HomeMy WebLinkAbout19 - Voluntary Separation Incentive Program (VSIP) - SupplementalCITY OF
NEWPORT BEACH
Q SEW PORT
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"Maw City Council Staff Report
19 REVISED
Agenda Item No.
January 22, 2013
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Human Resources Department
Terri L. Cassidy, Deputy City Manager /Human Resources Director
949 644 -3303, tcassidy(anewportbeachca.gov
PREPARED BY: Sheri Anderson, HR Supervisor and
Jill Camille Ortiz, HR Specialist II
APPROVED:
TITLE: Voluntary Separation Incentive Program (VSIP) — Separation from
City Employment at or Prior to Retirement for Eligible Employees
ABSTRACT:
In 2009 as part of budget reductions and citywide restructuring, the City of Newport
Beach offered to eligible employees, an Early Retirement Incentive Program (ERIP)
through a private company, PARS (Public Agency Retirement Services). The purpose
of the plan was to reduce the workforce prior to effectuating layoffs or contracting out of
services. This was a one -time only incentive plan that resulted in approximately 52
employees retiring and a savings of approximately $3 million overall. The City does not
intend to repeat the ERIP program. This item recommends a different voluntary
program to incentivize employees meeting or exceeding the minimum age of retirement
under PERS (age 50) to separate from City employment prior to budget implementation
for FY 2013 -2014 with the goal of additional reduction of staff and continued
review /restructure of the City's workforce.
RECOMMENDATION:
Council to adopt a one -time only VSIP as a lump sum payment to eligible employees
who meet the following prerequisites between March 15 and June 28, 2013. Payment
will be based upon the following eligibility:
1) At least 50 years of age at the committed separation and /or retirement date; and
2) Must be actively at work or in a paid leave status to qualify; and
3) Three years consecutive full -time service with the City of Newport Beach (non -
safety /non - director level position) at the time of Council Adoption; and
4) Agree to commit to an irrevocable separation or retirement agreement from the
City by March 15, 2013; and
Voluntary Separation Incentive Program (VSIP) — Separation from City Employment at
or Prior to Retirement for Eligible Employees
January 22, 2013
Page 2
5) Employees shall not be eligible for Unemployment Insurance as a result of this
incentive nor layoff /severance provisions; and
6) Employees who wish to participate in the VSIP must attend information sessions
regarding the program prior to separating and /or retiring.
7) Department Director level and sworn safety employees are not eligible.
FUNDING REQUIREMENTS:
The VSIP would provide a one -time only cash benefit upon separation or retirement as
follows:
1) Minimum of $15,000 to a maximum of $27,500 lump sum payment per employee
who completes a voluntary irrevocable separation and /or retirement agreement
no later than March 15, 2013 and consequently retires /separates by June 28,
2013. The range is formulated using an employee's base pay multiplied by 10
weeks, equivalent to a severance benefit, plus 6 months of opt -out cafeteria
benefits at $1,250 /per month. Employee's base pay will vary, however the 6
months cafeteria benefit is a fixed amount.
Below is an example reflective of the calculations above with a maximum one-
time cash benefit not to exceed $27,500.
Base Pay
10 Weeks Base
Pay
6 Mo. Cafeteria
Benefit
Total Cash Benefit
W/o Cap
Total Cash
Benefit With Ca
$56,555.
$10,875.
$7,500
$18,375.
$18,375.
$86,486.
$16,631.
$7,500
$24,131.
$24,131.
$133,078.
$25,591.
$7,500.
$33,091.
$27,500.
DISCUSSION:
The City of Newport Beach has over 100 employees who meet the proposed criteria
and may be eligible for the VSIP. Many of these staff members strongly considered the
Early Retirement Incentive Program (ERIP) offered by the City in 2009, but had not
reached their desired length of service time with CalPERS, or had concerns about
affordable future health care costs. Many employees have expressed interest in a
similar program during the past year as a way to leave City employment early in light of
challenging fiscal times.
A survey of public agencies who have offered incentive programs revealed that an
average of $20,000 as well as an amount equivalent to several months' worth of a
Voluntary Separation Incentive Program (VSIP) — Separation from City Employment at
or Prior to Retirement for Eligible Employees
January 22, 2013
Page 3
cafeteria (health benefit) allowance was enough to encourage employees to retire about
a year or two earlier than their initial planned date. CaIPERS has indicated that it takes
approximately 90 days for a retiree to receive their initial check and this plan would also
help bridge the gap while waiting for their first warrant from CalPERS.
Providing a cash incentive could substantially offset health premiums for a year or more,
allowing employees an option to delay withdrawals from their Retiree Health Savings
(RHS) account. They would also have the option to contribute a designated portion of
their final check upon separation to their deferred compensation 457 account, provided
they do not exceed IRS contribution limitations.
In an effort to help interested employees make an educated decision, they will be
required to attend information sessions hosted by Human Resources scheduled for the
week of January 28, 2013. These sessions will cover prerequisites of the program,
planning for separation and /or retirement, and allow them to consider any impacts to
their future financial and health benefits plans. Employees will have over 45 days to
make a decision to commit to accepting the VSIP.
Implementation of AB 340, California Public Employees' Pension Reform Act (PEPRA)
effective January 2013, prohibits public agencies from offering incentive programs
similar to "Golden Handshakes ", "Early Retirement Incentive Programs" (ERIP), etc.
Offering a one -time only non- PERSable lump sum payment as an incentive to
retire /separate would still be permissible and compliant with PEPRA.
Unlike the previous ERIP, there is no requirement that vacated positions cannot be
filled. However, at each tier deadline, the City will evaluate the positions of those who
elect the VSIP and review them for restructure to better form the organization for
efficiencies and budget planning.
COST BENEFITS OF VSIP:
If Council approves, the VSIP program will be funded through an increased
compensated absences charge to the impacted departments which will be offset by
department salary savings. Council adoption of the VSIP would reduce department
operating budgets, and administrative costs prior to anticipated changes being
implemented in FY 2013 -2014, and allow employees to make future retirement
decisions on a short-term basis. The City Manager's Office will work with Department
Directors to ensure that all critical City services will continue uninterrupted.
ENVIRONMENTAL REVIEW:
None required for this item.
NOTICING:
The agenda item has been noticed according to the Brown Act (72 hours in advance of
the meeting at which the City Council considers the item).
Voluntary Separation Incentive Program (VSIP) — Separation from City Employment at
or Prior to Retirement for Eligible Employees
January 22, 2013
Page 4
Submitted by:
Terri; L. Cassidy, Deputy City M! Hager/
Human Resources Director