COUNTY OF ALBEMARLE
Early Retirement Incentive - Amendment of Personnel Policy §P-63, Retirement
Adoption of Policy Amendment to extend VERIP Benefit for Medical Contribution
Messrs. Tucker, Foley and Davis; and Ms. Kim,
Ms. Suyes and Ms. Gerome
LEGAL REVIEW: Yes
January 7 2009
ACTION: X INFORMATION:
In an effort to effect cost savings over the next five years while maintaining commitments to employees, it is critical to seek innovative solutions to reduce compensation costs. The following report is a proposal for a one time retirement incentive to create opportunities for employees who wish to retire.
Goal 1: Enhance the Quality of Life for all Albemarle County Residents.
By June 30, 2009, the Board of Supervisors and general government employees will increase collaborative efforts with the School Board and with employees of the schools system to assist the School Division to achieve recognition as a “world class education system.”
The Voluntary Early Retirement Incentive Program (VERIP) was adopted by the Board of Supervisors and School Board during the summer of 1993 for both School Division and Local Government employees. Policy §P-63, Retirement, establishes this program. VERIP is designed for employees who have already met VRS retirement eligibility standards, but are not yet 65. It gives these employees an “early” retirement option that assists with medical insurance costs and supplements reduced Social Security benefits. To be eligible for benefits, employees must:
· Meet early or full VRS retirement eligibility standards;
· Have worked for Albemarle County for 10 of the last 13 years immediately prior to retirement; and
· Be employed in a benefits-eligible position at the time of retirement.
VERIP provides two kinds of benefits, both payable on a monthly basis for 5 years or until age 65, whichever comes first:
1) Contribution equivalent to the Board medical contribution given to active full-time employees; and
2) A stipend based on the difference between the estimated VRS benefit the employee would receive by retiring “early” and the benefit the employee would receive with 5 additional years of service.
While VERIP serves as a retention tool in that it encourages the more experienced employees (particularly those within 15-20 years of retirement) to stay with the organization at least 10 years in order to qualify for the program benefits, the program also provides an option for employees who wish to leave the work force, but are still several years away from qualifying for Social Security retirement benefits. Although retirees can draw Social Security benefits as early as age 62, Medicare is not offered until the employee has reached the age of 65. As such, the VERIP benefit, which includes up to 5 years of the Board contribution toward the employee’s health insurance costs, allows employees who would otherwise be forced to remain in the workforce an opportunity to retire with their health coverage intact until Medicare eligibility.
In an effort to provide an additional benefit to those employees contemplating retirement and, at the same time, realize some savings, a short term retirement incentive is proposed.
Short Term: One Time Retirement Incentive
The following proposal is a one time retirement incentive to create opportunities for employees who wish to retire. This incentive provides VERIP eligible employees the option to apply for VERIP and:
· receive the Board medical contribution for two additional years, or
· receive the cash payment equivalent to that amount.
The following scenarios illustrate the proposed amendments:
· A 55-year-old employee would receive 7 years of medical contributions instead of 5 years of medical contributions.
· A 62-year-old employee would receive an amount equivalent to medical contributions until age 67 rather than age 65 (although participation in the medical plan remains capped upon turning 65).
· A 66-year-old employee would receive 2 years of medical contributions, instead of being ineligible for any medical contributions.
These changes to VERIP would benefit employees and the organization as follows:
Benefit to Employees:
Allows eligible employees who want to retire but are concerned about the gap in medical coverage prior to reaching age 65 to receive the Board contribution to medical for two additional years.
Benefit to Organization:
Cost savings – There is a savings for VERIP retirement in regard to staffing costs. Typically, VERIP retirees have left the organization with 20+ years of service (the average being 22.75 for the years 2000-2007). The organization, however, can generally replace retiring staff with highly qualified employees at a lower salary than the employee whom they have replaced. In addition, for employees who would not have otherwise retired this coming fiscal year, the County would realize the full salary savings of those employees not replaced due to the current financial conditions.
This retirement incentive is designed as a one-time window of opportunity. To be eligible, employees would need to meet the VERIP eligibility criteria and agree to retire no later than June 30, 2009. As Policy §P-63 states that the deadline for VERIP applications is December 1 and that VERIP is payable for 5 years or until age 65, an amendment to this policy is attached changing the application deadline to February 27, 2009 and indicating the option of extending the payments an additional two years or receiving that amount as a cash equivalent.
Long Term: Develop recommendations to change VERIP monthly stipend
Market data indicates that the level of benefit offered in terms of the stipend may exceed the majority of other localities as few localities offer supplemental retirement benefits. Data from the Joint Board adopted market Total Rewards Survey conducted in July 2007 indicates that only 26% (6 localities out of 23) offer a supplemental retirement benefit. Additionally, data from the October 2007 Survey of School Divisions indicate that divisions offering a supplemental benefit require retirees to return to work additional hours during the period of their benefits. However, providing the Board medical contribution appears to be market-competitive, as nearly one half (43.5%) of the localities responding to the July 2007 survey indicated they provided a employer supplement to health insurance. As specific employer contribution amounts were not collected in that survey, further analysis is required.
A review of the VERIP benefit by the Health and Welfare Benefit consultant for Albemarle County, Tom MacKay, of Keiter, Slabaugh, Penny and Holmes (KSPH) concluded the following:
“KSPH recommends that Albemarle County and Schools consider eliminating the monthly VRS subsidy under the VERIP plan. It is the opinion of KSPH that the retiree medical benefit is the piece that is highly valued by those employees who consider VERIP very important, not the supplemental VRS payment. The retiree medical benefit is highly valued since the cost of individual health insurance for an employee over age 50 can range from $200 to over $1,000 per month.”
In light of this information, the monthly stipend portion of the VERIP benefit is recommended to be reviewed. Over the next several months, staff will obtain current market information to assess the market competitiveness of the stipend portion of the VERIP benefit and develop recommended changes for FY 10/11.
Local government considers this incentive as a means to help realize the already projected savings generated from an addition twelve vacancies needed by the end of FY 2010. The exact savings will depend on the number of employees that take advantage of this offer.
Staff recommends that the Board adopt the attached Resolution to amend policy §P-63.
A – Resolution adopting Amended Policy §P-63
Return to consent agenda
Return to regular agenda