HomeMy WebLinkAboutMemo - Read Before Packet - 12/7/2021 - Memorandum From Tyler Marr Re: Collective Bargaining Agreement Questions On Retiree Medical
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300 LaPorte Ave.
PO Box 580
Fort Collins, CO 80522
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MEMORANDUM
Date: December 6, 2021
To: Mayor and City Councilmembers
Thru: Kelly DiMartino, Interim City Manager
From: Tyler Marr, Assistant City Manager
Re: Collective Bargaining Agreement Questions on Retiree Medical
Background:
In preparation for the consideration of the approval of a new three-year contract with the
Fraternal Order of Police (FOP) Lodge No. 3, staff was asked to detail and clarify
eligibility of the post-employment health plan (PEHP) funds that are agreed to in this
contract; including age restrictions and available uses of the funds, the reason for
keeping both percentage contributions and the newly proposed/agreed-upon tenure
awards, and to estimate the amount of individual medical premiums that these funds
could realistically cover between 55 and Medicare eligibility. This memo answers those
questions below.
Eligibility and allowed uses:
PEHP funds are monies kept in tax-advantaged individual accounts that can be utilized
on qualified medical expenses after leaving employment with an organization. The funds
cannot be used while employed with the City.
Funds can be utilized on medical premiums, out of pocket health care costs such as
deductibles, co-pays, medications, etc. The City is not able to restrict the use of the
funds beyond those eligible expenses, though the intended use of the funds is to help
bridge the gap between employment with the City and Medicare eligibility at age 65.
The funds are inaccessible while employed with the City, but there is no requirement that
they have to be spent completely by Medicare eligibility age, as they can continue to
help offset additional costs such as those described above.
PEHP dollars can be used for individual or family expenses.
Rationale for having both percentage-based and tenure-award contributions:
As noted in the Agenda Item Summary, the front-range and agreed upon comparison
market for Police offers a number of retiree health benefits, some of which the City is
lan
(9 of 12 agencies), post-employment premium assistance toward that plan (3 of the 9),
and PEHP contributions (9 of 12).
ongoing premium assistance after employment, the primary tools the City has to remain
market competitive are related to PEHP contributions. Staff believes that the City is in
market as it pertains to percentage based contributions, but not as it pertains to the
actual retiree health plans and/or associated premium contributions.
Percentage-
This contribution can be viewed as a recruitment tool as much as one for retention.
Percentage contributions range from 1.25% to 1.75%, based on tenure. After 15 years,
an employee would have an estimated $35k in City-contributions. PEHP or similar
contributions have been in place for the bargaining unit for approximately eight years at
similar percentages.
Tenure-awards and the associated catch-up recognize long careers of service with the
City, while serving as an alternative to providing ongoing premium payments/support to
long-tenured retirees that a number of comparison jurisdictions provide. These payments
can serve an important role in retention of officers, while potentially helping them to retire
from police work earlier than 65.
Cost of healthcare compared to benefits:
Staff, with assistance with a contractual benefits consultant, researched individual-only
premiums likely to be incurred by retirees. Unsurprisingly, plan design impacts price to a
great deal, and annual premiums for folks over 50 were found between the ranges of
$8,400 and $12,000. For the purposes of illustration, a conservative plan from UMR was
utilized with an 2022 annual premium of $9,394. With a 5% annual scaler (past eight
years have seen 6.6% increases), the total individual premium for a retiree from age 55
to Medicare eligibility would be approximately $118,000
For members near retirement who would receive the highest catchup amount ($34,500),
approximately 29% of their individual premium cost would be covered from that benefit.
The 29% does not include any family premiums or out of pocket costs related to the
insurance plan.
Percentage based contributions are likely to be a greater benefit to newer employers,
who will have most or all of their service years with the City to accrue these funds as
opposed to only having the last eight years. Staff plans to monitor the ongoing success
of this program overtime to see if it is meeting the desired intent and will propose and
negotiate for changes accordingly.