Fort Walton Beach Council agenda — 05-15-2007 special agenda - budget policy — reading text

20 of 36 FY 2007- 08 Budget Policy Workshop There are 68 positions associated with this category, which account for approximately 28% of total payroll and 38% of General Fund payroll. It is not anticipated that all employees in this category will achieve the highest merit increase. Therefore, a performance based merit system for managerial and professional positions could result in savings over a step based system. 2. The proposed change would modify the current pay structure for managers and professional staff to provide an incentive for these employees to excel and meet organizational goals. 3. Charter Officers will continue to receive cost of living adjustments in accordance with the general employee adjustment. Annual increases will be set by City Council during the annual budget process or during the Charter Officer' s evaluation. Recommendation Modify the City' s current pay and compensation system to include a performance based merit evaluation system for Department Directors, Division Directors, Managers, Supervisors, and professional staff. 21 of 36 FY 2007- 08 Budget Policy Workshop W, 22 of 36 FY 2007-08 Budget Policy Workshop EMPLOYEE HEALTHCARE BENEFITS STRATEGIC PLAN GOAL - Economic Health/ Financial Viability: Alternative Compensation/ Benefit Systems Policy Decision Should the City contribution rates be modified for medical insurance? Backqround 1. The City pays 75% of the premium for either single or family medical insurance coverage. Employees who elect this coverage pay the remaining 25% through payroll deduction. 2. In order to keep the cost of health insurance affordable for both the City and its employees, a base plan is offered with the option for employees to " buy up" or " buy down" to another plan based on desired coverage. A majority of employees ( 87%) participate in the base plan. 3. Despite the health insurance plan design changing several times, the City' s contribution to health insurance premiums has increased 37% or $ 552K over the past five years. 4. Compared to five years ago, the City' s portion of employee coverage costs $ 614 or 23% more per year and dependent coverage costs $ 1, 671 or 23% more per year. Discussion 1. Many employers have shifted a major portion of the medical insurance increases to their employees in an attempt to cap employer overhead costs to fund these benefits. 2. The Human Resources Department recently surveyed public sector jurisdictions across Florida to determine what percentage of employee and dependent costs are being paid by the employer. Of the 59 respondents, 79% fund 100% of the employee cost of the premium and 78% fund 50% or less of the dependent portion of the premium. 3. A recent survey of local jurisdictions revealed that almost all of the respondents ( 78%) pay 100% of the employee portion of the medical insurance premium. The remaining 12% of the respondents either pay 90% or 93% of the employee portion. The respondents to this survey, on average, pay 50% of the premium for dependent costs. Policy Impact 1. Affordable health insurance providing quality coverage is an important part of the City' s benefits package. An attractive benefits package including good health insurance keeps the City competitive and able to recruit and retain qualified personnel. 2. Staff concludes that in most jurisdictions, either locally or across the State, employers on average pay 100% of the employee portion and 50% of the dependent portion of the medical premium. 3. Reducing the City' s portion of medical premiums ( consequently increasing the employee contribution) would likely offset wage increases ( either COLA or annual evaluation), thereby reducing available compensation to the employee. This may affect recruitment and retention. 4. Estimates based on current enrollment and rates indicate the following savings as a result of changing the City' s contribution percentages from 75 % Employee / 75% Dependent to: a. 75% Emp / 50% Dep - <$ 255, 396>; monthly employee increase $ 149.20 b. 75% Emp / 25% Dep - <$ 510, 780>; monthly employee increase $ 298.40 c. 90% Emp I 50% Dep - <$ 110, 160>; monthly employee increase $97. 54 d. 90% Emp / 25% Dep - <$ 365, 556>; monthly employee increase $246. 74 e. 100% Emp / 50% Dep - <$ 13, 344>; monthly employee increase $ 63. 11 f. 100% Emp / 25% Dep - <$ 268, 728>; monthly employee increase $ 212. 30 Recommendation Modify the City' s portion of the medical insurance premium contribution to 90% employee coverage and 50% dependent coverage effective on the plan renewal date of February 1, 2008. 23 of 36 FY 2007-08 Budget Policy Workshop GENERAL EMPLOYEES PENSION PLAN STRATEGIC PLAN GOAL - Economic Health/ Financial Viability: Retirement Funding Options Policy Decision Should the General Employees pension plan be modified? Backqround 1. General employees and police officers contribute 5% of wages and fire personnel contribute 6. 6% of wages into their respective plans. The contribution level for the General Employees plan has was last increased in 1979. 2. Investment earnings and employee/ employer contributions comprise the plans' income. The City' s contribution is based on actuarially estimated interest earnings and salary increases and must be adjusted in future years to make up for any deviation from the actuary' s estimates. Factors such as lower than anticipated investment earnings, more participants due to the early- out retirement program, additional fire personnel, and higher than actuarially estimated wages for employees have necessitated that City contributions increase over the past several years. 3. Based on actuarial analyses, the City' s pension contributions as percentages of payroll are budgeted as follows for FY 2006- 07: General Employees 14. 9%, Police Officers 12. 8%, and Firefighters 10. 9%. 4. All three plans are defined benefit plans, whereby vested employees who reach either normal or early retirement age may apply for a pension benefit which is calculated based on years of credited service, a benefit factor typically referred to as a multiplier, and the member' s average final compensation. 5. General employees reach normal retirement at age 62, must have 10 years of service, and have a 2. 75 multiplier. City Council serves as the plan' s Board. 6. Police officers reach normal retirement at age 55 with 10 years of service or after 30 years of service, and have a 2. 75 multiplier. Plan governed by independent Board. 7. Firefighters reach normal retirement at age 55 with 10 years of service or at age 52 with 25 years of service, and have a 2. 75 multiplier. Plan governed by independent Board. Discussion 1. Alternatives to a defined benefit pension plan include: a. Defined Contribution Plan - both employer and employees contribute to a 401 account. The City' s contribution is limited either by a set dollar amount or a percentage match of employee contributions. The pension benefit to the employee is a result of investment performance rather than a set dollar amount. b. Florida Retirement System ( FRS) - similar to the City' s defined benefit retirement plan, the FRS offers a lower multiplier for general employees, thereby reducing the cost to the City and the benefits to the participant. 2. The current dE! fined benefit plans could be modified to reduce the plan expense, increase the employee contlribution, or lower the multiplier to reduce the expense to the City. 3. The FRS provides a multiplier of 1. 6 for general employees, but does not permit an employee contribution. Considering employee contributions of 5%, the City' s multiplier of 2. 75 is reasonable. 4. The Finance Director, who serves as the Plan Administrator for the pension plans, has recently engaged the services of an alternative plan actuary ( Foster & Foster) in an effort to receive a second opinion as to the City' s liability of the plan. We anticipate this second opinion in the next month or so and at that point staff will possibly make a plan change recommendation. Policy Impact 1. Staff is making operational changes to procedures to modify cash flow and maximize the timing of 24 of 36 FY 2007-08 Budget Policy Workshop funding contributions, thereby improving investment returns. 2. The General Employees Pension Advisory Board is in the process of recommending that City Council replace one of its investment managers in order to maximize investment returns. 3. A second opinion on the City' s liability is being obtained. Recommendation Continue to review and evaluate existing General Employees Pension Plan performance and recommend changes as needed. 25 of 36 FY 2007-08 Budget Policy Workshop j!\~ 26 of 36 FY 2007- 08 Budget Policy Workshop EMPLOYEE VACATION/ SICK LEAVE STRATEGIC PLAN GOAL - Economic Health/ financial Viability: Alternative Compensation/ Benefit Systems PolicV Decision Should policies regarding accrual and payout of vacation leave and sick leave be modified? Backqround 1. Vacation leave is based on an accrual schedule associated with years of service. Vacation may be accrued to a maximum of 320 hours and is paid 100% upon separation of employment. 2. Full- time employees accrue 80 hours of sick leave annually and may accrue up to a maximum of 800 hours. Payout of sick leave is based on years of service with employees hired prior to 1997 eligible for payout of 5% per year up to 100%. Employees hired after 1997 receive a payout of 2. 5% per year of service up to a maximum of 50%. 3. Employees are eligible to convert excess sick leave hours to vacation leave at a ratio of 2: 1. This is an awkward and time consuming process administratively and it also increases the City' s liability for payout of these accruals. 4. Employees are eligible to receive vacation accruals upon separation of employment after six months of service. Discussion 1. The City annually participates in the Florida Public Personnel Association ( FPPA)/ Florida League of Cities ( FLOC) salary/ benefit survey which surveys public sector jurisdictions across the State regarding various benefits. Upon review of the results of the surveyed jurisdictions, the City' s accrual of both sick and vacation leave are below