Fort Walton Beach Council agenda — 05-20-08 special agenda - budget policy issues — reading text

20 of 34 FY 2008 -09 Budget Policy Meeting COMPENSATION ALTERNATIVE STRATEGIC PLAN GOAL Policy Decision Should one week of vacation be offered to full -time employees in lieu of a percentage step /merit anniversary adjustment? Background 1. As a government entity, the most important element of service delivery is the people who provide the service. Not surprisingly, wages and benefits account for 53% of citywide expenses and 74% of General Fund expenses. 2. Citywide, wages have increased 25% or $ 2. 8M during the past five years. City Council' s commitment to public safety has contributed to nearly half of the increase, with police department salaries increasing 23% or $ 638K and fire department salaries increasing 52% or $ 710K including paramedic and EMT pay added in FY 2003 -04 and 6 new EMTs /Paramedics added in FY 2005 -06. The balance of the increase is due to cost of living, merit, and pay plan adjustments for other employees. 3. Over the past five years, the following employee wage adjustments have been made ( including cost of living, pay plan, and performance): 26. 49% general employees, 42. 80% police officers, and 49. 14% firefighters. Even with these wage adjustments, the City has struggled to remain competitive with surrounding jurisdictions for police officers and firefighters. Discussion 1. Employees are eligible for a step /merit performance increase on their anniversary date. General employees receive 3 %, police officers 3. 5 %, and firefighters 7. 0% contingent upon a satisfactory performance evaluation. Department directors, supervisors, and professional staff are eligible for up to 3. 5% depending on their evaluation score. 2. In FY 2007 -08, $ 272K is budgeted for anniversary date increases. 3. Staff has been considering creative ways to reward employees and maintain morale while controlling costs. 4. An employee has suggested one week of vacation in lieu of an anniversary increase. Policy Impact 1. Offering vacation hours to full -time, regular employees rewards performance without increasing the payroll costs. Part-time and seasonal employees are ineligible. 2. Fire union members will be compensated per the collective bargaining agreement. 3. Under this program, 40 hours of vacation would be awarded on 10/ 01/ 08 to all full -time, regular employees as of 10/ 01/ 08. The hours would be tracked via a separate payroll code and must be used prior to 09/ 30/09. There would be no payout of these hours in the event of separation from employment and any unused hours would be forfeited at year end. Use of these hours must not result in overtime in the department. 4. This program is not likely to benefit employees who already carry the 320 vacation hour accrual maximum. 5. Freezing all wages in FY 2008 -09 ( with the exception of a COLA adjustment 10/01/ 08 and adjustments per the collective bargaining agreement) and offering vacation hours in lieu of a step /merit increase is estimated to save $ 230K. Recommendation Endorse providing 40 hours of vacation to all full -time, regular employees effective 10/ 01/ 08 in lieu of a percentage step /merit adjustment ( collective bargaining unit members excluded) for FY 2008 -09. Unused hours will be forfeited 09/ 30/ 09. If funding is available, the step /merit anniversary adjustment may be reconsidered at the August budget workshops. 21 of 34 FY 2008 -09 Budget Policy Meeting HEALTHCARE BENEFITS STRATEGIC PLAN GOAL Policy Decision Should the City contribution rates be modified for medical insurance? Background 1. The City pays 7!5% of the premium for either employee ( single) or dependent ( family) medical insurance coverage. Participating employees 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 ( 93 %) participate in the base plan. 3. Despite the health insurance plan design changing several times, the City' s cost of health insurance premiums has increased 35% over the past five years. Compared to five years ago, the City' s portion of employee coverage costs $ 858 more per year and dependent coverage costs 1, 482 more per year. Discussion 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. Staff 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 premium, 78% fund 50% or less of the dependent portion of the premium, and 36% do not contribute to 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 52% 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 across the State, employers on average pay 100% of the employee portion of the medical premium and 50% or less of the dependent portion of the medical premium. 3. Reducing the City' s portion of medical premiums ( consequently increasing the employee over a three -year period would likely offset at least a portion of wage increases contribution) either COLA or anniversary increase), thereby reducing available compensation to the employee. This could affect recruitment and retention efforts. 4. At the same time, it could encourage those employees who have family coverage to consider alternatives such as medical insurance offered by a spouse' s employer, eligibility for Tricare, or independent medical insurance from a separate provider. 5. Changing the City's emp /dep contribution from 75 %/75% to 90 %/0% saves $ 1. 5M over 3 years. 6. Changing the City' s emp /dep contribution from 75 %/75% to 90 %/50% saves $ 246K over 3 years. 7. Changing the City' s emp /dep contribution from 75 %/75% to 75 %/50% saves $ 618K over 3 years. Recommendation Decrease the City' s contribution for the dependent medical insurance premium to 50% over a three year period as identified below and amend the City' s Personnel Rules and Regulations to reflect this change: a. Effective 10/ 101/ 08, City contributes 65% of dependent coverage Annual Savings: $ 102K b. Effective 10/ 101/ 09, City contributes 60% of dependent coverage Annual Savings: $ 177K c. Effective 10/ 01/ 10, City contributes 50% of dependent coverage Annual Savings: $ 339K 22 of 34 FY 2008 -09 Budget Policy Meeting 2. Amend the City's Personnel Rules and Regulations to reflect that the City will contribute 75% of the premium for employee medical insurance coverage and 50% of the premium for the dependent portion of family medical insurance for all new hires effective October 1, 2008. 23 of 34 FY 2008 -09 Budget Policy Meeting DEFINED CONTRIBUTION PLAN STRATEGIC PLAN GOAL Policy Decision Should the City offer a defined contribution plan to new General Employees in lieu of a defined benefit plan? Background 1. The City is required to maintain its three pension plans in a fiscally sound manner. Investment earnings and employee/ employer contributions comprise the plans' income. 2. General employees and police officers contribute 5% of wages and fire personnel contribute 6. 6% of wages into their respective plans. 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 steadily increase over the past several years. 3. 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. 4. General employees reach normal retirement at age 62, must have 10 years of service, and have a 2. 75 multiplier with a 75% cap. The member's final average compensation is calculated based on the highest 5 of last 15 years salary. Employees vested as of April 1999 have the option of the current calculation or a 2. 50 multiplier with a 100% cap. 5. Police officers reach normal retirement at age 55 or 30 years of credited service, and have a 2. 75 multiplier with a ' 75% cap. The member' s final average compensation is calculated based on the highest 5 of last 15 years salary. 6. 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 with a 100% cap. The member's final average compensation is calculated based on the highest 5 of last 10 years salary. 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 typically a percentage match of employee contributions. The pension benefit to the employee is a result of investment performance rather than a dollar amount calculated based on years of service, the multiplier, and final average compensation. b. Florida Retirement System ( FRS) — similar to the City' s defined benefit retirement plan, the FRS offers a lower multiplier, thereby reducing the cost to the City. 2. The current defined benefit plan for the General Employees' Pension Plan could be modified to reduce the plan expense to the City by increasing the employee contribution or lowering the multiplier for members who join the plan in the future ( e.g. new hires after October 1, 2008). 3. The Police and f =ire Pension plans are