Working Session

MAYOR COUNCIL WORK SESSION
Wednesday, March 7, 2007 – 4:00 p.m.
Council Chambers

Members Present: Art Bakken, Bob Brooks, Doug Christensen, Mike McNamara (joined meeting in progress), Mayor Brown (joined meeting in progress).

Members Absent: Hal Gershman, Eliot Glassheim, Curt Kreun..

Others Present: Several Employees, Employee Reps, Department Heads.

Christensen called the meeting to order at 4:00 p.m.

Matter of Employee Benefits.

Christensen stated that the intent of the benefit study that was requested was not to take away any benefits from employees, but rather to see if there might be anything else available that would better serve the needs of the employees and be more cost effective, particularly in the area of restructuring the health insurance.

Daryl Hovland, Director of Human Resources, distributed a handout showing the comparison between the current NDPERS health plan that the City offers and the High Deductible Health Plan/Health Savings Account (HDHP/HSA) option. Hovland commented that on July 1, 2007 there will be a premium increase in our current insurance and that is included in the cost comparison. He added that overall the average employee received a fifty-two cent per hour increase in wages this year and at the current premium cost split a third of the employees raise will be absorbed by the premium increase. He noted that City employees do have a low utilization rate of the health plan. In reviewing the cost comparison it is still more cost effective and better coverage to stay with our current plan than to switch to a HDHP/HSA plan. Hovland commented that if the desire is to return more money to the employees, perhaps a better way would be to look at changing the premium split to 85/15 from the current 75/25.

Hovland informed the group that due to the healthy nature of the work force and the hard work of all the employees the City is receiving a $443,249.77 in cost saving on our WSI premium this year and thanked all the employees for their efforts. He suggested that perhaps part of this saving could be used to fund the shift in health insurance premium share and potentially to also fund a change in pension for the Defined Contribution Plan employees into the NDPERS Defined Benefit Plan.

Christensen commented that it appears that the HDHP/HSA option may not work for the City, but had asked that we look into the plan, as they usually come with options that could be beneficial to employees, such as low utilization employees getting their premiums back.

Hovland responded that given the research findings it appears that it would be a better idea, if the intent is to give more premium dollars back to the employees, to look at reallocating the premium split and that would have the same effect.
(McNamara joins the meeting.)

Christensen commented that the other research that was done was on converting the Defined Contribution Plan participants into the Defined Benefit Plan through NDPERS.

RaeAnn Burger, Compensation and Benefits Specialist, explained that the current DC Plan has the City and the Employee each contributing 4% into the plan. The NDPERS plan would require a 4% employee contribution and a 5.27% City contribution. If we were to make the decision to convert on July 1, 2007, the additional cost to the City for the remainder of the year would be approximately $47,000, with an annual anticipated increase over our current pension expense of $94,000. She continued that NDPERS personnel will be here April 10, 2007 to meet with us and answer questions that we may have.

Christensen stated that our current Defined Benefit Plan has had a problem with unfunded liability and that he has a concern with going back to that type of plan and what the City’s future liability could become if an unfunded liability develops there.

Hovland responded that will be discussed in April with NDPERS along with other questions that we have and then a full report will be brought to the Pension and Insurance Committee. He commented that $94,000 is a small annual cost compared with the costs for turnover, especially in the law enforcement area, that we are currently seeing. He stated that in exit interviews departing employees used to bring up starting wages and pension, and that we have addressed the wage issue through the market plan that we have implemented, but that pension continues to be a significant factor for employees. Hovland stated that if the desire is to look at the option that would be most cost effective for the City in the long term, then going with the option that makes us most competitive and decreases turnover would be the best decision.

(Mayor Brown joins the meeting.)

McNamara asked if there was something that could be put together that quantifies the turnover costs. Hovland stated that in general take 1.5 times the annual salary for a position in the turnover cost. He continued that we try to select the most qualified applicant, but with many positions we still have training costs for new employees, such as for law enforcement that we send to the training academy in Bismarck. He added that we do try to give credit to those individuals that come to us already having that training.

Christensen commented that the unfunded liability issue is scary and that can be seen with the existing DB Plan that we got away from in 1996 and the fact that we will be budgeting $1.3 million for each of the next 30 years to cover the unfunded.

John Packett, Police Chief, stated that he can reiterate what Hovland stated about the importance of the pension benefit to employees and that is a high reason for many departing employees that are not of regular retirement age. He gave the example that a DC participant could work for the City for 30 years and at retirement maybe have $150,000 in their plan and find that won’t support them for the rest of their life, versus they can go to work in Minnesota and work for only 10 years and still retire at a guaranteed third of their salary.
Christensen commented that the discussion started with trying to find a way to get a return of premium to those healthy employees that don’t utilize their health plan.

Hovland cited that an advantage of the HDHP/HSA plan is that it is cleaner and easier for an individual to manage, as there is no co-pay, co-ins, etc. He continued with disadvantages that include must have 75% participation and that they do not allow an individual to utilize more than one plan to cover their expenses, for instance a participant could not use the insurance and also a VA, Tri-Care, or Medicare benefit, which would mean that participants would have to choose between those other plans and the insurance offered by the City, versus now they can utilize insurance and the other options that are available to them.

Christensen stated that he was not scared of a self-funding plan and just wants employees to have more at the end of the day.

McNamara commented that, in regards to pension, he would like some more research done as to what is the trend in the market, as he has done some reading and some feel that DB Plans are the dinosaur. He commented that our existing DB Plan has problems due to a failure to contribute at recommended levels in past years and that is why we now have a larger contribution facing us. McNamara continued that he is also curious about insurance that we buy as a City, as he has read that the projected trend in health insurance industry for the next several years is for continued large increases in costs each year and that we think ahead to what we buy and plan for in the budgeting process to cover those potential future costs.

Bakken commented that historically the last several years have always had health insurance premium increases larger than the rate of inflation and actually between 5-25% increases and doesn’t remember less than 3% any year and agrees that we need to plan for future increases. Bakken continued that he likes the idea of giving dollars back to the employees, but is not sure that the area of health care is where we can make that happen and maybe would be easier if we have extra dollars just give it in wages or pension. Christensen added that he would like to see us get the most back to employees that we can.

Bakken stated it would be good information to see how many in ND and Minnesota still use Defined Benefit Plans. Brooks added that all in Minnesota are on DB under the state plan.

Pete O’Neill, Fire Chief, commented that it is a very great concern for their department in looking at the future and Defined Contribution participants not being able to retire at the age that is prevalent in their field due to lack of an adequate pension. He continued that he sees in the future many of his employees continuing to work into their 60’s, 70’s or beyond because they are not comfortable with the pension money that would be available to them.

Brooks commented that a offering a pension where the employee knows what they are getting is a tremendous draw and does lower turnover.

Packett commented that by going into the state plan there would be strength in numbers and should lessen the risk for the City as any costs is spread to all in the plan and that is how many other areas cover the cost. Christensen stated that he can see that there are positions within the City where someone working beyond a certain age may not be in the best interest of the City, but he also worries about the risk of creating inequity between groups of employees and would like to be fair to all. Roxanne Fiala, IS Director, commented that besides those positions in the City that are physically challenging, there are also a number of positions that are mentally challenging, such as with their programmers and that can also see a detriment to forcing someone to continue working longer than they should. Fiala continued that she has talked with her staff about the insurance issue and that those younger employees have commented they use their insurance more than some older, as they are having children and dealing with all the associated doctor visits that young children have, versus her older employees that do not report needing to utilize their insurance as much. She continued that on the issue of pension, the potential for turnover in her department is also large, and the DC participating employees feel that they will have to work forever, as they won’t be able to afford to retire and may have to look at leaving the City to provide for their retirement. She commented that to allow the DC Plan participants to become participants in the State DB Plan would be a great opportunity.

Christensen commented that there is a hope nationwide that either the state or federal government would step in with some type of solution for the upcoming pension problems in every industry, but so far that has not happened and that given many employees now will only have a 401k to rely on for their retirement this will not only be a City of Grand Forks problem, but a train wreck coming for many.

Todd Feland, Public Works Director, stated that the least option that should also be considered is increasing the amount that goes into the DC Plan for the participants and increasing that amount. He continued that there is significant more funding per capita given for the Defined Benefit Plan participants and it can not be assumed that all participants in the Defined Contribution Plan can not be assumed to be wise investors and this could be a greater cost to the City in the long run than increasing the contribution rate now or supporting a slightly higher level of contribution to move those people into the State plan. Christensen commented that we need to start training people that they get what we offer and they need to start taking responsibility for providing for their own future.

Feland stated that he can agree that going back to an old plan like Ford or GM may not be a perfect answer, but then maybe we need to look at some new ideas like a Honda or Toyota and explore what they have come up with, because there are some that continue to attract employees and not have some of the same problems that have been mentioned. He encouraged the Council to consider making changes that would allow employees to feel more comfortable with their retirement plan and being able to retire at ages that are in the best interest of the employee and city. Christensen commented that we currently don’t have mandatory retirement ages, but that is also something that the City could look at.

Hovland commented that for the most part, very young employees are not the ones coming into public service. He commented that if the City wants to be competitive and increase our recruiting potential, we need to make changes in that direction and look at the long-term impact that could have on the City.

Bakken stated that in the private sector most are going away from a DB plan and many industries in the private sector also have a hard time recruiting and that is why some jobs get filled with immigrant and illegal workers. He continued that as time goes on he sees this as a growing problem that many governments will struggle with. Christensen agreed and said that the trend is that no one is going to take care of you but you and everyone needs to look ahead and plan for their own retirement.

Meeting adjourned at 5:00 p.m.

Respectfully submitted,
Sherie Lundmark
Admin Spec Sr