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HomeMy WebLinkAboutCity Council Compensation - Committee Recommendation Re BenefitsCITY OF PALM DESERT OFFICE OF THE CITY MANAGER STAFF REPORT REQUEST: CONSIDERATION OF CITY COUNCIL COMPENSATION AD HOC CITIZENS' COMMITTEE RECOMMENDATION REGARDING CITY COUNCILMEMBER BENEFITS SUBMITTED BY: John M. Wohlmuth, City Manager DATE: November 15, 2012 CONTENTS: Memorandum from City Manager dated October 31, 2012 Recommendation By Minute Motion: 1) Consider the City Council Compensation Ad Hoc Citizens' Committee recommendation to cap Council benefits at $7,500 per Councilmember annually. 2) Direct staff to modify the Section 125 Plan Document for Council consideration on December 13, 2012, for an effective date of January 1, 2013. Background On April 26, 2012, the City Council established and selected a Council Compensation Committee comprised of members of the community. On August 23, 2012, the City Council considered the Committee's recommendations and unanimously approved cutting its salary to $22,500 per year effective November 1, 2012, and waited to address the benefit recommendation pending a determination by the FPPC as to potential Councilmember conflicts. On October 25, 2012, the City Council was informed by City Attorney David Erwin that the FPPC ruled that all Councilmembers do not have a conflict. Also on October 25, 2012, Councilmember Harnik moved to, by Minute Motion, continue the matter until the City can reconvene the Citizen Council Compensation Committee, directing the City Manager to meet with them to present detailed plans and recommendations based on the City financial condition and any other factors deemed appropriate, with the Citizens' Committee recommendation to be returned to City Council for action. The motion was seconded by Mayor Pro Tern Kroonen. Staff Report Consideration of City Council Compensation Ad Hoc Citizens' Committee Recommendation Regarding Councilmember Benefits November 15, 2012 Page 2 On November 5, 2012, the City Council Compensation Citizens' Ad Hoc Committee reconvened to discuss the City Council benefit issue. This Committee heard the explanation from the City Manager on his recommendation and was provided a staff report prior to the meeting. Please refer to the staff report from the City Manager to the Citizens' Council Compensation committee to see the City Manager's recommendation and rationale (attached as Exhibit "A"). After discussion, the Committee voted 4-1 to reaffirm its original recommendation to cap the benefits at $7,500 per Councilmember annually. This action, should the Council approve the recommendation by the Committee, will require an amendment to the City's Section 125 Plan Document. A modification to the Plan Document could be prepared by our administrator and placed on the December 13, 2012, City Council Agenda for Council consideration. Submitted By: , City Manager CITY COUNCTL�6N TO APPROVED DrN" RECEIVED OTHER AVE NOS. ES: ABSENT: ABSTAINS VERIFIED BY: Original on File with City erk's Of ice * By Minute Motion: 1) Concur with the recommendation of the City Council Compensation Ad Hoc Citizens' Committee recommendation to cap Council benefits at $7,500 per Councilmember annually; 2) direct staff to modify the Section 125 Plan Document for Council consideration on December 13, 2012, for an effective date of January 1, 2013. 4-1 (Spiegel NO) Memo to: Council Compensation Committee Date: October 31, 2012 Subject: Council benefits — City Manager Recommendation My recommendation does not differ significantly in cost savings from the Committee's because the committee recommended that members who "opt out" of coverage could receive the value of such coverage in cash. This reduced the cost for family coverage (i.e., Jan Harnik) but increased the costs for those not covered (i.e., Bill Kroonen) and may lead to issues with the administration of the City's IRS 125 Benefits Plan. In general, I am not in favor of allowing individuals the ability to "opt out" of health insurance coverage, and specifically to receive 1:1 in dollars for not accepting group health insurance coverage. This creates a "banking" relationship for benefits and potentially results in adverse selection. In adverse selection only the people with the most expensive medical issues remain in the program, resulting in higher premiums for everyone. I am not opposed to a nominal payment to those who "opt -out" because they have other similar coverage health insurance. Long Term Disability Insurance — delete coverage for Councilmembers: Long Term Disability is intended to be a salary replacement benefit. It provides coverage for workers who depend on their salaries as their main source of income. This type of coverage is inappropriate for City Councilmembers for two reasons, the first being that a long term disability that prevents them from serving would likely result in their removal from office, and secondly, their compensation is not intended to be their main source of income. Life Insurance / Accidental Death and Dismemberment — delete coverage for Councilmembers As with Long Term Disability this coverage is intended to replace the salaries of employees whose families depend on their employment as their main source of income. This should not be the case with councilmembers. The reduction in salary means the benefit is relatively small, and it decreases substantially for members over age 65. For example, if the member dies at age 65 the payment is only 65% of one year's salary and it continues to be reduced so that over age 80 it is only 20% of one year's salary. In addition, life insurance is freely available on the open market to meet a variety of needs at different price points. It makes administrative and fiscal sense to discontinue it for councilmembers. Vision Insurance — delete coverage for Councilmembers I recommend cancelling vision insurance for Councilmembers and their dependents. The availability of vision services in today's marketplace has Page 2 of 3 Memo to: Council Compensation Committee Date: October 31, 2012 Subject: Council benefits — City Manager Recommendation changed substantially from the days when the City first contracted for Vision Insurance. These plans came into being when the only place to receive an exam and glasses was from a standalone optometrist. Now, individuals and their families can seek service from national retailers, such as Costco and LensCrafters. Vision Insurance doesn't make the same financial sense that it did, and I anticipate we will see this reflected in future negotiations with employees. )HN WOHLMUTH, ITY MANAGER Page 3 of 3 QT US CITY OF PALM DESERT �zqv-j 41 W 0" � MINUTES CITY COUNCIL COMPENSATION AD HOC CITIZENS' COMMITTEE MONDAY, NOVEMBER 5, 2012 — 3:00 P.M. NORTH WING CONFERENCE ROOM - PALM DESERT CIVIC CENTER 73510 FRED WARING DRIVE, PALM DESERT, CA 92260 I. CALL TO ORDER Chair Rover convened the meeting at 3:05 p.m. II. ROLL CALL Present: Member Joan Busick (Alternate) Vice Chair Dale Gribow Member Kim Housken Member Bob Leo Member Leo Sullivan Chair Mike Rover Also Present: John M. Wohlmuth, City Manager Robert W. Hargreaves, Assistant City Attorney Lori Carney Human Resources Manager David Hermann, Management Analyst/P.I.O. Rachelle D. Klassen, City Clerk III. ORAL COMMUNICATIONS None IV. DISCUSSION OF COMPARISON OF THE COMMITTEE'S AND CITY MANAGER'S RECOMMENDATIONS FOR THE ADMINISTRATION OF COUNCILMEMBER BENEFITS AND PROVIDE RESPONSE. In answer to request, Mr. Wohlmuth noted that the Committee was provided with a copy of the August 23, 2012, staff report to City Council that included his recommendation on administration of Councilmember benefits. He explained the first thing that occurred here was one of the Councilmembers questioned whether or not any individual should recuse themselves from voting on their benefits. Unlike Council salary that was clearly exempt from a voting conflict, given that each Member benefits differently with the benefit proposal, especially with the cash back issues involved, Council asked whether or not one, two, or more had to recuse themselves from the vote. City Attorney David Erwin prepared a request to the Fair Political Practices Commission (FPPC) to provide the City with an opinion on whether or not Council could vote on the matter; and if so, would any one Member potentially be impacted differently, thereby requiring recusal. He said this MINUTES CITY COUNCIL COMPENSATION AD HOC CITIZENS' COMMITTEE MEETING NOVEMBER 5, 2012 took over a month's time. Finally, FPPC did render an opinion, indicating that, based on either the Council Compensation Committee's or City Manager's recommendation, any one City Councilmember would not have to recuse themselves from voting. Therefore, it came up at the last Council Meeting, and Councilmembers asked the City Manager to sit down with this Committee to explain his recommendation and possibly find some common ground between the two recommendations. First and foremost, his recommendation was presented as it was because he was not in favor of allowing people to opt out of health benefits, referring to reasons provided in the staff report (i.e., adverse selection). He remarked that for the last decade, local government has been trying to reduce their benefits costs; and when someone is provided the same amount as the premium, it raises some issues. Number one, what happens if the person doesn't take any insurance after receiving the cash in lieu of the insurance — that's not the purpose for which we provide the benefits — only to go uninsured. It could cause adverse selection, especially giving 100% of the benefit cost back to the individual; then it becomes a banking relationship instead of one of coverage. He said in analyzing the benefits, Council really doesn't derive that much for some, such as Accidental Death and Dismemberment or Long-term Disability. In the workforce, Long-term Disability allows an employee to obtain somewhere around 60% - 66% of their salary if they become disabled from working (on-the-job disability would be covered by Workers Compensation, with the same percentage of salary provided). Presumably, Councilmembers would still be able to perform their duties even if injured; and since this is supposedly not their primary income, there would be a diminished need to return them to 66% of their Council salary, especially in its reduced level. He compared the aforementioned scenario to the Accidental Death and Dismemberment Insurance, given the age of Councilmembers and reduction of their salary in calculation of this benefit. Therefore, he didn't think it made much sense. Life insurance is available on the open market and quite competitively priced; it wasn't as much a benefit to Councilmembers as to employees, and reducing that cost might be practical for the City. With regard to Vision Insurance, he felt it may be a benefit that Council often utilizes; however, he foresaw local government not offering this benefit in the future because of marketplace availability of such services (vendors like Pearle Vision, Costco). He said it could be added to an agency's Section 125 Plan Account, allowing employees to get the reduced cost of an eye exam, glasses, or contacts, if needed. Member Sullivan observed that with the $7,500 benefits amount recommended by the Committee, there was only one Councilmember that would receive the cash instead of coverage. He asked why it would be a problem if that individual or anyone in the future provides proof of insurance. Mr. Wohlmuth responded that there are issues with health insurance. In the PERS System, an individual cannot be double -covered with the PERS Blue Shield Program. Therefore, as an example, Dr. Kroonen could not get the City's insurance even if he wanted to, because he was already covered under the Office of Education's insurance. r. MINUTES CITY COUNCIL COMPENSATION AD HOC CITIZENS' COMMITTEE MEETING NOVEMBER 5, 2012 He went on to relate that another concern was if an individual opted out, what would be considered "comparable" coverage — deductible amount, doctor visits, etc. Ms. Carney added that in discussing this matter with Mr. Wohlmuth, another of the concerns was that since the amount for opting out was so great, compared to what it is currently for those who opt out and receive a nominal $150/month, it ends up being an incentive for people to opt out without carefully thinking what type of coverage they need. Subsequently, people opt out and obtain bare minimum coverage — maybe accident -only insurance — creating an adverse selection situation, or a pool of people who only have chronic conditions that drive up all other premiums. She emphasized that the Committee was only talking about City Councilmembers, but Mr. Wohlmuth's concern was that the City is a whole organization; and once there is a precedent set for the City Council, it may move to staff members as well. Committee Members pointed out that it was only the five -member City Council that was being considered here. Those five members are charged with making decisions on the City's behalf; therefore, they should be able to be trusted with making such a decision about their own health insurance. Member Sullivan referred to Mr. Wohlmuth's memo where it was alluded that an action to reduce Council benefits "may lead to issues," and they will "potentially result." This wasn't a positive approach; it was a 50-50 chance, and he didn't see it that way. He believed if the individual came back with proof of health insurance, it should suffice. Upon further comment and inquiry, Mr. Wohlmuth posed to the Committee whether or not the bare minimum -type of insurance was adequate. Committee Members responded that it is a personal choice, and the City could establish the minimum standard. If the individual wanted to opt out, they have to provide proof of insurance that is comparable to what the City provides. Alternate Member Busick asked if City staff had been able to verify whether or not the actual opting out and receiving cash could be offered legally. At that time, the Committee had been advised to make its recommendation whatever it may be, and staff would sort out the rest. Mr. Wohlmuth responded that an individual can opt out, and he agreed that the City can determine as closely as possible what is comparable to the City's coverage by obtaining a copy of that person's policy. But if not comparable, he wondered then whether the City would refuse their request to opt out. Alternate Member Busick felt that was too much government. She asked why the City would have to require the City Councilmember have insurance that was comparable; she believed it was a personal choice. 3 MINUTES CITY COUNCIL COMPENSATION AD HOC CITIZENS' COMMITTEE MEETING NOVEMBER 5, 2012 Mr. Wohlmuth replied that the fundamental issue is that the City provides health insurance for its employees and Councilmembers so that they can focus on the work at hand, recover or get healthy as soon as possible and return to work, and there's an assumption that health assists in getting them to this place. Member Leo said he read that in Mr. Wohlmuth's memo, and he understood as it relates to employees. However, he was still stuck on whether or not Councilmembers are employees or elected volunteers. Mr. Hargreaves responded that under the law, Councilmembers are considered employees, and they are considered full-time employees under PERS. In response to further suggestion by Member Leo, Committee Members emphatically agreed it was already their stated recommendation to offer benefits to Councilmembers less their dependents. Member Leo asked why Mr. Wohlmuth recommended offering benefits for dependents, adding that he understood why it was important to offer benefits to employees' dependents. Vice Chair Gribow quoted from the staff report (page 3 of 4, second paragraph) noting that he felt it was a very compelling argument, "When family members do not have adequate insurance coverage, they are more likely to become ill, which has a negative effect on workers' performance." The rest of the Committee Members disagreed. Member Leo said he knew a lot of people without insurance for their dependents. He wondered if they were to be treated as employees, must they be treated exactly the same as all other employees. Chair Rover thought the Committee was informed that it could recommend providing no benefits, and the City Council could elect to have no benefits. Mr. Wohlmuth explained that the law allows City Councilmembers to receive no greater benefits than the most generous benefit offered to a bargaining group. There's no minimum level. Mr. Hargreaves added that under the Affordable Care Act, the City may be required to offer Councilmembers minimum essential coverage in 2014. Member Housken offered that online today she'd found on tomorrow's ballot in the City of Tustin an initiative to decide that their City Council will receive no benefits and no salary. If they were voting on the issue there, they'd probably done the necessary research regarding the Affordable Care Act before placing it on the ballot; their Councilmembers voted 3-2 to place it on the November 6 ballot. 4 MINUTES CITY COUNCIL COMPENSATION AD HOC CITIZENS' COMMITTEE MEETING NOVEMBER 5, 2012 Vice Chair Gribow put forth considering tabling the issue and waiting for the new City Council to be seated after tomorrow's election. Committee Members agreed that in essence, that was already being done since the election is tomorrow. It was confirmed that the two issues under consideration were: 1) Dependent coverage; 2) Opt -out cash. Member Housken said she understood and appreciated the issue of keeping all the City's employees happy and healthy, because they are hired for having a specific skill set and qualifications. However, this discussion was about the elected officials, and she asked whether or not part-time employees were offered full-time benefits. Staff responded that part-time employees do not receive full-time benefits. She added that although State Law says differently, amongst themselves, the Committee came to the conclusion that being a City Councilmember was not a full-time job position, even though some of the Members make it a full-time endeavor that was beneficial to the City. Therefore, she had a real problem giving the same full-time benefits to Councilmembers, including the family, as were given to full-time employees of the City. Additionally, she was troubled by the fact that the City Manager recommendation dates back to August, and if the issue was so important for the Committee to weigh-in on, there was all of September and October, but it was just coming back today. Mr. Wohlmuth answered that the City Attorney first wanted an FPPC ruling, and the matter was continued three or four meetings. Yes, the Council could have taken it up, but because of the City Attorney's recommendation, they waited. He said his original recommendation was made following the Committee's. Further responding, he said that Council had both the Committee's and the City Manager's recommendations but waited until they considered, then referred it back. Chair Rover felt that the Committee's recommendation was well researched and well thought out, and given plenty of time for comment and input. Therefore, he was comfortable with the Committee's original recommendation. Committee Members then questioned whether or not they should consider the items Mr. Wohlmuth recommended for elimination from the Council Benefit Package — Accidental Death and Dismemberment (AD&D), Long-term Disability, and Vision — in order to save some more money. It was pointed out that in the analysis, those items aren't that costly overall. Member Housken observed that after the Committee met previously and had kind of reached a decision but needed to come back for that last meeting, people she ran into asked her if the Committee looked into things like cell phones, car allowances, orfree golf at Desert Willow. Her answer was that the Committee didn't exactly look into those things, but they were already well down the path and had come to a conclusion. So for her personally, if the Committee was being forced to look at this again, maybe other areas should be revisited in this process. 5 MINUTES CITY COUNCIL COMPENSATION AD HOC CITIZENS' COMMITTEE MEETING NOVEMBER 5, 2012 In answer to Member Leo's question if benefits continued after a City Councilmember leaves office, staff responded that some do. Ms. Carney explained that if a Councilmember was vested, they can continue their Health Insurance, for which the City contributes toward depending upon how long the Councilmember served. Minimum number years of service to be vested was five. Then the Councilmember has the option of continuing Health Insurance, with the City paying $115/month toward the premium as mandated in CalPERS Law and Councilmember paying the difference. She went on to say that if a Councilmember served more than 10 years, the City may reimburse them from 50% - 75% of the premium. She added that this was changed a couple of years ago for new employees/Councilmembers, who now have to serve at least 15 years with maximum reimbursement at 50%, and it is discontinued when the retiree is eligible for Medicare. Further answering, she said CalPERS can be a supplement to Medicare, but the City doesn't contribute to its cost, and this program was the same for both Councilmembers and employees. It was noted that currently only two Councilmembers have served in excess of 15 years. Spouses are covered if they are on the plan when the employee/Councilmember retires, but if the retiree dies, the stipend is discontinued. If eligible, the retiree is required to go on Medicare; there is a small group of longtime public servants ineligible for Medicare due to the way the benefit was structured at the time they began their service. She answered that for Councilmembers who are age -eligible for Medicare, it was more complicated because of the way Medicare is structured. If the individual has health insurance available due to their active engagement, then that insurance is primary, Medicare is secondary. She reiterated thatwith regard to classifying Councilmembers as employees, there were many different purposes; and for this purpose, they are considered actively employed, so Medicare is considered secondary. She related that from talking to her colleagues in Indian Wells, who were looking at having no benefits for Councilmembers, there was some concern about providing people with an incentive to choose Medicare over insurance, if available - but that may not be legal. However, the way it stands currently, people could opt out of the City's coverage and have Medicare; but the City cannot provide them with incentive for doing so while they're actively engaged. She said when the person is eligible for Medicare, then they enroll for it, and they can continue with the CalPERS Plan as a Supplement to Medicare; or they can drop it and just have Medicare. Ms. Carney further responded that CalPERS offers a Supplement to Medicare Plan, the premium drops, and it becomes like any other Supplement to Medicare, with numerous choices available for this purpose. Vice Chair Gribow related that one of his office staff members has a spouse with health issues. He said because the spouse was ill, the employee was staying home a lot to care for the spouse and unable to perform necessary duties at the office. If that were to occur for City Councilmembers, he believed it would decrease their availability and effectiveness for City business, and it was important for them to be as fresh and engaged as possible. 0 MINUTES CITY COUNCIL COMPENSATION AD HOC CITIZENS' COMMITTEE MEETING NOVEMBER 5, 2012 Member Sullivan pointed out that individuals in the private business world, not those who are governmental employees, have to go out and buy their own insurance policy for this purpose. Vice Chair Gribow believed there were some things different with City employees, and it seemed as though everything was being done to devalue Councilmember service and dissuade them from running for office. He felt it would be setting a terrible precedent and unfair to take away both their money and benefits. Chair Rover disagreed. Committee Members went on to further deliberate, noting that they were charged with making a recommendation to City Council, and they did. It appears it wasn't well received, and in an effort to avoid political fallout for not going along with the Committee's recommendation, itwas kicked back. Nonetheless, the Committee, which was comprised of a cross-section of Palm Desert voters, felt it did the job it was asked to do over many hours, doing so carefully and thoughtfully. Ultimately, it was City Council that had to make the decision about what benefits its Members should receive. In answer to question, Ms. Carney said that the Long-term Disability, Vision, AD&D Insurances were based on 100% participation of all employees, with premiums paid directly by the City. It was not an elective coverage that was offered as part of the Cafeteria Plan. Member Sullivan moved to let the recommendation the City Council Compensation Ad Hoc Citizens' Committee made on August 1 for Councilmember Benefits stand for itself and be returned to City Council with a sincere hope that it be given due consideration. Motion was seconded by Chair Rover and carried by 4-1 vote, with Gribow voting NO. "Insurance Benefits shall not exceed $7,500 annually for each Councilmember, to be adjusted to provide coverage at the second -highest plan for an individual member, or Councilmember can receive an allowance, which can be converted to cash. " V. REMARKS AND COMMENTS BY COMMITTEE MEMBERS. None VI. ADJOURNMENT On a motion by Vice Chair Gribow, second by Member Sullivan, and unanimous vote of the Committee, Chair Rover adjourned the meeting at 3:40 p.m. _1 F 9474 - 9110 mli;�___A 7 of-�,r�� l ����o►�� EXHIBIT "A" CITY OF PALM OFFICE OF THE CITY MANAGER INTEROFFICE MEMORANDUM N n �< TO: Council Compensation Committee ro z o A �r- 4 rrn M�tm FROM: John Wohlmuth, City Manager (f),s — DATE: October 31, 2012 = -4o Q cn -r SUBJECT: Council Benefits — City Manager Recommendation a, v rn a I appreciate the time, thoughtfulness and commitment demonstrated by the committee in making their recommendation for Council Compensation, which included salary and benefits reductions. Although I appreciate the careful consideration that went into the committee's recommendations, and I agree with many of the committee member's points, I found it necessary to make a separate recommendation regarding benefits and presented it alongside the committee's recommendation for the Council's consideration. On October 25, 2012, the Council directed staff to return to reconvene the City Council Compensation Committee to reconsider my recommendation and requested that I provide more detail to you regarding it. The committee recommended the status quo for ancillary benefits and retirement. It recommended health, vision and dental coverage for the council member only with the option of receiving the cash value in lieu of coverage. My recommendation is explained in more detail below: • Health Care for Dependents — continue for Councilmembers: The staff report presented to the City Council provided an explanation of my recommendation regarding health care for dependants. As City Manager I considered this under a broader organizational context and made a recommendation accordingly.