Retirement Health ContributionsMEETING DATE: 12/16/14
ITEM NO:
°8 CA`pg COUNCIL AGENDA REPORT
DATE: DECEMBER 8, 2014
TO: MAYOR AND TOWN COUNCIL
FROM: GREG LARSON, TOWN MANAGER
SUBJECT: ADOPT RESOLUTION APPROVING RETIREMENT HEALTH
CONTRIBUTIONS UNDER THE PUBLIC EMPLOYEES' MEDICAL AND
HOSPITAL CARE ACT (PEMHCA) TO SPECIFY THAT FOR
RETIREMENTS AFTER JANUARY 1, 2015, THE TOWN'S
CONTRIBUTIONS FOR MEDICARE- ELIGIBLE RETIREES ARE AT THE
LEVEL OF "KAISER SUPPLEMENTED" RATES AND AUTHORIZE THE
TOWN MANAGER TO EXECUTE REVISED OR REPLACEMENT
RESOLUTIONS AND RELATED DOCUMENTS CONSISTENT WITH
CALPERS REQUIREMENTS
RECOMMENDATION:
Adopt resolution approving retirement health contributions under the Public Employees' Medical
and Hospital Care Act (PEMHCA) to specify that for retirements after January 1, 2015, the
Town's contributions for Medicare- eligible retirees are at the level of "Kaiser Supplemented"
and authorize the Town Manager to execute revised resolutions and related documents consistent
with Ca1PERS requirements.
BACKGROUND:
In 1991, the Town adopted resolutions to elect participation in the Public Employees' Medical
and Hospital Care Act (PEMHCA), which establishes the method for retiree health contributions
based on Kaiser at the 1, 2 or 3 -party rates.
In a recent actuarial study, the Town's actuary identified that the Town's contributions for
retirees are set at the "Kaiser" rate, even though the rates decrease at Medicare age to "Kaiser
supplemented" rates. As a result, the Town's projected liability for future health costs is based on
a higher rate for Medicare - eligible retirees than is actually charged by Ca1PERS.
To correctly align to the lower Kaiser rates for Medicare - eligible retirees, it is necessary to revise
the Town's retiree contributions consistent with "Kaiser supplemented" rates. To avoid
impacting the vested rights of previously retired annuitants, this alignment is recommended to be
effective for retirements after January 1, 2015. _ 1
PREPARED BY: RUMI PORTILLO
Human Resources I
Reviewed by:
Town Manager AU&Town Attorney
NAh4GR\Admin WorkFils\2014 Comcil Repocts\Dec 16 \12 -16 -14 PEMHCA Update December 2014.doc
PAGE
MAYOR AND TOWN COUNCIL
SUBJECT: ADOPT RESOLUTION APPROVING RETIREMENT HEALTH
CONTRIBUTIONS UNDER THE PUBLIC EMPLOYEES' MEDICAL AND
HOSPITAL CARE ACT (PEMHCA) TO SPECIFY THAT FOR RETIREMENTS
AFTER JANUARY 1, 2015, THE TOWN'S CONTRIBUTIONS FOR
MEDICARE- ELIGIBLE RETIREES ARE AT THE LEVEL OF "KAISER
SUPPLEMENTED" RATES AND AUTHORIZE THE TOWN MANAGER TO
EXECUTE REVISED OR REPLACEMENT RESOLUTIONS AND RELATED
DOCUMENTS CONSISTENT WITH CALPERS REQUIREMENTS
DECEMBER 8, 2014
DISCUSSION:
The Town's negotiators met and conferred with each of the bargaining groups to discuss the
recommendation by the Town's actuary to align to the lower Medicare- coordinated rate.
The employee unions have ratified the proposed change and enabling language has been adopted
in each bargaining group's most recent Memorandum of Understanding (MOU). Meeting and
conferring with the Town's bargaining groups was necessary because this alignment does change
the amount available to future retirees for health premiums once they reach Medicare eligibility.
The amount available to retirees will align to the Medicare- coordinated rate, rather than the
higher non - Medicare coordinated rate. This alignment is consistent with practices of most public
agencies in Ca1PERS that provide retiree health contributions.
The alignment to "Kaiser supplemented" rates for Medicare- eligible retirees will more accurately
project the Town's liability for future health costs by reflecting the lower Medicare - coordinated
premium. The more accurate projection will, in turn, reduce the amount of reserves necessary to
pre -fund future health costs under GASB 45.
In reviewing the Town's original PEMHCA resolutions, staff has also identified outdated terms
and technical clean-up items needed since 1991. It is recommended that staff coordinate with
Ca1PERS to update the PEMHCA- related documents and for the Town Manager to execute the
updates once the coordination is complete.
CONCLUSION:
Based on the actuaries' recommendation and agreement by the Town's employee unions, it is
recommended that the Town's contributions for retiree health align to the "Kaiser supplemented"
rates for retirements effective after January 1, 2015.
ENVIRONMENTAL ASSESSMENT:
Is not a project defined under CEQA, and no further action is required.
FISCAL IMPACT:
Actuarial savings from this change to the PEMHCA resolutions have been incorporated in the
FY 2014/15 budget.
Attachment:
1. Resolution Approving Retirement Health Contributions under The Public Employees'
Medical And Hospital Care Act (PEMHCA)
RESOLUTION NO. 2014 —
RESOLUTION OF THE LOS GATOS TOWN COUNCIL
FIXING THE EMPLOYER'S CONTRIBUTION UNDER THE PUBLIC EMPLOYEES'
MEDICAL AND HOSPITAL CARE ACT WITH RESPECT TO EMPLOYEES,
ANNUITANTS AND ELECTED OFFICIALS AND
FIXING THE EMPLOYER'S CONTRIBUTION AT AN AMOUNT PRESCRIBED BY
SECTION 22892 OF THE GOVERNMENT CODE
WHEREAS, (1) Government Code Section 22892(a) provides that a local agency
contracting under the Public Employees' Medical and Hospital Care Act shall fix
the amount of the employer's contribution at an amount not less than the amount
required under Section 22892(b)(1) of the Act, and
WHEREAS, (2) The Town of Los Gatos, hereinafter referred to as Public Agency is local
agency contracting under the Act for participation by members of all bargaining
units and elected officials;
NOW, THEREFORE BE IT
RESOLVED, (a) That effective January 1, 2015, the employer's contribution for each
employee, retired annuitant, and elected officials shall be the amount necessary to
pay the full cost of his/her enrollment, including the enrollment of his/her family
members in a health benefits plan up to the maximum of the Kaiser/Kaiser
Supplemental premium (1, 2, and 3 party) rates, plus administrative fees and
Contingency Reserve Fund Assessments; and
RESOLVED, (b) That the executive body appoint and direct, and does hereby appoint and
direct, the Town Manager to file with the Board of Administration of the Public
Employees' Retirement System a verified copy of this Resolution, and to perform
on behalf of the said Public Agency all functions required of it under the Act and
Regulations of the Board of Administration; and
RESOLVED, (c) That the Town Council has fully complied with any and all applicable
provisions of Government Code Section 7507 in electing the benefits set forth above.
PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of Los Gatos,
California held on the 16`x' day of December, 2014, by the following vote:
COUNCIL MEMBERS:
AYES:
NAYS:
ATTACHMENT 1
ABSENT:
ABSTAIN:
SIGNED:
MAYOR OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA
ATTEST:
CLERK OF THE TOWN OF LOS GATOS
LOS GATOS, CALIFORNIA