Title
Recommendation to Receive an Informational Report Regarding the Actuarial Impact of a Change in Dental Benefits for Public Safety Retirees Who Currently Receive Dental Benefits Through Memorandums of Understanding with the City of Alameda’s Four Public Safety Bargaining Units (International Association of Firefighters, Alameda Fire Chiefs Association, Alameda Police Officers Association and Alameda Polices Management Association), and Direct the City Clerk to Provide Public Access to its Contents for a Period of at Least Two Weeks from February 5, 2019 to February 19, 2019. (City Manager’s Office 2110)
Body
To: Honorable Mayor and Members of the City Council
From: Dave L. Rudat, Interim City Manager
EXECUTIVE SUMMARY
The City is considering an adjustment to safety retiree dental benefits. Government Code Section 7507 requires an actuary to provide a statement of the actuarial impact upon future costs prior to authorizing changes in public retirement plan benefits or other post-employment benefits. The statement must be available for public review at least two weeks prior to the meeting at which adoption of the changes in the retirement plan are considered. The attached actuarial valuation provides the impact of this change in dental benefits. The completed actuarial report anticipates an increase of $630,177 or a little over a half-a-percent in the City’s total other post-employment benefit (OPEB) liability for the proposed adjustment in retiree dental benefits.
BACKGROUND
The City provides retiree medical and dental benefits to its Public Safety employees. These benefits are outlined in the Memorandums of Understanding with the City’s four Public Safety bargaining units:
• International Association of Firefighters (IAFF)
• Alameda Fire Chiefs Association (AFCA)
• Alameda Police Officers Association (APOA)
• Alameda Polices Management Association (APMA)
The City and the four Public Safety bargaining units negotiated an increase in dental benefits in 2000 and again in 2015 for employees. When these enhancements were implemented the improved dental benefit was not provided to Public Safety retirees. IAFF notified the City about retirees not receiving the enhanced dental benefits in the summer of 2018. The City has reviewed the records related to Public Safety retiree dental benefits and the language in the negotiated labor agreements. At the completion of this review, it is recommended to provide the enhanced dental benefits to all Public Safety retirees effective January 1, 2019.
DISCUSSION
In 1990, the City and Public Safety groups agreed to transfer their 1082 pension members to California Public Employee Retirement System (CalPERS). As part of the transfer, the City agreed to provide Public Safety retirees medical and dental coverage. Section 4(b) of the 1082 Transfer Agreement states that the City will reimburse Public Safety retirees at the one or two party rate for a qualified dental plan on record with the City, and if the City later provides for a dental plan, retirees may join at the appropriate level - one or two party.
In 1990, when the agreement was signed, the City provided all full-time employees with a dental plan with a yearly maximum of $1,100 with 80% cost coverage, at no expense to the employee. In implementing the 1082 Transfer Agreement, the City interpreted the agreement to mean that the Public Safety retiree would be reimbursed for the cost of purchasing dental benefits at the one or two party rate, as appropriate. However, the City then offered a dental plan to Public Safety retirees matching that of active City employees and ceased the reimbursement.
In 2000, the City entered into an agreement with safety groups to enhance retirement to the 3% @ 50 CalPERS pension formula. Included in this agreement was an increase in the yearly dental maximum to $2,500. In 2015, the Safety groups negotiated an improved dental benefit with 90% coverage and a yearly maximum of $2,600. Public Safety retirees’ dental benefits were not increased when these changes were negotiated. Public Safety retirees continued to receive a benefit plan with 80% cost coverage and a $1,100 annual limit. City Council will be asked to consider providing the same level of dental benefits to safety retirees as current safety employees at the February 19, 2019 City Council meeting. This change will result in a dental premium increase from $56.20 a month to $64.85 a month for retirees. This premium is paid by the City. As stated above, the City has reviewed the records related to Public Safety retiree dental benefits and the language in the negotiated labor agreements and is therefore recommending that the City provide the enhanced dental benefits to all Public Safety retirees.
Effective January 1, 2017, when considering changes in retirement benefits or other post-employment benefits, the City Council “shall secure the services of an actuary to provide a statement of the actuarial impact upon future annual costs, including normal cost and any additional accrued liability, before authorizing changes in public retirement plan benefits or other post-employment benefits.” When there are changes in retirement benefits or other post-employment benefits, the statement of actuarial impacts shall be provided by an enrolled actuary and shall be made public at a meeting at least two weeks before the adoption of the increase in benefits (Cal. Gov’t Code §7507).
The City’s actuary, The Howard E. Nyhart Company Inc., completed the valuation as required by law (Attachment 1). The valuation provides an actuarial analysis of the impact to the City’s OPEB liability for the change in retiree dental benefits. The actuary’s valuation estimates the impact of the proposed changes to the City’s total OPEB liability for the four bargaining groups to be $630,177. The actuarial valuation as of June 30, 2018 updated for dental premiums as a composite rate rather than tiered rates and reflecting premium through 2019 estimates the City’s total accrued OPEB liability at $112.7 million. The impact of a proposed increase is approximately half of one percent (0.5%).
FINANCIAL IMPACT
The cost of the actuarial impact study was $2,400, which will be charged to budget of the Police and Fire Departments. Both Departments have sufficient funding to cover this cost.
The impact of the proposed change in the safety retiree dental benefit level is estimated at $630,177, which is approximately 0.5% increase to the overall City’s accrued OPEB liability of $112.7 million. With the proposed change in the Dental Plan, if approved, the estimated total OPEB liability for the City will be $113.4 million.
The dental premium will increase from $56.20 per month to $64.85 per month per retiree. This premium is paid by the City. The pay-as-you-go cost of the change for calendar year 2019 is estimated at $25,000, with $13,000 being charged to the Police Department and $12,000 to the Fire Department.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with the Alameda Municipal Code.
ENVIRONMENTAL REVIEW
This action is exempt from the California Environmental Quality Act (CEQA) because it is not a project which has a potential for resulting in either a direct physical change in the environment, pursuant to Guideline section 15378.
RECOMMENDATION
Consider an informational report regarding the actuarial impact of a change in dental benefits for public safety retirees who currently receive dental benefits through Memorandums of Understanding with the City of Alameda’s four public safety bargaining units (International Association of Firefighters, Alameda Fire Chiefs Association, Alameda Police Officers Association and Alameda Polices Management Association) and direct the City Clerk to provide public access to its contents for a period of at least two weeks from February 5, 2019 to February 19, 2019.
Respectfully submitted,
Dave L. Rudat, City Manager
Financial Impact section reviewed,
Elena Adair, Finance Director
Exhibits:
1. Actuarial Valuation
2. June 30, 2018 Actuarial Valuation Report