HomeMy WebLinkAboutStaff Report 4.A 04/06/2015AGENDA ITEM ## 4.A.
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DATE: April 6, 2015
TO: Honorable Mayor and Members of the City Councilgh the City Manager
FROM: Dianne Dinsmore, Director of Human Resources )T
SUBJECT: Resolution Requesting Authority from the California Public Empoyees'
Retirement System to Conduct a Medicare Division Election in Accordance with
the Requirements of Section 218(d) of the Social Security Act, and Applicable
State and Federal Laws and Regulations to Determine which Employees Hired on
or before March 31, 1986, Desire to Contribute to the Medicare System
RECOMMENDATION
It is recommended that the City Council adopt a Resolution Requesting Authority from the
California Public Empoyees' Retirement System (Ca1PERS) to Conduct a Medicare Division
Election in Accordance with the Requirements of Section 218(d) of the Social Security Act, and
Applicable State and Federal Laws and Regulations to Determine which Employees Hired on or
before March 31, 1986, Desire to Contribute to the Medicare System.
BACKGROUND
Public Law 99-272, the Consolidated Omnibus Budget Reconciliation Act of 1985, mandated the
component Medicare coverage under the Social Security system to all State and local
government employees hired on or after April 1, 1986. Employees hired prior to the mandate are
exempt from Medicare coverage if they have been in continuous employment with the same
State or local government employer since March 31, 1986, and are members of a public
retirement system.
All City of Petaluma employees hired on or after April 1, 1986, are covered by Medicare. Eight
employees hired prior to April 1, 1986 and continuously employed by the City since that time are
not covered by Medicare through the City. Some of these employees wish to elect Medicare
coverage. This Resolution initiates the process to enable these employees to `opt in' to Medicare.
Under Section 218 of the Social Security Act, employers may voluntarily enter into an
agreement with the State to initiate Medicare -Only coverage to such employees choosing
coverage through an election process. The California Public Employees Retirement System
(CalPERS) is the designated State Administrator for Section 218 Agreements.
City employees hired on or after April 1, 1986, are contributing to the Medicare program through
a payroll tax of 1.45% of wages with a required matching City cost of 1.45% of payroll, for a
total of 2.9%.
There are eight employees hired before April 1, 1986, who have not been contributing to
Medicare retirement benefits. These employees have expressed interest in participating in
Medicare so that they may earn the credits necessary to qualify for Medicare benefits at
retirement.
To initiate State requirements to permit employee -elected Medicare -covered employment, a
resolution must be adopted by the Council to request authorization of CalPERS to conduct a
"Division" (the election process to establish employees to be included or excluded from
Medicare -Only coverage) among eligible members of the retirement plan. The Division will be
conducted for the eight employees who are not currently under Medicare -covered employment
with the City. A division may be conducted on a one-time only basis and employee -elected
Medicare -only coverage is irrevocable. Under this divided vote referendum, only those
employees who vote "yes" will be covered.
An employee must contribute to Medicare for a total of 40 quarters (10 years) in order to receive
full Medicare benefits at retirement, and for 20 quarters (5 years) to receive partial benefits.
Under current regulations, Medicare coverage for this group can be effective prospectively or
retroactively with an effective date equal to up to five years prior to the federal government
approval. If retroactivity is elected, the employee pays his/her 1.45% share retroactively in a
lump sum, as does the City. Prospectively, the 1.45/1.45% payroll tax is applied to those
employees who opted in, as it has been for all employees hired on or after April 1, 1986.
The employees in question have requested that the City agree to the five year retroactive option.
This resolution establishes April 6, 2010 as the effective date to implement Medicare -covered
employment for those employees who elect the coverage. Note, this is not the effective date of
Medicare eligibility.
Upon filing the resolution with CalPERS and subsequent authorization furnished by CalPERS to
conduct a Division, the eight eligible employees will be provided a Notice of Division and a
Statement of Information disclosing the election process, employee rights and benefits which
will accrue to them, and the liabilities to which they will be subject, if their services are to be
covered under Medicare -Only coverage.
Within 90 days of issuing employee information, the eight employees will be provided an
election form to decide on an irrevocable basis whether or not they personally wish to be
included or excluded under Medicare -Only covered employment.
Following the election, the City will submit a certified list to CalPERS of those employees who
elected to be covered under Medicare. CalPERS in turn makes certification to the Governor that
the Division was conducted in accordance with requirements of Section 218 of the Social
Security Act. The City will be provided with a resolution and a Medicare -Only Application-
Agreement for execution with the State providing authorization of the State to request inclusion
of the City in the master Social Security Agreement with the federal government.
The State will then notify the City when the federal government approves the request for
Medicare -Only coverage, at which time the City will be directed to deposit all Medicare taxes
directly with the Internal Revenue Service retroactive to April 6, 2010.
Employee election information will disclose that, if electing coverage, a lump sum payroll tax of
1.45% of wages will be charged on all wages retroactive to April 6, 2010 (alternatively, an
employee may pay the City the lump sum amount rather than having it charged to one paycheck)
and a payroll tax of 1.45% of wages will be charged going forward each pay period, subject to
legislative tax rate changes by the federal government.
It is estimated that fmal federal approval for Medicare -Only coverge will take between twelve
and eighteen months based on estimates provided by CalPERS.
FINANCIAL IMPACTS
The cost to the City in FY 2015/16 for the five year retroactive 1.45% employer contribution is
estimated between $8,500 and $12,500, depending on how many employees elect to opt in. The
City would have paid this amount for these employees had been covered by Medicare. Had they
been covered by Medicare since 1986, the City would have paid approximately $250,000 —
$360,000 to date. The ongoing cost to include these employees in Medicare is estimated between
$1,700 - $2,500 annually at current compensation rates.
ATTACHMENTS
1. Resolution
Resolution No. 2015 -XXX N.C.S.
of the City of Petaluma, California
Resolution Requesting Authority from the California Public Empoyees' Retirement System
(CALPERS) to Conduct a Medicare Division Election in Accordance with the Requirements of
Section 218(d) of the Social Security Act, and Applicable State and Federal Laws and
Regulations to Determine which Employees Hired on or before March 31, 1986, Desire to
Contribute to the Medicare System
WHEREAS, City of Petaluma
(Official Name of Public Agency)
hereinafter designated as "Public Agency", desires to establish a "deemed" retirement
system pursuant to Section 218(d)(6) of the Federal Social Security Act composed of
positions of members of the
California Public Employees Retirement System
(Retirement System)
Retirement System, hereinafter designated "Present Retirement System", desiring
"Medicare -Only" coverage, and to include services performed by individuals employed
by the Public Agency in positions covered by said "deemed" retirement system, as
members of a coverage group established by Section 218(d)(4) of said Act, in the
California State Social Security Agreement of March 9, 1951, providing for the coverage
of public employees under the insurance system established by said Act as amended;
and
WHEREAS, State and Federal law and regulations require, as a condition of
such coverage, that a division be authorized by the Board of Administration, California
Public Employees' Retirement System; and
WHEREAS, it is necessary that the "Public Agency" now designate any services
which it desires to exclude from coverage with respect to such coverage group under
said insurance system; and
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WHEREAS, it is necessary for the Public Agency to set forth the modification, if
any, of the benefits and contributions under the Present Retirement System that may
result from coverage under the said insurance system with respect to such coverage
group;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Administration,
California Public Employees' Retirement System, be and hereby is requested to
authorize the foregoing division; and
BE IT FURTHER RESOLVED, that upon receipt of authorization from the Board
of Administration a division shall be conducted in accordance with the requirements of
Section 218(d) of the Social Security Act, and applicable State and Federal laws and
regulations; that each eligible member of the Present Retirement System at the time of
the division shall be furnished a form to permit the member to elect whether or not his
services should be excluded from or included under the said California State Social
Security Agreement as hereinbefore provided; with such "Medicare -Only" coverage
effective as to services performed on and after ADHI 6, 2010 ; and
BE IT FURTHER RESOLVED, that the following services with respect to said
coverage group of the Public Agency shall be excluded from coverage under said
agreement:
1. All services excluded from coverage under the agreement by Section 218
of the Social Security Act; and
2. Services excluded by option of the Public Agency:
a. No optional exclusions desired.
b. Service performed:
BE IT FURTHER RESOLVED, that with respect to the said coverage group the
benefits and contributions of the Present Retirement System shall not be modified in
any way; and
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BE IT FURTHER RESOLVED, that notice of the division shall be given to
members of the Present System not less than ninety days prior to the date of the
division; provided however, that notice shall be given to employees becoming members
of the Present Retirement System after the date of such notice up to and including the
date of the division on the date on which they attain membership in the system, and
that City Manager, John Brown
(Name and Title of Local Official)
is hereby designated and appointed to conduct such division on behalf of the Public
Agency in accordance with law, regulations, and this resolution, including the fixing of
the date and the giving of proper notice thereof to members of the Present Retirement
System and to all such eligible employees; and
BE IT FURTHER RESOLVED, that the Public Agency will pay and reimburse the
State at such time and in such amounts as may be determined by the State the
approximate cost of any and all work and services relating to such division.
Presiding Officer
Official Name of Public Agency
131
Under the power and authority conferred upon this Council by the Charter of said City.
REFERENCE: I hereby certify the foregoing Resolution was introduced and adopted by Approved as to
the Council of the City of Petaluma at a Regular meeting on the 6" day of form:
April, 2015, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
ATTEST:
City Clerk
Mayor
City Attorney