
members, who retire during the designated period of July 15, 2009 through October 12,
2009. The City is also proposing a medical incentive program, to further encourage eligible
employees to retire by October 12, 2009, to help close the budget gap and prevent
potential layoffs.
Government Code Section 20903 provides Two Years Additional CalPERS Service Credit
to members who retire during a designated period. The City must certify that if any early
retirements are granted after receipt of service credits pursuant to Section 20903, it is the
City's intention that any vacancies created or at least one vacancy in any position in any
department or other organizational unit remain permanently unfilled, thereby resulting in.~n
overall reduction in the workforce of the department or organizational unit.
Window Period
An eligible employee may apply for the benefit during the designated window period,
which cannot be less than ninety days, nor more than 180 days. Staff. is proposing a
ninety-day window period from July 15, 2009, through October 12, 2009.
Eliqibilitv
To be eligible, the following criteria must be met:
. member must have at least five years of CalPERS service credit;
. member must be employed for at least one day during the designated period;
. member must retire during the designated period;
. member cannot receive credit under this section if member is receiving any
unemployment insurance payments;
. if a retired member subsequently reenters membership, additional service
cred it is forfeited.
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Human Resources Department
June 23, 2009
Medical Incentive
To further encourage as many eligible employees as possible to retire within the gO-day
designated period, so the City may realize the greatest potential salary savings, in addition
to the Two Years Additional Service Credit, staff is proposing a medical incentive program,
under the City's Retiree Health Plan. Under this program, the City will pay the cost of the
medical insurance premium for Employee Only.
Upon retirement, employees are required to enroll in Medicare Part A and Part B once
they become eligible. Any medical insurance premiums for any eligible dependents will be
the employee's responsibility. Non-benefited, unclassified hourly employees are not
eligible for the medical incentive program.
FISCAL IMPACT
Government Code Section 7507 requires that the estimated present value of the
additional employer contributions for the proposed contract amendments be made
public at a public meeting at least two weeks prior to the adoption of the Resolution. The
estimate amount is based on the members' annual reportable compensation, cost
factors established by CalPERS actuaries and the fact that the City contracts for a Post-
Retirement Survivor allowance. If all 257 eligible employees opt to take the Two Year
Additional Service Credit and retire during the designated period, the estimated cost will
he:
Miscellaneous and Public Safety (Police) Plan
Additional Employer Contribution: $11,597,321.88 (over twenty years)
Annual Cost: $875,930.66
Rate Increase in Employer Contribution: 1.38%
Public Safety (Fire) Plan
Additional Employer Contribution: $1 ,469,910. 53 (over twenty years)
Annual Cost: $111,020.43
Rate Increase in Employer Contribution: 1.29%
Additionally, if all 257 eligible employees retire under this program, the annual base
salary savings would be approximately $18.669 million annually. However, during the
previous Two Year Service Credit offering, only 20 percent of the eligible employees
retired. Assuming only 10 percent acceptance rate, both the employer costs and salary
savings would be reduced proportionately. Again, assuming 10 percent of eligible
employees retire, the annual net savings to the City's General Fund is estimated at
$1.8669 million.
A final list of employees who applied for retirement pursuant to the offer will be
presented to CalPERS after the expiration of the application window. CalPERS will
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Human Resources Department
June 23, 2009
include the cost of the Two Years Additional Service Credit in the City's employer
contribution rate commencing with the fiscal year starting two years after the end of the
designated period. The increase in employer contribution will be amortized over twenty
years.
The estimated cost of the medical incentive program for Public Safety Fire is $9,046.80
and $103,699.20 for Miscellaneous and Public Safety Police over two and four years, if
10 percent of eligible retirees took the coverage for the full two years. However, the City
is saving approximately $258,051.20 in cafeteria plan flexible benefits for this same
group. This results in an additional net savings to the City's General Fund of
$297,486.40 over four years.
We will be able to accurately identify the final costs once all eligible employees
separate from the City and retire.
In addition to the budgetary impacts, there will be an impact to the City's unfunded
liability for other post-employment benefits (OPEB). The Finance Department will
determine the OPEB unfunded liability in order to comply with the Governmental
Accounting Standards Board Pronouncement 45.
CONTRACT AMENDMENT PROCESS
A contract amendment between the City of Chula Vista and CalPERS to grant another
designated period is not required.
The following attachments will be included with the Resolution on July 14, 2009.
For signature:
1. Resolution to Grant Another Designated Period for Two Years Additional Service
Credit
2. Certification of Governing Body's Action (PERS-CON-12)
3. Certification of Compliance with Government Code Section 7507 (PERS CON-
12A)
4. Certification of Compliance with Government Code Section 20903
Signature not required:
Estimated Present Value of Additional Employer Contribution.
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