City of Alexandria, Virginia
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MEMORANDUM
DATE: JUNE 5, 2013
TO: THE HONORABLE MAYOR AND MEMBERS OF CITY COUNCIL
FROM: RASHAD M. YOUNG, CITY MANAGER /s/
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Consideration of a Resolution to Opt Out of the Virginia Retirement System (VRS) Virginia Local Disability Program (VLDP). [ROLL-CALL VOTE]
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ISSUE: Consideration of a proposal to opt out of the state-administered Virginia Local Disability Program (VLDP) that takes effect on January 1, 2014.
RECOMMENDATION: That City Council approve the resolution entitled Irrevocable Election Not to Participate in the Virginia Local Disability Program (Attachment I) on first reading on June 11, 2013.
BACKGROUND: The 2012 General Assembly created the VLDP for local government and school district employees who will be covered under the Virginia Retirement System (VRS) Hybrid Retirement Plan, which will cover all City employees who become VRS participants on or after January 1, 2014. (New hires that have established membership in VRS through prior employment in another jurisdiction would continue that plan participation and would not be placed in the Hybrid Retirement Plan. Any current or new employees who became a VRS participant prior to January 1, 2014, will have the option of irrevocably opting in to the Hybrid Retirement Plan.) The Hybrid Retirement Plan is a combined plan with both defined benefit and defined contribution elements. Unlike the existing VRS Plans available to employees hired before January 1, 2014, the Hybrid Retirement Plan will not provide VRS Disability Retirement, hence the creation of the VLDP.
The VLDP provides income protection if an employee can't work because of a non-work-related or work-related illness, injury, or other condition, such as surgery, pregnancy, complications from pregnancy, or a catastrophic or major chronic condition. It includes both short-term and long-term disability coverage as well as a long-term care component. The program focuses on assisting employees with their recovery and helping them make a safe return to their full work duties, if possible.
DISCUSSION: The VLDP will automatically take effect as scheduled for all jurisdictions and school districts that have not opted out by September 1, 2013. Any jurisdiction or school district that elects to opt out will be required to provide a comparable employer-paid disability program effective January 1, 2014. This program must provide both long-term and short-term disability coverage for Hybrid Retirement Plan participants, but it is not required to include the long-term care component offered by the VLDP. Please note that the decision to opt out will be irrevocable.
Staff recommends opting out for three reasons:
- The City can provide an enhanced disability program for affected employees at a lower cost;
- Self-funding gives the City greater control over its own destiny; and
- Administration of its disability program will be simplified and more efficient with the aid of time-saving on-line tools.
Currently, VLDP program rates for City employees for the period from January 1 through June 30, 2014, will be 0.91 percent of payroll for employees in the Hybrid Retirement Plan. New rates will be set each biennium and could increase in the future due to jurisdictions and school districts opting out of the plan. Experience with the Line of Duty Act Fund indicates that many if not most jurisdictions and school districts will choose to opt out of the VLDP and that this will increase rates substantially from the current rate.
The Standard Insurance Company has provided an initial quote of 0.73 percent of payroll for employees in the Hybrid Retirement Plan, compared to the 0.91 percent VLDP rate for the second half of FY 2014. This represents an initial savings of 0.18 percent of salary. Over a period of several decades, all General Schedule employees in VRS will be in the Hybrid Plan. Savings will steadily ramp up from $14,000 the first year to approximately $100,000 in a decade. The City will need to introduce and maintain workplace standards that promote safety and wellness to keep the rate at 0.73 percent of payroll or lower.
The City can control costs even further by reducing the number of employees who utilize the disability program. The City has been developing a multi-pronged approach to reducing the incidence and severity of disability in order to control the costs associated with employee disabilities. These include employer incentives, employee incentives, and Risk Management. Departments' existing incentive to control Worker's Compensation costs by controlling disability rates will also help to control costs under any City-established disability program.
Under the VLDP option, the City would have no input into the annual costs associated with disability benefits for participants in the Hybrid Retirement Plan. The Commonwealth would set the premiums each year, and the City would be mandated to pay. With a City-established disability program, the City would have the option of controlling costs using the methods above and/or paying less than the Annual Required Contribution for the prefunding of benefits in times of budget crisis.
FISCAL IMPACT: The fiscal impact of opting out would be a savings of 0.18 percent of the payroll for Hybrid Retirement Plan participants, approximately $14,000 in the first year, and increasing savings as the number of participants increase. The full fiscal impact will be affected when the state's rates change and by how the City manages disability rates. City programs promoting health and safety will be a critical part of controlling costs. The City will do all it can to make the administration of a City-established disability program as efficient and effective as possible.
ATTACHMENT:
Attachment I: Resolution: Irrevocable Election Not to Participate in the Virginia Local Disability Program
STAFF:
Laura Triggs, Chief Financial Officer
Steven Bland, Retirement Administrator
Christina Zechman-Brown, Assistant City Attorney
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