CITY CLERK Clause embodied in Report No. 2 of the, as adopted by the Council of the City of Toronto at its meeting held on February 13, 14 and 15, 2002. 1 Harmonization of Management Benefit Plans (City Council on February 13, 14 and 15, 2002, amended this Clause by: (1) striking out and referring the following Recommendation No. (I)(2) of the Personnel Sub-Committee to the Chief Financial Officer and Treasurer with a request that he submit a report to the Personnel Sub-Committee, within three months, on the pensions and benefits for elected officials: (2) amending Recommendation No. (3) by inserting the words (as defined under OMERS) with the City of Toronto after the words credited service so that Recommendation No. (3) shall now read as follows: (3) Grandparenting provisions for retiree benefits be implemented for elected officials who are within five years of being eligible to retire or have 10 years of credited service (as defined under OMERS) with the City of Toronto at the time of implementation, or come from the former municipalities of Toronto or North York, to the elected officials former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement; and ; and (2) adding to the end of Recommendation No. (4) of the Personnel Sub-Committee, the words or union members, so that such recommendation shall now read as follows: (4) that this policy supersede, replace and repeal any authorities, by-laws, policies and procedures of the seven former municipalities pertaining to current management and non-union employees and elected officials employee and retiree benefit plans, for greater certainty, this does not affect existing retirees or union members; and.) The recommends: (I) the adoption of the recommendations of the Personnel Sub-Committee embodied in the communication (January 15, 2002) from the City Clerk;
2 (II) (III) that staff continue to regularly conduct reviews of the active and retiree benefit plans as they relate to active employees and report thereon to the Administration Committee through the Personnel Sub-Committee and that this review include the possibility of amending the grandparenting arrangements (and the related employee elections) as part of this report; and the adoption of the recommendations of COTAPSAI (City of Toronto Administrative, Professional, Supervisory Association, Incorporated) embodied in the communication (January 24, 2002) from the Executive Director of COTAPSAI, subject to amending Recommendation No. (2) by adding the word general after the word provide, so that the Recommendations embodied in the aforementioned communication now read as follows: (1) that prior to the implementation date, the Benefits Monitoring Committee review any options/alternatives which can produce savings to be used to maintain current levels of benefits within current costs and have the Committee report these options/alternatives to the Personnel Sub-Committee; (2) that City staff provide general information regarding the cost of benefits to the Benefits Monitoring Committee so that the Committee can review any options/alternatives; and (3) that at the conclusion of each round of bargaining with the Unions, the City review benefit coverage for non-union, exempt management employees and retirees. The submits the following communication (January 15, 2002) from the City Clerk: Recommendations: The Personnel Sub-Committee recommends to the : (I) the adoption of the report (January 8, 2002) from the Acting Chief Financial Officer, subject to: (1) amending Recommendation No. (2) by inserting the words (as defined under OMERS) with the City of Toronto after the words credited service so that Recommendation No. (2) shall now read as follows: (2) Grandparenting provisions for retiree benefits be implemented for employees who are within five years of being eligible to retire or have 10 years of credited service (as defined under OMERS) with the City of Toronto at the time of implementation, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement;
3 The current OMERS regulation provides the following criteria for all employees except firefighters: age 50; or age 50 and 80 points (age plus credited service plus eligible service); or age 50 and 30 years of credited service and eligible service; the current OMERS regulation provides the following criteria for all firefighters: age 45; or age 45 and 75 points (age plus credited service plus eligible service); or age 45 and 30 years of credited service and eligible service; (2) amending Recommendation No. (3) by inserting the words (as defined under OMERS) with the City of Toronto after the words credited service so that Recommendation No. (3) shall now read as follows: (3) Grandparenting provisions for retiree benefits be implemented for elected officials who are within five years of being eligible to retire or have 10 years of credited service (as defined under OMERS) with the City of Toronto at the time of implementation, or come from the former municipalities of Toronto or North York, to the elected officials' former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement; and (3) by deleting Recommendation No. (4) and replacing with the following new Recommendation No. (4): (4) that this policy supercede, replace and repeal any authorities, by-laws, policies and procedures of the seven former municipalities pertaining to current management and non-union employees and elected officials employee and retiree benefit plans, for greater certainty, this does not affect existing retirees ; so that the recommendations of the Personnel Sub-Committee shall now read as follows: (1) the active employee and retiree benefits as outlined in this report be approved for all management, non-union staff and elected officials who have entitlement to benefit coverage;
4 (2) Grandparenting provisions for retiree benefits be implemented for employees who are within five years of being eligible to retire or have 10 years of credited service (as defined under OMERS) with the City of Toronto at the time of implementation, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement; the current OMERS regulation provides the following criteria for all employees except firefighters: age 50; or age 50 and 80 points (age plus credited service plus eligible service); or age 50 and 30 years of credited service and eligible service; the current OMERS regulation provides the following criteria for all firefighters: age 45; or age 45 and 75 points (age plus credited service plus eligible service); or age 45 and 30 years of credited service and eligible service; (3) grandparenting provisions for retiree benefits be implemented for elected officials who are within five years of being eligible to retire or have 10 years of credited service (as defined under OMERS) with the City of Toronto at the time of implementation, or come from the former municipalities of Toronto or North York, to the elected officials former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement; and (4) that this policy supercede, replace and repeal any authorities, by-laws, policies and procedures of the seven former municipalities pertaining to current management and non-union employees and elected officials employee and retiree benefit plans, for greater certainty, this does not affect existing retirees; and (II) that the issues raised by the former Metropolitan Toronto employees be referred to the Chief Financial Officer and the Benefits Monitoring Committee for a report back to the Personnel Sub-Committee meeting scheduled to be held on June 11, 2002, on the specific understanding that the plan might be amended at that time to address the concerns raised, noting the Committee s direction that any solution be cost neutral. The Personnel Sub-Committee reports, for the information of the, having requested the Benefits Monitoring Committee to investigate the possibility of a flexible plan for benefits, as a priority, within the next stage of review, and requested the Chief Financial Officer to submit a report thereon to the Personnel Sub-Committee.
5 Background: The Personnel Sub-Committee on January 15, 2002, had before it the following reports: (1) (January 8, 2002) from the Acting Chief Financial Officer, recommending that: (1) the active employee and retiree benefits as outlined in this report be approved for all management, non-union staff and elected officials who have entitlement to benefit coverage; (2) grandparenting provisions for retiree benefits be implemented for employees who are within five years of being eligible to retire or have 10 years of credited service at the time of implementation, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement. the current OMERS regulation provides the following criteria for all employees except firefighters: age 50; or age 50 and 80 points (age plus credited service plus eligible service); or age 50 and 30 years of credited service and eligible service; the current OMERS regulation provides the following criteria for all firefighters: age 45; or age 45 and 75 points (age plus credited service plus eligible service); or age 45 and 30 years of credited service and eligible service; (3) grandparenting provisions for retiree benefits be implemented for elected officials who are within five years of being eligible to retire or have 10 years of credited service at the time of implementation, or come from the former municipalities of Toronto or North York, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement; (4) that this policy supercede, replace and repeal any authorities, by-laws, policies and procedures of the seven former municipalities pertaining to employee benefit plans other than those covered by union collective agreements; and (5) the appropriate City officials be authorized to take the necessary action to give effect thereto;
6 (2) (November 19, 2001) from the Acting Chief Financial Officer, providing revised recommendations on the harmonization of benefit plans for the management and non-union employees of the City of Toronto based on feedback received from staff information sessions; advising that the current cost (based on 2000 figures) of providing benefits to active management and non-union employees is $12,210,000 per year; that funding of benefits coverage is contained in departmental budgets; that the annual cost of the proposed benefit plan is $12,450,000; an increase of $240,000, 2.0 percent; and recommending that: (1) the level of benefits presented in Appendix A, Proposed City Plan, be approved for all management, non-union staff and elected officials who have entitlement to benefit coverage; (2) grandparenting provisions for retiree benefits be implemented for employees who are within five years of being eligible to retire or have 10 years of credited service at the time of implementation, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement; the current OMERS regulation provides the following criteria for all employees except firefighters: age 50; or age 50 and 80 points (age plus credited service plus eligible service); or age 50 and 30 years of credited service and eligible service; the current OMERS regulation provides the following criteria for all firefighters: age 45; or age 45 and 75 points (age plus credited service plus eligible service); or age 45 and 30 years of credited service and eligible service; (3) grandparenting provisions for retiree benefits be implemented for elected officials who are within five years of being eligible to retire or have 10 years of credited service at the time of implementation, or come from the former municipalities of Toronto or North York, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement; (4) By-law No. 306-90 of the former Corporation of the City of Toronto and any other by-laws of the seven former municipalities dealing with the subject matter hereof, be repealed, and that this policy supersede and replace any authorities, policies and procedures of the seven former municipalities dealing with benefit plans other than those covered by union collective agreements; and
7 (5) the appropriate City officials be authorized to take the necessary action to give effect thereto; (3) (September 17, 2001) from the Acting Chief Financial Officer, recommending that: (1) the level of benefits presented in Appendix A, Proposed City Plan, be approved for all management and non-union staff who have entitlement to benefit coverage; (2) grandparenting provisions for retiree benefits be implemented for employees who are within five years of being eligible to retire or have 10 years of credited service at the time of implementation, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement. The current OMERS regulation provides the following criteria for all employees except firefighters: age 50; or age 50 and 80 points (age plus credited service plus eligible service); or age 50 and 30 years of credited service and eligible service; the current OMERS regulation provides the following criteria for all firefighters: age 45; or age 45 and 75 points (age plus credited service plus eligible service); or age 45 and 30 years of credited service and eligible service; (3) the above recommendations also apply to elected officials; and (4) the appropriate City officials be authorized to take the necessary action to give effect thereto. The Personnel Sub-Committee also had before it the following communications: (1) (January 15, 2002) from the President, Canadian Union of Public Employees, Local 79, expressing concern with respect to Recommendation No. (4) as contained in the report (January 8, 2002) from the Acting Chief Financial Officer; and (2) various e-mails, from management and non-union employees, submitted by Councillor Miller respecting this matter. (November 27, 2001) from Mr. Richard Majkot, Executive Director, COTAPSAI, outlining various concerns respecting the foregoing report (November 19, 2001) from the Acting Chief Financial Officer;
8 (3) (November 27, 2001) from Ms. Ann Dembinski, President, Canadian Union of Public Employees, Local 79, requesting that this matter be postponed and referred back to the Joint Benefits Advisory Committee; (4) (November 20, 2001) from Mr. Robert Paul Magee, advising that he attended a meeting at Metro Hall to review the proposed amalgamated benefit plan; and that he would like to see the Personnel Sub-Committee recommend the new amalgamated benefits be available immediately after an employee has made their decision to retire, and if necessary, give a review period of one or two months for employees to make their decision; (5) (undated) from Mr. Richard Majkot, Executive Director, COTAPSAI, advising that COTAPSAI held a membership meeting on October 18, 2001, to allow members to express concerns, questions and comments about the City's proposed benefit plan; that many serious gaps and concerns were identified at this meeting; providing options for consideration by the City; and recommending that: (1) the report and implementation of the Harmonization of Management Benefit Plans be deferred until the gaps and concerns can be addressed; (2) further consultation occur; and (3) that all options be explored and communicated. The following persons appeared before the Personnel Sub-Committee in connection with the foregoing matter: - Mr. Joe Manion, Toronto Social Services; - Mr. Martin Herzog, and filed a written submission with respect thereto; - Mr. Stephen Benjamin, President, COTAPSAI; - Mr. Richard Majkot, Executive Director, COTAPSAI; - Ms. Gail O Donnell, Manager, Capital Projects, Children s Services; and - Mr. Dave Bailey, President, Toronto Civic Employees Pension Association. (Report dated January 8, 2002, addressed to the Personnel Sub-Committee from the Acting Chief Financial Officer.) Purpose: This supplementary report provides details on the impact of harmonizing benefit plans for management and non-union staff who retire during the transition period. This report also addresses concerns forwarded to Councillor Miller by staff and provides case scenarios. Financial Implications and Impact Statement: The current cost (based on 2000 figures) of providing benefits to active management and non-union employees is $12,210,000 per year. Funding of benefits coverage is contained in departmental budgets. The annual cost of the proposed benefit plan is $12,450,000; an increase of $240,000, 2.0 percent.
9 Recommendations: It is recommended that: (1) the active employee and retiree benefits as outlined in this report be approved for all management, non-union staff and elected officials who have entitlement to benefit coverage; (2) grandparenting provisions for retiree benefits be implemented for employees who are within five years of being eligible to retire or have 10 years of credited service at the time of implementation, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement; the current OMERS regulation provides the following criteria for all employees except firefighters: age 50; or age 50 and 80 points (age plus credited service plus eligible service); or age 50 and 30 years of credited service and eligible service; the current OMERS regulation provides the following criteria for all firefighters: age 45; or age 45 and 75 points (age plus credited service plus eligible service); or age 45 and 30 years of credited service and eligible service; (3) grandparenting provisions for retiree benefits be implemented for elected officials who are within five years of being eligible to retire or have 10 years of credited service at the time of implementation, or come from the former municipalities of Toronto or North York, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement; (4) that this policy supercede, replace and repeal any authorities, by-laws, policies and procedures of the seven former municipalities pertaining to employee benefit plans other than those covered by union collective agreements; and (5) the appropriate City officials be authorized to take the necessary action to give effect thereto. Background: On November 27, 2001, the Acting Chief Financial Officer submitted a supplementary report (November 19, 2001) regarding the harmonization of management benefit plans for management and non-union employees of the City of Toronto.
10 The Personnel Sub-Committee: (1) deferred consideration of this matter until its next meeting scheduled to be held on January 15, 2002, to allow for further consultation; (2) requested the Acting Chief Financial Officer to submit a further report to the next meeting of Personnel Sub-Committee respecting the issue of employees who may retire during the transition period; and (3) referred the communications submitted by Councillor Miller to the Acting Chief Financial Officer so that the concerns outlined therein may be reflected in the forthcoming report, and also, that case scenarios be supplied. Comments: The Finance Department has reviewed the concerns forwarded to Councillor Miller regarding the proposed benefit plan for management and non-union employees. The communications are from management and non-union employees of the former Municipality of Metropolitan Toronto and outline two issues. The first issue is related to the communication of the proposed plan and consultation with management and non-union employees. Finance staff presented the proposed plan on two occasions. The first was a COTAPSAI meeting held on October 18, 2001. The second was an information session on November 14, 2001, in which all management and non-union staff were invited to attend. The invitation to this information session was issued using Corporate Communications. A broadcast email was sent to all employees on November 6, 2001, inviting management and non-union employees to attend the information session. A fax was also sent to each work location. A group of employees in the Community and Neighbourhood Services Department are not on the corporate email system and stated that they were unaware of the November 14 information session. A further information session was held in the evening of January 7, 2002. Corporate Communications was again requested to issue the invitation to all management and non-union employees. In order to ensure all employees received the notification it was issued as a broadcast email twice as well as being faxed to every work location. COTAPSAI also issued their own communication to their members. The second concern is regarding the level of benefits being proposed for active employees compared to the current level of benefits provided to management employees of the former Municipality of Metropolitan Toronto. The concern relates to the reduction in the level of coverage for life insurance and dental benefits for management employees as outlined below. It should be noted that non-union or exempt employees of the former Municipality of Metropolitan Toronto had a lower level of coverage which was equal to that of CUPE Local 79 benefits and therefore this concern does not affect them.
11 Benefit Former Metropolitan Toronto Proposed New Benefits Life Insurance Optional Life 3 x annual salary N/A 2 x annual salary Yes. Employee Paid up to $500,000 Accidental Death and Dismemberment N/A 2 x annual salary Dental Deductible Basic Services Major Restorative Services Orthodontic Services Nil 100 percent Unlimited 100 percent maximum $2,000/year 100 percent maximum $4,000/lifetime Nil 100 percent Unlimited 80 percent maximum $5,000/year 50 percent maximum $5,000/lifetime Although there is some reduction in benefit plan levels for this group, there are also some improvements, particularly the paramedical services which are currently subject to per visit maximums. The improvements are outlined below. As well, the proposed benefit plan balances the needs of all management and non-union employees and does not focus solely on one former municipality. Benefit Former Metropolitan Toronto Proposed New Benefits Optional Life Coverage N/A Yes. Employee Paid up to $500,000 for employee and $200,000 for spouse AD and D N/A Yes. 2x annual salary Massage Therapy (Registered and Licensed Practitioner) Psychologist Chiropractor Osteopath Podiatrist Maximum $7.00 per visit to a maximum of 12 visits per year $35.00 initial visit. Maximum $20.00 each subsequent visit to an overall maximum of $200 per year Maximum $15.00 per visit to an overall maximum of $200 per year (after OHIP) Maximum $15.00 per visit to an overall maximum of $250 per year (after OHIP) Maximum $15.00 per visit to an overall maximum of $250 per year (after OHIP) No per visit maximum. Maximum of $500 per benefit year (after OHIP) No per visit maximum. Maximum of $500 per benefit year (after OHIP) No per visit maximum. Maximum of $500 per benefit year (after OHIP) No per visit maximum. Maximum of $500 per benefit year (after OHIP) No per visit maximum. Maximum of $500 per benefit year (after OHIP) Please note, all paramedical practitioners must be registered and licensed.
12 As outlined in the report to the Personnel Sub-Committee dated September 17, 2001, in developing the consolidated benefit plan for management and non-union employees, the following objectives were established: (iv) ensure equity and efficiency; allow a consistent framework for all City employees; be cost neutral; and minimize impact to employees. Finance staff acknowledge that there is an impact to life insurance coverage for management employees of the former Municipality of Metropolitan Toronto and have tried to balance this impact by offering Optional Life Insurance and Accidental Death and Dismemberment Insurance coverage. Staff have also arranged with the City s benefit carrier, Manulife Financial, to allow management employees of the former Municipality of Metropolitan Toronto to apply for Optional Life Insurance coverage within a specified timeframe, and not have to satisfy evidence of insurability. This will provide employees with the ability to purchase additional life insurance, at group rates, without having to complete a health questionnaire. This minimizes the impact to this employee group. Optional Life Insurance rates are subject to age, sex and smoker/non-smoker bands. The following case scenarios are provided to reflect the potential dollar impact to employees: Case Scenario A Employee: Jane Doe Age: 30 Smoker/Non-smoker: Non-smoker Salary: $50,000 Basic Life Insurance: $100,000 Optional Life Insurance: $50,000 Premium Rate: 0.05 per $1,000 Bi-Weekly Cost: $0.92 ($23.92 annually) Case Scenario B Employee: John Smith Age: 55 Smoker/Non-smoker: Smoker Salary: $50,000 Basic Life Insurance: $100,000 Optional Life Insurance: $50,000 Premium Rate: 0.086/$1,000 Bi-Weekly Cost: $19.85 ($516.10 annually)
13 To further reduce the impact of the benefit plan changes for employees, any course of dental treatment which begins prior to the implementation of the harmonized benefit plan, will be continued based on the current level of coverage. This will ensure that an employee who is in the middle of an expensive course of dental treatment will continue to be reimbursed at the level of coverage in place when the treatment started. As well, employees who will benefit from an enhanced level of dental coverage, will be allowed to apply this new level of coverage to existing treatment plans, on a go-forward basis. Example 1: Jane Doe is an employee from the former Municipality of Metropolitan Toronto. Jane s daughter began a course of orthodontic treatment in 2001 and it is scheduled for completion in 2004. Jane currently is receiving a payment of 100 percent of the costs of this plan to a lifetime maximum of $4,000.00. Under the new plan, Jane will receive coverage at 50 percent to a lifetime maximum of $5,000.00. Since the treatment began prior to the implementation of the new plan, Jane s current level of coverage, i.e., 100 percent to a maximum of $4,000, will continue until the work is completed. Example 2: John Doe is an employee from the former City of Scarborough. John s son began a course of orthodontic treatment in 2001 and is scheduled for completion in 2004. John currently is receiving payment of 50 percent of the costs of this plan to a lifetime maximum of $2,000.00. Under the new plan, John will receive coverage at 50 percent to a lifetime maximum of $5,000.00. Even though the treatment began prior to the implementation of the harmonized plan, the remainder of the treatment will be eligible for reimbursement up to a lifetime maximum of $5,000.00. (Any balance previously utilized will be applied to this maximum.) In addition to reviewing the communication sent to Councillor David Miller, Finance staff have met with a small group of former Metro employees on three separate occasions regarding their concerns with the proposed plan. COTAPSAI representatives were also present at these meetings. During these meetings, the following issues/concerns were raised: (1) They were not aware of the General Information Session held on November 14 and felt further consultation was required. Therefore, another information session was held on January 7, 2002. Corporate Communications again issued the invitation (twice) and, in addition, this group of former Metro employees agreed to forward the invitation to those management/non-union employees not on the corporate email. COTAPSAI also issued their own communication to their members. (2) Finance staff were requested to further report on the rationale for implementing the active and retired benefit plans differently, i.e., the active plan is implemented after a 12 month notice period, and the retired plan is grandparented based on certain criteria. Staff were requested to report on the possibility of also grandparenting employees on the active plan based on the criteria of having 10 years of credited service.
14 The rationale for implementing the active benefits differently than the retirement benefits has been based on legal analysis, administrative complexity as well as cost implications. It is acknowledged that changes to employee benefit plans are a fundamental change to employees terms and conditions of employment. Although the use of benefit plans is very subjective and what is fundamental to one employee may not be to another, it was determined that a 12 month notice period be recommended in order to implement the new plan. The same principles apply in recommending a change to retiree benefits. It is recommended that the new retiree benefit plan be implemented following a 12 month notice period. In addition, employees close to retirement may assert that retirement plans have been made on the assumption of the availability of existing benefit plans. The original staff recommendation provided for grandparenting employees who are age 50 or whose age plus service equals 60 at the time of implementation to the employee s former retiree benefits if more generous. After receiving feedback from employees, this recommendation was amended to include employees who are within five years of being eligible to retire or have 10 years of credited service with the City of Toronto at the time of implementation, to their former retiree benefits if more generous. These retiree benefits would be available from the first date of retirement. This amendment has created an issue whereby an employee who is potentially 25 years from retirement is being asked to make a decision regarding their retiree benefits. It must be noted that the decision grandparented employees must make is whether or not they wish to maintain their existing retiree benefits from their former municipality. The administration of providing different benefit plans to a group of employees is complex. New communications have not be issued to management/non-union employees regarding their benefit plans pending the harmonization of these plans. Once the recommended plan is approved, communications, including a benefit booklet, will be provided to all management and non-union employees. The cost of grandparenting employees with more than 10 years of service to their active benefit plan is $12,879,000; an increase of $669,000. (3) Finance staff were asked for the cost of maintaining the level of benefits for former Metro staff only and also the cost of implementing the former Metro plan for all employees. The cost of maintaining the level of benefits for former Metro staff only is $13,005,000.00; an increase of $795,000.00 annually. The cost of implementing the former Metro benefit plan for all employees is $13,620,000.00; an increase of $1,410,000.00 annually. (4) Finance staff were asked for the cost of providing different levels of benefits than those currently proposed. These savings/costs are outlined below:
15 Option (1) Limit major dental services to $2,000 per year (currently $5,000) (2) Limit major dental services to $3,000 per year (currently $5,000) (3) 9 month dental recall (currently 6 month) (4) Hearing Aids to a maximum of $500 every 2 years (currently $500 every year) (5) Reduce the per practitioner paramedical limit to $250 per year (currently $500) Option (1) Hearing Aids to a maximum of $1,000 every 2 years (currently $500 every year) (2) Add 3 x life insurance coverage and remove AD and D coverage (currently 2 x life insurance and 2 x AD and D coverage) Reduction in the Cost per Person Annual Cost Savings $35 $105,000 $18 $54,000 $28 $84,000 $0 $0 $14 $42,000 Additional Cost Annual Cost Per Person Increase $2 $6,000 $140 $420,000 Staff were also requested to provide the cost of switching from an employer paid LTD plan to an employee paid LTD plan. We are unable to provide this cost as there are other implications that impede this change. These include tax issues, establishment of reserve funds and a change to the Request for Proposal used in securing a benefits carrier. (5) Finance staff were asked to look into the possibility of self-insuring the life insurance as a method of acquiring savings. In order to determine the appropriateness of self insuring group benefit plans, an employer must feel confident that the claims and liabilities will be predictable in order to ensure long-term stability of the plan. To do this, the following factors must be considered: (1) how often a claim will be incurred; (2) the cost of an incurred claim; (3) the amount required to cover the expenses of an incurred claim; and (4) tax implications.
16 As well, risk must be measured reviewing the composition of the group, i.e., age, sex, marital status, occupation, salary, etc. Group benefit plans which are appropriate for self insurance are those that are predictable. Claims that have a high frequency and low cost are considered appropriate. These include most health claims, dental claims and short-term disability claims. Life Insurance and Accidental Death and Dismemberment are rarely self insured due to the infrequent and unpredictable claim patterns and high costs. In addition, self insuring the life insurance coverage will result in a taxable income to beneficiaries. This is not the case for insured claims. Currently employees pay income tax on the premium paid by their employer. (6) Finance staff were asked to provide the assumptions that were used in determining all the costs that have been used in developing the proposed plan. The costs provided in this process were prepared by external actuarial consultants. In establishing these costs, the actuaries reviewed the actual experience and demographics of the plans and therefore had to make little assumptions regarding age, gender, smoking status, health status and utilization. They have utilized insurance principles to adjust actual claims experience based on plan design. Any effort to maintain the current levels of life insurance and dental insurance coverage for employees of the former Metro has significant costs associated with it. In addition to the information requested by the group of former Metro employees, staff also received feedback from the information session held January 7, 2002. One of the issues that has not previously been reported on is the issue of providing retiree benefits to the spouse and eligible dependants of a deceased retiree. The current plan does not provide for benefits after an employee/retiree dies. In order to be consistent with what is provided to employees who are members of Local 79, the following provision will be applied with the implementation of the harmonized benefit plan: If a retired employee dies prior to his/her sixty-fifth (65) birthday, the employee s spouse and eligible dependants, if any, shall continue to be covered by the applicable benefits (except life insurance) up to the date on which the retired employee would have reached age 65. The same would apply to active employees, if they were eligible to elect early retirement at the time of their death. The Personnel Sub-Committee has requested that the process for handling employees who may retire during the transition period be addressed in this report. As many employees will benefit from the level of retiree benefits outlined in the proposed harmonized benefit plan, some employees would like this plan to become effective immediately following Council approval. The Finance Department has recommended a 12 month period of notice prior to implementation of this new plan because it is considered a fundamental change in employee s terms of employment and in order to
17 effectively communicate all details of the changes. This will ensure that employees who meet the grandparenting criteria for retiree benefits have enough time to review all information prior to making their decision. It will also ensure that all employees become aware of the changes to both their active and retiree benefit plans. The proposed retiree benefit plan will not exist until after the period of notice. Some employees who are retiring during this period have enquired as to the possibility of waiving their notice. Although this is not possible, an alternative solution can be implemented. Employees who retire during the notice period will retire with the benefits in place at that time, i.e., from their former municipality. If they would like to retire with the benefits in the proposed plan, they will be provided with a one-time option of making that selection. Listed below is a case scenario to clarify the implementation of the grandparenting provision for retirement benefits: Case Scenario: John Smith Former City of Scarborough Age 55 7 years of credited service Retiring in July 2002 A 12 month period of notice is being provided following Council approval. Since Mr. Smith is retiring during this period of notice, he will retire under his current retiree benefit plan. Mr. Smith will be advised that he has a one-time election to switch to the new retiree benefit plan. If he chooses to switch to the new retiree benefit plan, this will take place on the effective date of the new plan (after the 12 month period of notice). The proposed plan provides a comprehensive benefit plan for management and non-union employees who meet the eligibility requirements. All active full-time management and non-union employees will be eligible for these benefits from their first day of employment. The cost of these benefits will be paid for in full by the city. All temporary management and non-union employees will be eligible for these benefits after the completion of six (6) months of continuous service. All part-time management and non-union employees will be eligible for these benefits after the completion of six (6) months of aggregate service. Part-time management and non-union employees will be required to pay a pro-rated portion of the benefit premium which is contingent upon the number of hours worked in any given pay period. The proposed benefit plan for active employees provides a harmonized level of benefit for Life Insurance, Accidental Death and Dismemberment, Long Term Disability, Health Insurance and Dental Insurance. These benefits are applicable to both management and non-union employees of the City of Toronto. The former Municipality of Metropolitan Toronto and the former City of Toronto provided a different level of coverage for management and non-union/exempt employees. The proposed benefit plan provides the following benefits to active employees:
18 Active Employee Benefits Benefit Life Insurance Optional Life Insurance Dependant Life Insurance AD and D Optional AD and D LTD Coverage Tax Status Health Reimbursement Deductible Drug Coverage Paramedical Hospital Vision Care Out of Country Dental Basic Coverage Major Restorative Coverage Orthodontic Coverage 2 x annual salary Yes Nil 2 x annual salary Nil 75 percent of earnings Taxable as disability income 100 percent Details Nil Generic Prescription (Benefit Card, Legally require a prescription) Yes. Physiotherapy unlimited. The services of a psychologist, chiropractor, osteopath, podiatrist and masseur to a maximum of $500 per person, per benefit year, per specialist (after OHIP if applicable) Semi-Private $225/24 months Yes (Emergency Coverage) 100 percent Unlimited 80 percent ($5,000 per year limit) 50 percent ($5,000 per lifetime limit) All of the benefits provided, with the exception of optional life insurance, will be paid for by the City. Employees who elect to purchase optional life insurance coverage, in addition to the basic coverage provided by the plan, must pay for this benefit. The current annual cost of providing benefits to management and non-union employees is $12,210,000, based on 2000 figures. This represents 13.2 percent of the total cost of benefits for all City employees. The cost of benefits is funded through departmental budgets. The annual cost of the proposed plan is $12,450,000, an increase of $240,000, or 2.0 percent. Listed below are the current costs of providing benefits to City employees.
19 Annual Costs (2000 Figures) Per Person Total Management and Total All Employees Non-Union Current Plan $4,070 $12,210,000 $91,968,795 Proposed Plan $4,150 $12,450,000 (2.0 percent increase) $92,208,795 (0.3 percent increase) At the Personnel Sub-Committee meeting on October 30, 2001 Finance staff were requested to provide plan design options which would result in the proposed plan being truly cost neutral. In addition to this request, there was discussion about implementing a deductible. This information is also included. Option Possible Plan Design Reductions Reduction in the Cost per Person Annual Cost Savings (1) Reduce vision from $225 to $200 (every $5 $15,000 24 months) (2) Limit all paramedical practitioner coverage $16 $48,000 (excluding physiotherapists) to $500 per year (currently $500 per year per practitioner) (3) Limit physiotherapist coverage to $500 per year $30 $90,000 (currently no maximum) (4) Limit major dental services to $2,000 per year ` $35 $105,000 (currently $5,000) (5) Limit major dental services to $3,000 per year $18 $54,000 (currently $5,000) (6) Introduce a $10/$20 deductible $14 $42,000 (7) Introduce a $25/$50 deductible $34 $102,000 The proposed plan design has been established to balance the current level of benefits being provided to management and non-union staff with the benefits provided to unionized staff, during collective bargaining. In addition to being eligible for benefits as an active employee, full time employees are also eligible to receive benefits when they retire. Employees are eligible to receive retiree benefits if they meet the requirements to retire and do so on an immediate pension. Currently employees can retire as early as age 50 (age 45 for firefighters) due to the OMERS early retirement provisions. These provisions are temporary and are currently in place only to the end of December 2003. The normal retirement age is age 55 (age 50 for firefighters). Therefore the criteria for an employee to be eligible to receive retiree benefits would be to retire on an immediate pension. The age at which an employee can do so may change based on external factors, i.e., pension plan surplus.
20 The proposed benefit plan for retirees provides a harmonized level of benefit for Life Insurance, Health Insurance and Dental Insurance. The proposed plan provides the following benefits to retired full time management and non-union employees up to the age 65. Part-time and temporary employees who do not meet the grandparenting provisions outlined in Recommendation No. (2) of this report are not eligible to receive retiree benefits. This is consistent with the practice of most former municipalities. In fact, most former municipalities did not provide active benefits to temporary and part-time employees. Early Retiree Benefits To Age 65 Benefit Life Insurance Optional Life Insurance Dependant Life Insurance AD and D Optional AD and D LTD Coverage Tax Status Health Reimbursement Deductible Drug Coverage Paramedical Hospital Vision Care Out of Country Dental Basic Coverage Major Restorative Coverage Orthodontic Coverage Details 2 x annual salary N/A N/A N/A N/A N/A 100% Nil Generic Prescription (Benefit Card, Legally require a prescription) Yes. Physiotherapy unlimited. The services of a psychologist, chiropractor, osteopath, podiatrist and masseur to a maximum of $500 per person, per benefit year, per specialist (after OHIP if applicable) Semi-Private $225/24 months (including laser eye treatment) Yes (Emergency Coverage) 100 percent Unlimited 80 percent ($5,000 per year limit) 50 percent ($5,000 per lifetime limit) All of the benefits listed in the schedule above (Early Retiree Benefits to age 65) will be paid for by the City.
21 When a retired employee reaches age 65 all benefit coverage would cease, with the exception of life insurance coverage. A $5,000.00 policy will be maintained for life. This would also apply to employees who retire at age 65. Retiree Benefits Post Age 65 Benefit Life Insurance Details $5,000 Flat Amount It is further recommended that in order to minimize the impact to employees in the area of retiree benefits, grandparenting provisions be applied. The grandparenting provisions are as follows: Grandparenting provisions for retiree benefits be implemented for employees who are within five years of being eligible to retire or have 10 years of credited service at the time of implementation, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement. The current OMERS regulation provides the following criteria for all employees except firefighters: age 50; or age 50 and 80 points (age plus credited service plus eligible service); or age 50 and 30 years of credited service and eligible service; the current OMERS regulation provides the following criteria for all firefighters: age 45; or age 45 and 75 points (age plus credited service plus eligible service); or age 45 and 30 years of credited service and eligible service. Employees who meet the grandparenting provisions outlined above will be provided with a one-time option to maintain the current benefit coverage available to retired employees of their former municipality. Following Council approval all employees will receive a detailed communication outlining the current benefit coverage available to retired employees of their former municipality as well as the new retirement benefit coverage. They will be provided with a one-time only option of maintaining their old retiree plan. This election must be made within a defined period of time during the twelve (12) month period of notice. Finance staff have been requested to comment on the possibility of freezing the retirement benefits being recommended in this report for employees who elect to switch to the new retirement benefit plan. Employees are requesting guarantees that this plan will not change in the future. Unfortunately, we are unable to provide this guarantee to employees as it is unknown how health coverage will change in the future and how employees will react to these changes.
22 However, it must be noted that grandparenting is being recommended to allow employees to retire with the benefits in place from their former municipality. As health coverage changes and collective agreements continue to be negotiated, changes to the benefit plan for management/non-union employees may change. Employees would then be eligible to receive the retiree benefits in effect at the time of their retirement. The recommended retiree benefit plan provides retiree benefits to age 65 only, with a life insurance policy of $5,000.00 to continue for life. The former municipalities of Metro, Toronto, North York and Etobicoke provided certain benefits post age 65. Therefore, employees who meet the grandparenting provision would be eligible to receive the retiree benefits available to retirees pre and post age 65 from their former municipalities. Those employees who do not meet the grandparenting provisions would be eligible to receive the retiree benefits in place when they retire. Existing retired employees would not be subject to any changes in their benefit coverage. The cost of providing retiree benefits to all employees is approximately $16M per year and is funded by the Employee Benefit Reserve. There are no immediate cost savings with the implementation of this plan. As mentioned, one of the objectives followed in harmonizing these plans was that the cost would remain neutral. In other words, this was not a cost containment exercise. The current cost of providing benefits to management/non-union employees is $12,210,000.00 annually. The annual cost of the proposed plan is $12,450,000.00 an increase of $240,000 (2.0 percent). This increase is as a result of ensuring the level of benefits provided are consistent to those being provided to unionized staff as well as what was provided to management/non-union staff in the former municipalities. Conclusion: The harmonization of benefit plans for City employees has been ongoing since 1998. Current benefit plans for management and non-union employees continue to be based on former municipality. At this time, all unions and associations have consolidated benefit plans. Benefit Plans make up a large part of an employees total compensation package and are used to both attract and retain qualified staff. The proposed benefit plan has been designed to ensure fairness and equity among staff, while providing comprehensive benefits that are fiscally responsible. The proposed plan is a traditional benefit plan that provides the same level of benefit to all management and non-union employees and is competitive with other public sector organizations. Contact: Ivana Zanardo, Director Pension, Payroll and Employee Benefits Tel: 416-397-4143 Fax: 416-397-0835 Email: izanardo@city.toronto.on.ca
23 Purpose: (Report dated November 19, 2001, addressed to the Personnel Sub-Committee from the Acting Chief Financial Officer.) This supplementary report provides revised recommendations on the harmonization of benefit plans for the management and non-union employees of the City of Toronto based on feedback received from staff information sessions. Financial Implications and Impact Statement: The current cost (based on 2000 figures) of providing benefits to active management and non-union employees is $12,210,000.00 per year. Funding of benefits coverage is contained in departmental budgets. The annual cost of the proposed benefit plan is $12,450,000.00; an increase of $240,000.00, 2.0 percent. Recommendations: It is recommended that: (1) the level of benefits presented in Appendix A, Proposed City Plan, be approved for all management, non-union staff and elected officials who have entitlement to benefit coverage; (2) grandparenting provisions for retiree benefits be implemented for employees who are within five years of being eligible to retire or have 10 years of credited service at the time of implementation, to the employees former retiree benefits if more generous. The retiree benefits are applicable from the first date of retirement; the current OMERS regulation provides the following criteria for all employees except firefighters: age 50; or age 50 and 80 points (age plus credited service plus eligible service); or age 50 and 30 years of credited service and eligible service. the current OMERS regulation provides the following criteria for all firefighters: age 45; or age 45 and 75 points (age plus credited service plus eligible service); or age 45 and 30 years of credited service and eligible service.