HomeMy WebLinkAbout2004-10-18 City Council (5)City of Palo Alto
C ty Manager’s Report
2
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: HUMAN RESOURCES
DATE:
SUBJECT:
OCTOBER 18, 2004 CMR:448:04
APPROVAL OF RESOLUTION ELECTING TO ESTABLISH A
HEALTH BENEFIT VESTING REQUIREMENT FOR FUTURE
RETIREES UNDER THE PUBLIC EMPLOYEES’ MEDICAL AND
HOSPITAL CARE ACT (PEMHCA) FOR SERVICE EMPLOYEES’
INTERNATIONAL UNION (SEIU), LOCAL 715
RECOMMENDATION
Staff recommends Council approve the attached resolution to amend the City’s contract with
the California Public Employee’s Retirement System (CalPERS) to establish a 10/20-year
vesting requirement for eligibility for retiree health insurance, for Local 715, Service
Employees’ International Union. This change will apply to future employees in SEIU hired
after January 1, 2005.
BACKGROUND
In May 2003, a citywide Healthcare Committee was formed. Representatives from each of
the City’ s bargaining groups and Human Resources Department staff met to explore ways to
address the escalating costs of employee benefits. The issue of the City’ s unfunded retiree
health liability was one of the major items of discussion. Currently new SEIU employees
hired at the City of Palo Alto who become vested in PERS after five years of service are
eligible to receive 100% City-paid retiree medical benefits for themselves and 55% City-paid
medical for their dependents when they become eligible for retirement. Numerous options to
reduce this liability were considered and it was determined that the best option is the 20-year
vesting requirement program through PEMCHA. This option was discussed with all of the
bargaining groups. The International Association of Firefighters (IAFF), the Fire Chiefs
Association and Management and Professional groups all adopted the 20-year vesting
requirement program effective January 1, 2004. SEIU recently agreed to this vesting
requirement during their recent negotiations with the City which Council approved on August
9, 2004. This vesting option will be discussed with PAPOA in June 2007 when negotiation
CMR:448:04 Page 1 of 3
of their n, ew. contract reopens.
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DISCUSSION
A vesting requirement will reduce the number of employees who are eligible for retiree
h(alth coverage and will result in significant cost avoidance to the City. The PERS law
vesting schedule as set forth in Government Code section 22825.5 will apply to the
recommended change. Under this law, an employee is eligible for 50% of the specified
employer health premium contribution after ten years of service credit, provided at least five
of those years were while employed at the City of Palo Alto. After ten years of service
credit, each additional service credit increases the employer contribution percentage by 5%
until, at 20 years’ service credit, the employee will be eligible upon retirement for 100% of
the specified employer contribution and 90% of the dependent coverage. The City of Palo
Alto’s health premium contribution for eligible future retirees shall be the minimum
contribution set by PERS based on a weighted average of available health plan premiums.
This program will affect SEIU employees hired on or after January 1, 2005.
RESOURCE IMPACT
The City will realize a cost avoidance as a result of the 20-year vesting program. At this time
there is no way to know how many employees will be hired in future years or how many
employees will leave the City of Palo Alto before being fully vested. In addition, it is
difficult to determine the amount of this avoidance due to the uncertainty of future health
costs.
POLICY IMPLICATIONS
This request does not represent any change to existing City policy.
ENVIRONMENTAL REVIEW
This is not a project under the California Environmental Quality Act (CEQA).
ATTACHMENTS
Attachment 1 -Resolution of the Council of the City of Palo Alto electing to establish a
health benefit vesting requirement for future retirees in Local 715,
Service Employees’ International Union
PREPARED BY Sandra T.R. Blanch, Risk and Benefits Manager
CMR:448:04 Page 2 of 3
LESLIE LOOMIS
Director of Human Resources
CITY MANAGER APPROVAL:
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~ Assistant CitycManager
CMR:448:04 Page 3 of 3
NOT YET APPROVED
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PAL0
ALTO ELECTING TO ESTABLISH A HEALTH BENEFIT
VESTING REQUIREMENT FOR FUTURE REGULAR EMPLOYEE
RETIREES FROM LOCAL 715, SERVICE EMPLOYEES’
INTERNATIONAL UNION (SEIU) UNDER THE PUBLIC
EMPLOYEES’ MEDICAL AND HOSPITAL CARE ACT
WHEREAS, Government Code Section 22825.5 provides that a
local agency contracting under the Public Employees’ Medical and
Hospital Care Act may amend its resolution to provide a post
retirement health benefits vesting requirement to employees who
retire for service; and
WHEREAS, the City of Palo Alto is a local agency
contracting under the Act for participation by certain members
of Local 715, Service Employees’ International Union (SEIU)
employees, ("SEIU Unit Employees") pursuant to a Memorandum of
Agreement approved by City Council Resolution 8453 on August 9,
2004; and
WHEREAS, the City of Palo Alto certifies, employees are
represented by a bargaining unit and subject to a memorandum of
understanding; and
WHEREAS, the credited service for purposes of
determining the percentage of employer contributions shall mean
service as defined in Section 20069, except that not less than
five (5) years of that service shall be performed entirely with
the City of Palo Alto.
NOW, THEREFORE, the Council of the City of Palo Alto
does RESOLVE as follows:
SECTION i. That the employer’s contribution for each
active and retired employee first hired on or after January i,
2005, including the enrollment of family members, shall be an
amount equal to i00 percent of the weighted average of the
health benefits plan premiums for employees or annuitants
enrolled for self alone, but not more than i00 percent of
premium applicable to him or her, plus (where there are
dependents) 90 percent of the weighted average of the additional
premiums required for enrollment of family members in the four
health benefits plans that have the largest number of
enrollments during the fiscal year to which the formula applied,
plus Administrative fees and Contingency Reserve Fund.
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NOT YET APPROVED
SECTION 2. That the percentage of employer contribution
payable for post retirement health benefits for each retired
employee shall be based on the employee’s completed years of
credited service based upon Government Code Section 22825.5;
plus administrative fees and Contingency Reserve Fund
assessments.
SECTION 3. The Council finds that this is not a project
under the California Environmental Quality Act and, therefore,
no environmental impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FOR94:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director of Human Resources
Director of Administrative
Services
041007 syn 0091510