COUNTY OF SAN MATEO

Human Resources Department

DATE:

March 14, 2008

BOARD MEETING DATE:

March 25, 2008

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

Donna Vaillancourt, Human Resources Director

Paul Hackleman, Benefits Manager

Peter Bassett, Benefits Manager

SUBJECT:

Implementation of New Retiree Health Benefit for Management, Attorneys and Confidential Employees, and Elected Officials Hired or Newly Elected After April 1, 2008

RECOMMENDATION:

Adopt a Resolution:

1. Implementing a new Retiree Health Benefit for new employees who are hired after April 1, 2008 in the Management, Deputy District Attorney, County Counsel and Confidential classifications, and Elected Officials who are newly elected after April 1, 2008;

2. Waiving the Request for Proposals (RFP) process; and

3. Authorizing the Human Resources Director to execute an agreement with Hartford, upon approval by County Counsel, for the provision of investment options for participants and administrative services for adjudication of claims.

VISION ALIGNMENT:

Commitment: Responsive, effective and collaborative government

Goals 20 and 21: Government decisions are based on careful consideration of future impact rather than temporary relief or immediate gain; and, County employees understand, support and integrate the County vision and goals into their delivery of services.

This Resolution contributes to these goals by creating a more equitable retiree health benefit structure among all employees; and contributes toward reducing future growth in the County’s unfunded retiree health liability.

Performance Measure(s):

Measure

FY 2007-08
Estimate

FY 2008-09
Projected

Number/Percentage of management employees with new retiree benefit

N/A

62 / 10%

BACKGROUND:

The existing retiree health benefit provided to County employees is based on the conversion of unused sick leave hours to monthly contributions toward health insurance premium payments. Under current MOUs, most represented employees receive $420 per month for each eight hours of unused sick leave while some represented employees receive $675 per month. Management, Deputy District Attorney, County Counsel and Confidential employees receive 100% of the monthly premium cost for every eight hours of unused sick leave, which can be up to $1,325 (for a retiree and spouse) or $1,927 (for a retiree with two dependents).

In 2007, the County completed its second actuarial valuation in order to comply with new Government Accounting Standards Board (GASB) requirements for reporting the annual required contribution and unfunded liability for other post-employment benefits (OPEB) such as retiree health. The unfunded liability represents benefits that have already been earned or accrued by existing employees, for which the County is liable when employees retire. The County’s total unfunded OPEB liability was $170 million. Over 25% of the unfunded liability for active employees was attributed to the management/elected, attorneys and confidential groups, who make up 12% of total employees.

Based on the portion of the County’s unfunded liability that is related to Management, Elected, Attorneys, and Confidential employees, which will continue to grow as a significant percentage of the total liability, as well as the desire to provide a more equitable retiree health benefit structure among all employees, the County began to explore ways to restructure retiree health benefits for this employee population.

DISCUSSION:

In order to prospectively manage the growth in unfunded OPEB liability, it is recommended that Management, Attorneys, and Confidential employees who are hired from outside the County after April 1, 2008, and Elected Officials who are newly elected after April 1, 2008, receive two benefits:

1. The value of each 8 hours of unused sick leave at retirement will equal a County contribution of $700 per month toward retiree health premium cost rather than full payment of the health premium. (Neither the dental nor vision plan benefits will be affected by this change and will continue to be paid at 100% of premium for each 8 hours of unused sick leave.)

2. In addition, the County will contribute $100 per month per employee to a Section 115 Integral Trust (retiree health savings account). Employees will retain the value of these contributions, be able to invest the contributions on an individual basis, and be able to use these funds upon retirement, or roll over contributions upon resignation from the County.

A Section 115 Integral Trust allows an employer to make pre-tax contributions to an individual savings account throughout the career of an employee without assuming additional GASB liability for these contributions. Money contributed to this account is placed in investments, like a 401(k) or 457 plan, selected by participants which have non-taxed investment earnings. Upon retirement or termination, payments made for eligible premiums or medical expenses are also not taxed. Upon the death of an employee, account funds are available to eligible spouses and dependents for continued payment of eligible expenses without taxation. Upon the death of an employee without any eligible dependents, remaining funds are allocated to all other accounts in the trust on a pro-rated basis.

One of the County’s existing deferred compensation providers, Hartford, offers a Section 115 Integral Trust. Because the County currently contracts with Hartford for its deferred compensation plan, the assets the County has with Hartford can be used to maximize fund returns and minimize individual account expenses. It is recommended that the Request for Proposal (RFP) process be waived and the Human Resources Director be authorized to enter into an agreement with Hartford to provide the Section 115 Integral Trust and administration of claims by its Third Party Administrator, EBSC.

These recommendations were reviewed and approved by Executive Council.

FISCAL IMPACT:

The next full actuarial valuation will begin to capture the financial benefit of this change. It is expected to reduce the County’s long-term GASB liability since the future and monthly cost per applicable employee will be reduced, and the $100 monthly contributions per employee to the 115 Integral Trust are not counted as a GASB liability. Because this change only applies to future management employees hired from outside the County after April 1, 2008, the initial impact on the County’s GASB liability will be small but will increase over time. Each of the next bi-annual valuations will include an update of the cost impact to the County.