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HomeMy WebLinkAbout19 - Voluntary Separation Incentive Program (VSIP)CITY OF °� mz NEWPORT BEACH C9C /Fp0.N`P City Council Staff Report Agenda Item No. 19 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, tcassidv(a)newportbeachca.gov PREPARED BY: Sheri Anderson, HR Supervisor and Jill Camille Ortiz, HR Specialist II APPROVED: 0, 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 PIERS (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, two tier VSIP as a lump sum payment to eligible employees who meet the following prerequisites between February 12 and June 28, 2013. Payment will be based upon the date they agree to separate: 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 February 12 or April 16, 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, two -tier 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 February 12, 2013 and consequently retires /separates by April 15, 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. 2) Minimum of $10,000 to a maximum of $20,000 per employee who completes a voluntary irrevocable separation and /or retirement agreement no later than April 16, 2013, and consequently retires /separates by June 28, 2013. The range is formulated using an employee's base pay multiplied by 8 weeks, equivalent to a severance benefit, plus 4 months of opt -out cafeteria benefits at $1,250 /per month. Employee's base pay will vary, however the 4 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 for Tier 1 or $20,000 for Tier 2. TIER 1 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. Voluntary Separation incentive Program (VSIP) — Separation from City Employment at or Prior to Retirement for Eligible Employees January 22; 2013 Page 3 TIER 2 Base Pay 8 Weeks Base Pay 4 Mo. Cafeteria Benefit Total Cash Benefit W/o Cap Total Cash Benefit With Cap $55,555. $8,700. $5,000. I $13,700. I $13,700. :685,486. $13,305. $5,000. $18,305. 518,305. $133,078. $20,472, $5,000. $25,472. $20,000. 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 cafeteria (health benefit) allowance was enough to encourage employees to retire about a year or two earlier than their initial planned date. 'CalPERS 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 (RI-IS) 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 andlor retirement, and allow them to consider any impacts to their future financial and health benefits plans. Employees will have approximately 2 weeks to make a decision to commit to accepting the VSIP. Additional sessions for those electing to exit during the second tier will be scheduled in early April 2013. Implementation of AB 340, California Public Employees' Pension Reform Act (PEPRA) effective January 2013, prohibits public agencies from offering incentive programs Voluntary Separation Incentive Program (VSIP) — Separation from City Employment at or Prior to Retirement for Eligible Employees January 22, 2013 Page 4 similar to "Golden Handshakes ", 'Early Retirement Incentive Programs" (ERIP), etc_ Offering a one -time only non- PERSable lump sum ,payment as an incentive to relirelseparate would still be permissible and compliant with PEPRA. Untike the previous ERIP, there is no requirement that vacated positions cannot be filed. 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 depar,'ment 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 tact (72 hours in advance of the meeting at which the City Council considers the item). Submitted by: R� Terri L. Cassidy, Deputy City i tinagerf Human Resources Director d