From
Lisa Norris, Human Resources Director
Title
Amend the Life and Long Term Disability Insurance agreement effective January 1, 2015 through December 31, 2018 through Dearborn National to an estimated total four-year contract amount of $2,090,000 and authorize the City Manager to renew this contract for additional one-year periods beyond the original contract period if such cost is appropriated in the annual budget and does not increase by more than 25% or $50,000, over all renewal years combined.
Presenter
Ashley Land, Human Resources Manager
Recommend Action
Approve
Analysis
The 2015 Life and LTD agreement through Dearborn National for four years was previously approved at the September 2, 2014 council meeting via Legislative File 14-3961. Following that meeting, Human Resources realized that the rates quoted for Dearborn on Life Insurance were incorrect in part. In condensing the quotes for council onto one spreadsheet, we had inadvertently misaligned columns which caused the rates to not align properly with the carrier who quoted them for certain areas. Additionally, on LTD, the carrier confirmed that the 4th year rate is a "not to exceed rate" based on loss-ratios that will be reviewed at that time. As a result, we wanted to confirm with the Finance and Government Committee and Council these corrections to ensure transparency, although the impact is minimal. The following clarifies corrections to the Legislative File and contract with Dearborn National that will be finalized for the plan year beginning January 1, 2015. The Finance and Government Sub-Committee will be briefed on this item the same day as this council consideration and we expect them to support this item. Because all areas of the contract were approved in detail on the previous council date, only the corrections are noted below.
1. The city-paid Basic Life Insurance premium is decreasing from .12/$1,000 to .069/$1,000 of base salary. The original contract reflected a rate of $.07 which had rounded on the spreadsheet. We have to use the actual rate when calculating basic life premiums for the carrier each month.
2. Originally, we had reflected a decrease for both optional employee life and spouse life rates. This is not accurate as the columns were inadvertently misaligned. Employee Optional Life Insurance and Spouse Insurance rates remain the same as current, except for the age bracket of 25-29 for both Employee Optional and Spouse Life which will decrease by $.01 from $.07 to $.06/$1,000 of coverage.
3. Voluntary Employee AD&D fees will decrease from $.025 to $.02/$1,000 of coverage and Spouse AD&D will decrease from $.07 to $.02/$1,000 of coverage.
4. The 4th year of the Long Term Disability Contract is not guaranteed at the same rates as 2015, 2016 and 2017, but is guaranteed on a "not-to-exceed" basis depending upon loss ratios run prior to the 4th year agreement. If our loss ratio is beneath 86%, there would be no increase, 86%-91% loss ratio would result in a 9% increase and 91%-99% would result in a 15% increase. Historically, our loss ratios have always fallen beneath 86%, but to be safe, we modified the 4th year rate (2018) to show a 9% increase, which changed the 2018 annualized rate to $86,708 and the total 4-year LTD contract to $325,355.
5. The original 4-year contract for Dearborn National, for both the Life and LTD programs, was stated as $2,004,000 originally and is now modified to $2,090,000 with these corrections.
Amended scoring and rate sheets are attached and reflect the updates stated herein.
Financial Consideration
City-paid Life insurance premiums are currently budgeted at $574,523 which is more than the $441,000 per year projected new fees beginning in January 2015. Long Term Disability premiums are budgeted at $84,507 for fiscal year 2015, and the projected annual cost for this new contract is $80,000 for 2015. In both cases, we are beneath the budgeted amount, so no additional funding is necessary at this time.