COUNTY OF ALBEMARLE

 

EXECUTIVE SUMMARY

 

 

AGENDA TITLE:

Proposals to Extend Retiree Benefits and to Provide a Matching Amount to Employees’ Deferred Compensation Plans

 

 

SUBJECT/PROPOSAL/REQUEST:

Request approval of recommendations

 

 

STAFF CONTACT(S):

Tucker, White, Davis, Suyes, Gerome

 

 

LEGAL REVIEW:   Yes

 

 

AGENDA DATE:

April 5, 2006

 

ACTION:       X                         INFORMATION:   

 

CONSENT AGENDA:

  ACTION:                               INFORMATION:   

 

 

ATTACHMENTS:  

 

 

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, whichever comes first.  This means the benefits may 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 or age 65.

2) Retirement Health/income – retirees also receive the County’s Board contribution for health insurance for  5 years or up to age 65.  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.

 

Options Reviewed

1)   VRS Health Credit -.  This is currently offered to School Professional Employees and was an option originally considered for all employees, however as the amount offered by VRS is minimal; this would not adequately offset health insurance costs.  This option is not being considered further.

2)   VERIP-Extension of Benefits

3)   Provide a Match Amount to the Deferred Compensation Plan

 

The Board requested that Human Resources develop proposals as follows:

1)       To extend retiree health benefits, and

2)       To provide for a match amount to the deferred compensation plan

 

STRATEGIC PLAN:

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

 

DISCUSSION:

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.  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.  Additionally as the Joint Board’s adopted strategy is to target benefits slightly above market, the value perceived by employees of our overall benefits program and the costs of those benefit programs are evaluated in recommending new programs. In order

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

4) Options

 

1)  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 example illustrates the retirement benefits provided to employees and the differences in the current retirement benefits. As indicated, additional benefits are provided as follows:

 

Employee with Average Final Compensation of $45,000 Unreduced (Full) Retirement

 

 

 

 

 

Teachers

Local Government

Public Safety

Age/Svc

50/30

50/30

50/25

VERIP:

 

 

 

Monthly Stipend (5 years)

$319

$319

$319

Board Medical Contribution (5 years) - Current

$479.58

$479.58

$479.58

VRS Monthly Benefit (Life)

$1,913

$1,913

$1,594

Hazardous Duty Stipend (w/20 yrs haz duty; paid monthly until normal Social Security Retirement Age

n/a

n/a

$892

Health Insurance Credit (monthly)

$75

n/a

n/a (Note: Constitutional Officers receive $45)

Total yearly combined VERIP & VRS benefit

$33,439.00

$32,539.00

$39,415.00

 

2)  Review of Extending Retiree Benefits

New GASB Retiree Welfare Benefit Accounting Standard

An issue regarding retiree health insurance is the change in the way organizations plan to pay for the benefits.  The Governmental Accounting Standards Board (GASB), which is responsible for developing the accounting rules for State and Local Government, recently changed from a pay-as-you-go accounting basis to an accrual basis.  This will have a significant impact on State and Local Government’s financial statements.  A new annual liability, called the Annual Required Contribution (ARC) must be determined actuarially.   

 

Current Trends in Retirement Health Benefits

Data indicates that the trend in the market is to limit benefits to retirees. 

 

Extending Retiree Benefits

The current monthly cost of individual only coverage ranges from $497.33 (low option) to $525.33 (high option).  This proposal provides a $500 per month contribution for those retirees with twenty five years of service with Albemarle County once VERIP has expired before age 65. A lesser benefit amount, for example $250 per month, would reduce the annual county contribution shown below by 50%. The first chart illustrates the estimated cumulative costs of extending benefits, as well as a projection of the existing VERIP costs.

 

 

 

# retirees

Estimated Cost of Proposed VERIP Extension (07-17)

Local Govt.

15

$300,000

School

69

$1,500,000

Total County

84

$1,800,000

 

 

 

The second chart illustrates the cost per year and the cumulative costs of extending benefits to existing retirees.

 

 

Yearly Costs of Proposed VERIP Extension - Current Retirees

as of year

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Eligible retirees

25

36

44

42

40

43

30

21

13

5

1

Annual cost

150000

216000

264000

252000

240000

258000

180000

126000

78000

30000

6000

Cumulative cost

 

366000

630000

882000

1122000

1380000

1560000

1686000

176400

1794000

1800000

 

 

The third chart includes current employees who will have at least twenty five years of service and will meet full retirement eligibility within five years (adjusting for the five years of VERIP eligibility).  This proposal provides $500 per month for current employees who will have at least twenty five years of service, will meet full retirement eligibility within five years and retire by July 1, 2011.  This will begin once an employee has retired and VERIP is exhausted and will be paid for 5 years or to age 65 whichever comes first.  The costs reflected are based on the assumption that all eligible employees would retire upon first year of eligibility (the worst case scenario).

 

 

 

Chart Three - Costs of Proposed VERIP Extension - Forecasted Costs

as of year

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

LG elig retirees

22

21

27

30

35

29

25

19

16

7

LG est cost

132,000

126,000

162,000

180,000

210,000

174,000

150,000

114,000

96,000

42,000

Cumulative cost

 

258,000

420,000

600,000

810,000

984,000

1,134,000

1,248,000

1,344,000

1,386,000

 

 

 

 

 

 

 

 

 

 

 

School elig retirees

106

112

106

109

109

73

56

43

26

14

School est cost

636,000

672,000

636,000

654,000

654,000

438,000

336,000

258,000

156,000

84,000

Cumulative cost

 

1,308,000

1,944,000

2,598,000

3,252,000

3,690,000

4,026,000

4,284,000

4,440,000

4,524,000

 

 

 

 

 

 

 

 

 

 

 

Total County eligible retirees

128

133

133

139

144

102

81

62

42

21

Total County estimated cost

768,000

798,000

798,000

834,000

864,000

612,000

486,000

372,000

252,000

126,000

Cumulative cost

 

1,566,000

2,364,000

3,198,000

4,062,000

4,674,000

5,160,000

5,532,000

5,784,000

5,910,000

 

 

3)  Provide a Match Amount to the Deferred Compensation Plan

This would provide a benefit for all employees.  As indicated in the February 1, 2006, Executive Summary, considerations are as follows:

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

 

Recommendation:  Albemarle County provides a match amount of 25% of the employee’s contribution to the 403(b) or 457 deferred compensation plans up to a maximum $300 per year. Objectives in designing this match include: ease of administration, communication and selection of match amount to provide an incentive for all employees to contribute towards their own retirement needs, such as health care expenses.

 

BUDGET IMPACT:

Extending Retiree Benefits

 

Provide a Match Amount to the Deferred Compensation Plan

 

RECOMMENDATIONS:

 Options for consideration:

1)        Albemarle County provides a $500 per month or a lesser contribution for five years for current retirees who have twenty five years of service with Albemarle County whose VERIP has expired and are not yet 65.

2)        Albemarle County provides $500 per month or a lesser contribution for current employees who will have at least twenty five years of service, will meet full retirement eligibility within five years and retire by July 1, 2011. This will begin once an employee has retired and VERIP is exhausted and will be paid for 5 years or to age 65 whichever comes first.

3)       For all other employees, Albemarle County provides a match of 25% of the employee’s contribution to the 403(b) or 457 deferred compensation plans to a maximum County contribution of $300 per year. 

 

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