COUNTY OF ALBEMARLE

 

EXECUTIVE SUMMARY

 

 

AGENDA TITLE:

Preliminary Review of Options for Retirees

 

 

SUBJECT/PROPOSAL/REQUEST:

Request approval to develop recommendation

 

 

STAFF CONTACT(S):

Tucker, White, Davis, Suyes, Gerome, Breeden

 

 

LEGAL REVIEW:   Yes

 

AGENDA DATE:

February 1, 2006

 

ACTION:     x                            INFORMATION: 

 

CONSENT AGENDA:

  ACTION:                                INFORMATION: 

 

 

ATTACHMENTS:      No

 

 

REVIEWED BY:

 

 

BACKGROUND:

Staff was requested to review options and costs to provide retirees an additional benefit due to the high cost of health insurance.  This request was initiated by retirees under the County’s VERIP program who retired prior to age 60.  The VERIP program provides some benefits for five years (or age 65) which means they expire prior to the retiree reaching age 65 or Medicare eligibility.

 

The current VERIP program minimum eligibility is 50 years of age with 10 years of service and has two different elements.

 

1) Retirement Income - retirement income under VRS is calculated both normally and then with 5 additional years of service, the difference between the two amounts and their actual VRS amount is paid for a period of 5 years.

 

2) Retirement Health/income – retirees also receive the County’s Board contribution for health insurance for 5 years.  Currently, this amount is $5,755 annually.  This amount is paid to the employee and can be used to pay health insurance or any other purpose.

                                                                                    Annually            Monthly

            Current cost for Family Coverage                         $9,984              $832

             VERIP payment                                                $5,755               $352

 

Options Reviewed

 

1)         VRS Health Credit - as the amount offered by VRS is minimal; this option would not adequately offset health insurance cost.

 

2)         VERIP-Extension of Benefits

 

o        The proposal would extend the retirement/health element of VERIP for an additional five years at ½ of the County’s employer annual contribution.

 

o        Minimum eligibility was defined as 55 years of age with 20 years of service.

 

o        Projected costs shown are based on “worst case scenario”

 

o        Assumes all eligible employees would elect this option the first year of eligibility

 

o        Assumes retirees are provided benefits for  a full 10 years (current VERIP discontinues after 5 years or when retiree reaches age 65)


 

 

Cost Summary of Increased Retiree Benefit Proposal

 

FY 05

FY 06

FY07

FY 08

FY09

FY 10

FY11

FY12

FY 13

FY 14

 

Gen Fund

Employees

51,768

56,945

45,239

49,763

50,529

148,218

173,230

252,203

302,083

366,199

School-Non

Prof. Employees

 2,876

 3,164

  3,480

 7,656  

12,632

 46,318

  61,140

 72,859

  86,309

101,722

School- Prof

Employees

132,296

155,016

160,078

164,602

172,641

264,014

275,131

269,016

286,588

305,166

Total Cost

186,940

215,125

208,798

222,021

235,802

458,551

509,501

594,078

671,981

773,086

 


 

The Board requested that Human Resources evaluate the proposal to extend retiree health benefits and provide options.

 

STRATEGIC PLAN:

Goal: 4.1 Provide effective, responsive and courteous service to our customers

 

DISCUSSION:

The Albemarle County Local Government’s success in implementing the County’s Strategic Plan and meeting its stated goals will depend on its ability to attract and maintain a high quality and high performing workforce in an extremely competitive environment. The Board has recognized the importance of providing competitive salaries and benefits.  Additionally, as indicated in the recent Human Resources Annual Report, an increasing number of employees are reaching eligibility for VERIP and retirement benefits every year.  As it is critical for Albemarle County to focus on retaining these employees and recruiting skilled candidates, the County’s total compensation plan is designed and evaluated in light of  those objectives. To provide comprehensive information, the following report provides

 

1) Summary of Current Retirement Benefits

            2) Review of Extending Retiree Benefits

3) Review of Providing an Employer Match to Deferred Compensation, including public sector best practices

4) Options for Consideration

 

Summary of Current Retirement Benefits

In addition to the  VERIP program, Albemarle County provides the Virginia Retirement System (VRS), a defined benefit retirement plan to all full time employees.  Contributions are paid in full by the County. 

The following table illustrates the current retirement eligibility criteria and benefits provided to employees. 

 

 

School

Professional Staff

Other School

Local Gov't

LEOS

VERIP:  Must meet VRS age/service retirement requirements, have worked for the County 10 of the 13 years previous to retirement and accept VERIP at separation of employment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

X

X

X

X

VRS Eligibility Requirements for age and service:

 

 

 

 

              Unreduced Benefit:

50/30 or 65/5

50/30 or 65/5

50/30 or 65/5

50/5

              Reduced Benefit:

50/10 or 55/5

50/10 or 55/5

50/10 or 55/5

50/25 or 60/5

One-Time Bonus ($200 per year of service)

X

X

X

X

Hazardous Duty Stipend ($892/month until retiree reached Social Security retirement age)

 

 

 

X

Health Insurance Credit ($2.50 per year of service up to $75/month max.

X

 

 

 

Life Insurance

X

X

X

X

 

As indicated, additional benefits provided as follows:

Voluntary Savings for Retirement

All Local Government employees may voluntarily contribute to the 457 deferred compensation program, while school employees may choose either the 457 deferred compensation or a 403 (b) tax sheltered annuity company. Both the 457 Plan and 403(b) Plan are opportunities to save money for retirement while reducing taxable income, through payroll deduction.

 

Review of Extending Retiree Benefits

The proposal to provide retirees additional benefits to help offset the cost of health insurance would provide a benefit to a small number of employees.   Data indicates that the trend in the market is to limit benefits to retirees, as indicated by the 2003 Kaiser/Hewitt survey reporting many employers have dropped coverage for retirees who are not “grandfathered in” as the cost implications may be significant in the long run. 

 

In order to support the County’s objective to attract and retain, while addressing the issue of the increasing high cost of health care in retirement, staff reviewed an alternative, to provide a match to the deferred compensation plan. 

 

Provide an Employer Match to the Deferred Compensation Plan

This would provide a benefit for all employees.  Considerations are as follows:

 

o        (Palmer & Cay focus groups 2000, Open Enrollment Survey 2005)

 

Best Practices for Deferred Compensation accounts

o        State of Virginia, $25/pay period match, (26 pays) $650 total employer contribution

o        Roanoke County, $25/pay period match, (26 pays) $650 total employer contribution

o        Loudoun County, $20/pay period match, (26 pays) $520 total employer contribution

 

Options for consideration

The objectives in designing a match would include: ease of administration and communication; amount of match that provides an incentive for all employees to contribute towards their own retirement needs, i.e. health care.

 

Examples of possible plan designs include:

Option #1: Flat $25/month Match, $300 total annual employer contribution per participating employee.  Albemarle County will match every dollar contributed into employees 403(b) or 457 Deferred Compensation up to $25 per month

 

Option #2: 25% match of participant deferrals, to a maximum of $300 per year.

Albemarle County will determine the contribution to be made on behalf of the 403(b) and 457 deferred compensation plan participants based on their level of deferral.  For example: The employer would match 25 cents for every dollar the employee contributed up to a maximum.

 

BUDGET IMPACT:

Not yet determined

 

RECOMMENDATIONS:

Direct staff to move forward on extending retiree benefits or to further research and develop specific recommendations for Albemarle County to provide a Match to the Deferred Compensation Plan.

 

Return to regular agenda