HomeMy WebLinkAbout2003-11-17 City Council (6)City of Palo Alto
City Manager’s Report
3
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: HUMAN RESOURCES
DATE:NOVEMBER 17, 2003 CMR: 499:03
SUBJECT: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 MANAGEMENT AND
PROFESSIONAL GROUP
RECOMMENDATION
Staff recommends Council approve the attached resolution to amend the City’s contract with
the Public Employee’s Retirement System (PERS) to establish a 10/20-year vesting
requirement for eligibility for retiree health insurance. This change will apply to future
employees in the Management and Professional employees group (including Council
Appointed Officers and Council Members) hired after January 1, 2004.
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. Numerous options to reduce this
liability were considered. The committee determined the best option is the 10/20-year
vesting requirement program through PEMCHA. The vesting requirement will reduce the
number of employees who are eligible for retiree health coverage and, thus, result in
significant future savings to the City. This program will affect employees in the
Management and Professional group hired after January 1, 2004 and will provide for retiree
medical coverage only after 10 years of service credit (including at least five years at the City
of Palo Alto) and full City contribution only after 20 years of PERS service credit. The
Council has already authorized these changes in the compensation plan for the Management
and Professional group.
CMR: 499:03 :Page 1 of 3
DISCUSSION
Implementing this health benefit vesting requirement for future hires is another component
staff is recommending in order to obtain cost containment measures. The PERS law vesting
schedule as set forth in Government Code section 22825.5 will apply. Under this law, an
employee is eligible for 50% of the specified employer health benefit contribution after ten
years of service credit, provided at least five of those years were performed at the City of
Palo Alto. After ten years of service credit, each additional year of service credit increases
the employer contribution percentage by 5% until, at 20 years’ service credit, the employee is
eligible upon retirement for 100% of the specified employer contribution and 90% of the
specified 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 available to State employees.
RESOURCE IMPACT
The City will experience a cost avoidance but the actual dollar savings is difficult to
determine. At this time there is no way to know how many employees will be hired in future
years. The economy will play a significant role in the City’ s hiring practices. Furthermore,
based on the vesting schedule, the retiree medical coverage will not be paid out until 10 years
from now and the City cannot accurately estimate the cost of health insurance in 10 years due
to the uncertainty of the health care industry.
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).
CMR: 499:03 Page 2 of 3
ATTACHMENTS
Attachment 1 -Resolution electing to establish a health benefit vesting requirement
for future retirees in the Management and Professional Employees
group
¯ PREPARED BY:
Sandra T.R. Blanch, Risk and Benefits Manager
DEPARTMENT HEAD:
LESLIE LOOMIS
Director of Human Resources
CITY MANAGER APPROVAL:
HARRISON
Assistant City Manager
ClvlR: 499:03 Page 3 of 3
NOT YET APPROVED
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO
ALTO ELECTING TO ESTABLISH A HEALTH BENEFIT
VESTING REQUIREMENT FOR FUTURE RETIREES FROM THE
MANAGEMENT AND PROFESSIONAL PERSONNEL AND
COUNCIL APPOINTED AND ELECTED OFFICERS GROUP
UNDER THE PUBLIC EMPLOYEES’MEDICAL AND
HOSPITAL CARE ACT
WHEREAS, Government Code Section 22825.5 provides that a
loca! agency contracting under the Public Emp!oyees’ Medica! and
Hospita! Care Act may amend its resolution to provide a post
retirement vesting requirement to emp!oyees who retire for
service; and
WHEREAS, the City of Palo Alto is a local agency
contracting under the Act for participation by members of the
Management and Professiona! Personne! and Counci! Appointed and
Elected Officers Group (formerly known as "Management,
Confidentia! and Counci! Appointed and Elected Officers Emp!oyee
Group"); and
WHEREAS, the City of Palo Alto certifies, employees are
not represented by a bargaining unit and there is no applicable
memorandum of understanding; and
WHEREAS, the credited service~or~ purposes of
determining the percentage of employer contributions shal! mean
service as defined in Section 20069, except that not less than
five (5) years of that service shal! be performed entirely with
the City of Palo Alto.
NOW, THEREFORE, the Council of the City of Palo Alto
does RESOLVE as fol!ows:
SECTION I. That the employer’s maximum contribution for
each retired emp!oyee first hired on or after the effective date
of this resolution, 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 a!one, 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 additiona!
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
emp!oyee shall be based on the emp!oyee’s completed years of
credited service based upon Government Code Section 22825.5;
plus administrative fees and Contingency Reserve Fund
assessments.
SECTION 3. The Counci! finds that this is not a project
under the California Environmenta! Quality Act and, therefore,
no environmenta! impact assessment is necessary.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
City Attorney City Manager
Director of Human Resources
Director of Administrative
Services
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