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HomeMy Public PortalAbout13) 7J Approve Consultant Services Agreement with Bartel and Associates Acturial Services for Adoption of CALPERS and PEMHCAAGENDA ITEM ?.J. ADMINISTRATIVE SERVICES DEPARTMENT MEMORANDUM DATE: April?, 2015 TO: The Honorable City Council FROM: Bryan Cook , City Manager By : Tracey L. Hause , Administrative Services Director SUBJECT: AUTHORIZE THE CITY MANAGER TO ENTER INTO A CONSULTANT SERVICES AGREEMENT WITH BARTEL & ASSOICATES FOR ACTUARIAL SERVICES REQUIRED FOR ADOPTION OF THE CALIFORNIA PUBLIC EMPLOYEES RETIREMENT SYSTEM (CALPERS) PUBLIC EMPLOYEES MEDICAL AND HOSPITAL CARE ACT (PEMHCA) RETIREE HEALTH BENEFIT VESTING SCHEDULE FOR NEW HIRES REPRJ;SENTED BY TEMPLE CITY EMPLOYEES ASSOCIATION (TCEA) RECOMMENDATION: The City Council is requested to authorize the City Manager to enter into a Consultant Services Agreement with Bartel & Associates for an actuarial study in an amount not to exceed $3,000 . BACKGROUND: 1. On August 1, 1978 , the City Council adopted Resolution No . 78 -1747 authorizing the City of Temple City (City) to contract with CaiPERS to provide medical benefits to both active and retired employees through the PEMHCA. The resolution also committed the City to contributing the full cost of enrollment for each employee or reti ree plus 50% of the cost of enrollment a dependent or family members . 2. On February 24 , 2015 , the City Council adopted Resolution No . 15-5067 approving the Memorandum of Understanding (MOU) between the City of Temple City and the Temple City Employees Association (TCEA). ANALYSIS: As part of the MOU negotiations for Fiscal Year (FY) 2014-15 , TCEA agreed to the City Council April 7, 2015 Page 2 of 4 City's proposal to adopt an alternative vesting schedule for retiree health benefits for new employees . Authorizing the City Manager to contract with John Bartel & Associates to complete actuarial study is only the first step in a lengthy and complex process required to change the curre nt retiree health benefits. As a result , the history of how the current level of benefits was established and the steps to modify these benefits are provided below. Current Benefit Since 1978, the City has been paying the full cost of enrollment in a health benefits plan sponsored by CaiPERS for full -time active emp loyees , including 50% of the cost of enrolling dependent or family members , Additionally, the City continues to provide this post-retirement benefit if the emp loyee is vested with CaiPERS (genera lly requir i ng 5 years of service) and retires from the City (minimum age for retirement is generally 50). This has created a significant Other Post Employment Benefits (OPES) liability for the City with respect to retiree health benefit costs , and the City Council is interested in reducing this future liability . Proposed Change in Retiree Health Benefits One alternative to potentially reducing this future liabili ty is to adopt a second tier vesting schedule for retiree health benefits pursuant to Government Code Section 22893 (Attachment "A ") wh ic h would be applicable to new emp loyees of the City (alternative vesting schedul e). The alternative vesting schedule would require that new employees have a minimum of 10 years of CaiPERS service credit (at least 5 years of which must be with Temple City) in order to be entitled to receive the minimum 50 % of the employer contribution amount during service retirement. For each additional year of CaiPERS service credit , the retiree would be entitled to an additional 5 % of the employer contribution , maxing out at 100% with 20 years of service credit. The employer's contribution for each retiree under the vesting schedule is a "1 00/90 " formula , defined as the amount necessary to pay the full cost of his/her enrollment , including the enrollment of family members, in a health benefits plan or plans up to a maximum of 100% of the weighted average of the employee- only health benefits plan premi ums plus 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 larg est number of enro llm ents during the fiscal year to which the benefit applies . Notable statutory exceptions to the alternative vesting schedule include employees who separate with a disability retirement (who receive 100% of the employer's contribution irrespective of the service credit) and employees who retire after serving 20 years or more exclusively with the City (who are subject to less stri ngent requirements as to how soon they must retire after separation from the City to be entitled to City-paid retiree health benefits). City Council April 7, 2015 Page 3 of 4 Steps to Implement Change in Retiree Health Benefits Step 1: The City must retain an Actuary to conduct an actuarial study and report findings in open session. U nder Secti o n 7507 of the Government Code , "local legisla ti ve bodies," such as t he City Council , must retain an Actuary when considering "changes in retiremen t benefits or other postemployment benefits , such as retiree medical benefits". As part of the actuarial study , the Actuary must provide an analysis regarding the "actuarial impact upon future annual costs " from making the proposed change compared to th e future cost of continuing current practices . The impact shou ld be reflected in dollar amounts involved annually, as well as in tota l, if possible. In addition , the impact should take into account any change in "accrued liab i lity." The City Council is then required to present the Actuary's study regarding future impact of the proposed change at a public meeting and must do so at least two weeks before adopting any changes to retirement benefits or other post- employme nt ben efits . If the actu a rial valuation show s th at adopting the changes t o retiree medica l benefits would result in more than a 0.5 % increase in future costs , the City Council must have an Actuary attend the public meeting when the actuaria l valuation is presented to provide additional information as needed before the vote on the resolution . Since the proposed alternative vesting schedule appears less generous than the c urre nt benefit, it is anticipated there will not be an increase in future costs , thus not requiring the Actuary preparing the report t o attend the meeting . It is anticipated that it will take approximate ly three weeks to complete the actuarial study. As a result, staff is planning to return to the City Council with the results of th e actuaria l study o n M ay 5 , 2015 . Step 2: City adopts the appropriate CaiPERS resolution(s). Since at least two weeks is required to pass after the future impact of the proposed chan ges are made available at a pub l ic meeting , staff proposes a recommendation for adoption of the resolution(s) required modifying the benefit on May 21 , 2015. State law stresses that the vote on adoption of the changed benefit ca nn ot be p laced on th e co nsent ca le ndar. As a f in al requirement, if the City Council votes to adopt the changed benefit , th e Ci ty 's equi valent of a CEO (City Manager) must acknowledge in writing t hat he/she "understa nds the current and future cost of the benefit as determined by the Actuary." City Counci l April 7, 2015 Page 4 of 4 Step 3: City submits the adopted resolutions to CaiPERS , After the adoption , the City will file the reso lution(s) with CaiPERS. If the resolution(s) are filed with Ca iP ERS on or before the tenth day of any month , which staff a nti cipates filing with CaiPERS before Ju ne 10, 2015 , the benefit change will be effective on the first of the following month . As a result , all new employees hired after July 1, 20 15 , will be subject to t he alternative vesti ng schedu le for retiree benefits if they should retire from the City . Since there is an interest in moving th is process along quickly, staff is recommending the City contract with John Bartel & Associates for the actuarial study required under State law. John Bartel & Associates completed the C ity's OPEB actuarial study for the period ending June 30 , 2011 , and is currently comp leting the OPEB actuarial study update for the period ending June 30, 2014 . This firm is familiar with the City's benefit structure and already has a good deal of the data tha t will be required to complete the actuarial study. CONCLUSION: In order to implement a prov1s1on of the approved MOU with TCEA, an alternative vesting schedule for re tiree benefits must be adopted . To comp lete the implementation of an alternative vesting schedule , an actuaria l study is required . Since John Bartel & Associates is familiar with th e City's organization and benefit structure , staff is recommending that the City Counci l authorize the City Manager to enter into a Consultant Services Agreement with Bartel & Associates for the actuarial study . In keeping with the vision of the City's Strategic Plan , this action will ensure good governance. FISCAL IMPACT: The cost to comp lete the analysis is $3 ,00 0 . There are sufficient funds budgeted in the FY 2014 -15 C ity Budget. ATTACHMENT: A. Cal ifornia Government Code Section 22893 ATTACHMENT A 22893 . (a) Notwithstanding Section 22892 , the percentage of employer contribution payable for postretirement health benefits for an employee of a contracting agency subject to this section shall , except as provided in subdivision (b), be based on the member 's completed years of credited state service at retirement as shown in the following table : Credited Percentage of Years Employer of Service Contribution 10 50 11 55 12 60 13 65 14 70 15 75 16 80 17 85 18 90 19 95 20 or more 100 This subdivision shall apply only to employees who retire for service and are first employed after this section becomes applicable to their employer , except as otherwise provided in paragraph (6). The application of this subdivision shall be subject to the following provisions : (1) The employer contribution with respect to each annuitant shall be adjusted by the employer each year . Those adjustments shall be based upon the principle that the employer contribution for each annuitant may not be less than the amount equal to 100 percent of the weighted average of the health benefit plan premiums for an employee or annuitant enrolled for self-alone, during the benefit year to which the formula is applied , for the four health benefit plans that had the largest state enrollment, excluding family members, during the previous benefit year . For each annuitant with enrolled family members , the employer shall contribute an additional 90 percent of the weighted average of the additional premiums required for enrollment of those family members , during the benefit year to which the formula is applied , in the four health benefit plans that had the largest state enrollment , excluding family members , during the pre vious benefit year . Only the enrollment of , and premiums paid by , state employees and annuitants enrolled in basic health benefit plans shall be counted for purposes of calculating the employer contribution under this section . (2) The employer shall have , in the case of employees represented by a bargaining unit , reached an agreement with that bargaining unit to be subJect to this section . (3) The employer sha ll certify to the board , in the case of employees not represented by a bargaining unit , that there is not an applicable memorandum of understanding . (4) The credite d service of an employee for the purpose of determining the percentage of employer contributions applicable under this section shall mean state service as defined in Section 20069 , except that at least five years of service shall have been performed entirely with that employer . (5) The employer shall provide the board any information requested that the board determines is necessary to implement this section . (6) The employer may , once each year without discrimination, allow ATTACHMENT A all employees who were first employed before this section became applicable to the employer to i n dividually elect to be subject to the provisions of this section , and the employer shall notify the board which employees have made that election . (b) Notwithstandi n g subdivision (a), the contribution payable by an employer subject to this section shall be equal to 100 percent of the amount established pursuant to paragraph (1) of subdivision (a) on be h alf of any annu i tant who either : (1) Retired for disability. (2) Retired for service with 20 or mo re years of service credit entirely with that employer , regardless of the number of days after separation from employment . The contribution payable by an employer under this paragraph shall be paid only if it is greater than , and made in lieu of , a contribution payable to the annuitant by another employer under this part . The board shall establish application procedures and eligibility criteria to implement this paragraph . (c) This section does not apply to any contracting agency , its employees , or annuitants unless and until the agency files with the board a resolution of its governing body e l ecting to be so subject . The resolution shall be adopted by a majority vote of the governing body and shall be effective at the time provided in board regulations .