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HomeMy WebLinkAboutPR13301: RETIREE INS. PLAN Memorandum City of Port Arthur, Texas Finance Department To: Steve Fitzgibbons, City M~0$a~ger~,. From: Rebecca Underhill, Directo~o~et~ Date: October 19, 2005 Subject: Proposed Resolution 13301 Proposed Resolution 13301 is presented for the City Council consideration and approval. PR 13301 authorizes the City Manager to execute a contract with Milliman, Inc. Consultants and Actuaries to provide actuarial services related to the City's health insurance plan for retirees. The actuarial services required are two-fold. In order to comply with new Medicare requirements, the City must have an actuarial study of the retiree health insurance plan. If the plan meets certain criteria, the City will be eligible for a subsidy from Medicare for the prescription drug plan. The second phase of the contract deals with GASB 45. GASB 45 (Government Accounting Standards Board Statement 45) requires the City to study and value the liability of our OPEB (Other Post Employment Benefits). The City's only OPEB is our retiree health insurance plan. The City is required to have an actuarial study to determine this liability. The contract is for Milliman to provide both of these studies in Phase I and Phase 2 for a total cost of $12,000. Phase 3 of the contract allows the firm to study alternatives to our retiree health plan and the effect of these alternatives on the GASB 45 liabilities. The cost of this service, if requested by the City, will be $6,500. The GASB 45 valuation will be required annually, and the second year cost is $7,500. (This will be paid next year). Funding for this contract is available in the Health Insurance Fund 614. P. R. NO. 13301 JJA: 10/19/05 RESOLUTION NO. A RESOLUTION AUTHORIZING A CONTRACT BETWEEN THE CITY OF PORT ARTHUR AND MILLIMAN, INC. CONSULTANTS AND ACTUARIES TO PERFORM GASB45/RETIREE MEDICARE PART D DRUG SUBSIDY ATTESTATION SERVICES WHEREAS, the City provides retiree health and drag coverage through a self-funded medical plan, and; WHEREAS, the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA) provides for a federal subsidy of the prescription drug cost if the City's plan passes an actuarial equivalence test, and; WHEREAS, the regulations require that the City provide an actuarial attestation of the prescription plan, and; WHEREAS, the City is also required to prepare a valuation of the post employment benefits provided to retirees to meet Government Accounting Standards Board Statement 45 (GASB 45) requirements. NOW THEREFORE BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF PORT ARTHUR: Section 1: The facts and opinions in the preamble are tree and correct. Section 2:. The City Manager is authorized to execute the agreement, attached hereto as Exhibit A, with Milliman Inc. Consultants and Actuaries to perform GASB 45/Retiree Medicare Part D Drug Subsidy Attestation Services. READ, ADOPTED, AND APPROVED, this __ day of October 2005, AD, at a Regular Meeting of the City Council of the City of Port Arthur, Texas by the following vote: AYES: Mayor: Councilmembers: NOES: Mayor ATTEST: Evangeline Green, City Secretary APPROVED AS TO FORM: MarkSok~t~w, City Attorney (_0tO ~01~b.~ 0~) APPROVED FOR ADMiNISTRATION: Steve Fitzgibbons, City Manager Rebecca Underhill, Finance Director Z;jenny-old/E:/office/resolutions/Milliman, Inc. EXHIBIT "A" A M~LLIMAN GLO{~AL FIRM Consulting Services Agreement Plan Sponsor: City of Port Arthur Contact: Rebecca Underhill Address: 444 4th Street Port Arthur, TX 77641 Telephone: (409) 983-8151 Fax: Plan Name(s): Postemployment Benefit Plans (Other than Pensions) for Employees of the City of Port Arthur Milliman Office: Houston, Texas Milliman Service Effective Date: October 15. 2005 This Agreement is entered into between Milliman, Inc. (Milliman) and the City of Port Arthur as of October 15, 2005. Plan Sponsor has engaged Milliman to perform consulting services as described in Schedule A attached hereto. Such services may be modified from time to time and my also include general actuarial consulting services. In consideration for Milliman agreeing to perform these services, Plan Sponsor agrees as follows: 1. Engagement Terms Plan Sponsor acknowledges the obligation to pay Milliman for services rendered, whether arising from Plan Sponsor's request or otherwise necessary as a result of this engagement, at Milliman's standard hourly billing rates for the personnel utilized plus ail out-of-pocket expenses incurred. Milliman will bill Plan Sponsor periodically for services rendered and expenses incurred. All invoices are payable upon receipt. Milliman reserves the right to stop all work if any bill goes unpaid for 60 days. Furthermore, Milliman's engagement may be terminated upon 90 days' written notice by Milliman or Plan Sponsor. Regardless of the reason for termination of services, Milliman shall be entitled to payment for services completed prior to such termination, and Milliman shall retain any records it has relating to the Plan Sponsor plans for a period of at least three years from date of termination. If Milliman's assistance is reasonably required past termination, such services shall be provided at Milliman's then-standard hourly rate unless another basis is agreed to by both parties. 2. Handling of Data and Other Confidential Information Milliman shall use reasonable efforts to identify errors in data and obtain corrections to erroneous data, but Milliman cannot warrant the correctness of data supplied by Plan Sponsor or other parties, nor can Milliman be responsible for data not provided in a timely manner. Any information received from Plan Sponsor will be considered "Confidential Information." However, information received from Plan Sponsor will not be considered Confidential Information if (a) the information is or comes to be generally available to the public during the course of Milliman's work; (b) was independently developed by Milliman without resort to information from the Plan Sponsor; or (c) Milliman receives the information from another source who is not under an obligation of confidentiality to Plan Sponsor. Milliman agrees that Confidential Information shall not be disclosed to any third party. Milliman Page 1 3. Tool Development Milliman shall retain all rights, title, and interest (including, without limitation, all copyrights, patents, service marks, trademarks, trade secret, and other intellectual property rights) in and to alt technical or internal designs, methods, ideas, concepts, know-how, techniques, generic documents, and templates that have been previously developed by Milliman or developed during the course of the provision of the Services, provided such generic documents or templates do not contain any Plan Sponsor Confidential Information or proprietary data. Rights and ownership by Milliman of original technical designs, methods, ideas, concepts, know-how, and techniques shall not extend to or include all or any part of the Plan Sponsor's proprietary data or Plan Sponsor Confidential Information. To the extent that Milliman may include in the materials any pre-existing Milliman proprietary information or other protected Milliman materials, Milliman agrees that Plan Sponsor shall be deemed to have a fully paid up license to make copies of the Milliman-owned materials as part of this engagement for its internal business purposes and provided such materials cannot be modified or distributed outside the Plan Sponsor without the written permission of Milliman. 4. Limitation of Liability Milliman will perform all services in accordance with applicable professional standards. The parties agree that Milliman, its officers, directors, agents and employees, shall not be liable to Plan Sponsor, under any theory of law including negligence, tort, breach of contract or otherwise, for any damages in excess of five (5) times the total professional fees paid to Milliman during the 12-month plan-year cycle during which the work in question is performed. In no event shall Milliman be liable for lost profits of Plan Sponsor or any other type of incidental or consequential damages. The foregoing limitations shall not apply in the event of the intentional fraud or willful misconduct of Milliman. The provisions of this section will survive the expiration or termination of this Agreement. 5. Disputes (a) Mediation. In the event of any dispute arising out of or relating to the engagement of Milliman by Plan Sponsor, the parties agree first to try in good faith to settle the dispute voluntarily with the aid of an impartial mediator who will attempt to facilitate negotiations. A dispute will be submitted to mediation by written notice to the other party or parties. The mediator will be selected by agreement by the parties. If the parties cannot agree on a mediator, a mediator will be designated by the American Arbitration Association at the request of a party. The mediation will be treated as a settlement discussion and therefore will be confidential. Any applicable statute of limitations will be toiled during the pendency of the mediation. Each party will bear its own costs in the mediation. The fees and expenses of the mediator will be shared equally by the parties. (b) Arbitration. If the dispute has not been resolved within 60 days after the written notice beginning the mediation process (or a longer period, if the parties agree to extend the mediation), the mediation will terminate, and the dispute will be resolved by final and binding arbitration under the Commercial Arbitration Rules of the American Arbitration Association. The arbitration will take place in Dallas, Texas, before a panel of three arbitrators. Within 30 days of the commencement of the arbitration, each party will designate in writing a single neutral and independent arbitrator. The two arbitrators designated by the parties will then select a third arbitrator. The arbitrators will have a sufficient background in either employee benefits, actuarial science, or law to reasonably prepare them to decide a dispute. The arbitrators will have the authority to permit limited discovery, including depositions, prior to the arbitration hearing, and such discovery will be conducted consistent with the Federal Rules of Civil Procedure. The arbitrators will have no power or authority to award punitive or exemplary damages. The arbitrators may, in their discretion, award the cost of the arbitration, including reasonable attorney fees, to the prevailing party. Any award made may be confirmed in any court having jurisdiction. Any arbitration shall be confidential, and except as required by Milliman Page 2 law, neither party may disclose the content or results of any arbitration hereunder without the prior written consent of the other parties, except that disclosure is permitted to a party's auditors and legal advisors. 6. No Third-party Distribution Milliman's work is prepared solely for the internal business use of the Plan Sponsor. Milliman's work may not be provided to third parties without Milliman's prior written consent. We understand that the Plan Sponsor may want to distribute some of Milliman's reports to its auditors in connection with the preparation of the financial statements of the Plan or of the Plan Sponsor. We will consent to such distribution as long as each work product is distributed in its entirety. Milliman does not intend to benefit any third-party recipient of its work product, including the auditor, and does not intend to create any legal duty from Milliman to the auditor even if Milliman's work product is so distributed. In the event that any audit reveals any error or inaccuracy in the data underlying this report, Milliman requests that the auditor notify Milliman as soon as possible. Milliman's work may include the preparation of certain government forms. Milliman consents to the release of these forms to the applicable agency. Any additional release of any Milliman work product by the Plan Sponsor requires prior written consent by Milliman. 7. Status of Milliman Milliman will provide the services covered by this Agreement as an independent contractor. No other relationship to the Plan Sponsor or the Plan is implied or intended. Milliman shall not be deemed to be a "named fiduciary" or "plan administrator" as these terms are defined under ERISA or any similar or successor law. 8. Choice of Law The construction, interpretation, and enforcement of this Agreement shall be governed by the substantive contract law of the State of New York without regard to its conflict of laws provisions. In the event any provision of this Agreement is unenforceable as a matter of law, the remaining provisions will stay in full force and effect. PLAN SPONSOR MILLIMAN, INC. I have read and agree to the terms and conditions of I have read and agree to the terms and conditions this Agreement. of this Agreement. Accepted by: Accepted by: Title: Date: Title: Principal Date: l~) Milliman I Page 3 Schedule A Actuarial Services I C0vered Plan(s): I City of Port Arthur Retiree Medical Plan This document provides a description of Milliman's ("Milliman") actuarial consulting services and the framework on which our fees for these services are based. Unless otherwise indicated, these services are considered "Basic Services". Charges for these Basic Services are expected to be consistent from year to year. Services outside the scope of Basic Services are "Additional Consulting Services" provided on a time-and-expense basis, and are expected to fluctuate from year to year depending on the type of additional services that are performed. ~11 Milliman USA City of Port Arthur Actuarial Services Description of Actuarial Services Ongoing Post employment benefit actuarial capabilities Actuarial Services Milliman will perform actuarial valuations of your post employment benefit programs (other than pensions) under GASB 45. Information provided to I~ 'Iflliman will include: · Plan provisions · Active employee and retiree/beneficiary census information · Participant contribution amounts by tier and plan · Benefit information. · Historical aggregate claims information From that information, IX4illiman will perform actuarial valuations to determine financial reporting, disclosure, and funding results. A Iviilliman health actuary will set appropriate medical assumptions, which include modeled claims cost, health care cost inflation, and age trend. Milliman's retirement actuarial team will establish the additional assumptions, provide system setup and programming of plan provisions, and complete the actuarial valuation. Actuarial valuation process · Collection, Reconciliation and Automated Update/Transfer of Data Complete and accurate census data will be provided by Plan Sponsor. Milliman will audit and analyze the data to verify reasonableness and overall quality. As part of our annual valuation process, ivlilliman will establish timeframes for collection and reconciliation of data to ensure timely completion of results. O Milliman USA City of Port Arthur Actuarial Services - Page I · Selection of Assumptions and Methods Millirnan will work with Plan Sponsor to select the actuarial assumptions and methods, based on the following criteria: · Specific characteristics of the employee population served by each plan · Specific objectives of the Plan Sponsor concerning the inddence of funding for the plan (desire for predictable contributions, need for flexibility due to cash-flow volatility, etc.) · Market wide trends on economic and demographic assumptions · Past experience of the covered employee population (withdrawal, salary progression, etc.) and the plan (asset performance, changes in funded status, etc.) Milliman will work with Plan Sponsor to make sure you understand the assumptions and methods that are important to your results, and will take care of the oversight and updating on those that do not impact the plan materially. · Preliminary Valuation Runs Milliman's actuarial analysts and associates, with input and involvement of the plan actuary, will perform preliminary runs and generate output of individual trace information and summary results. Input variables and custom client-specific coding output will be reviewed and results will be verified for individual lives and in total. · Actuarial Manager Input and Review The plan actuary will be responsible for verification of results, including detailed review of individual and aggregate results. Trends and issues apparent from the output will be documented and researched. Additional runs will be performed based on necessary revisions and/or the desire to see sensitivity to hypothetical changes. t~ Milliman USA City of Porl Arthur Actuarial Services - Page 2 · Formal Report Part of Millirnan's ongoing support for compliance with the GASB 45 requirements will include the preparation of a formal actuarial valuation report to support the valuation results each period such valuation is required. The imtial GASB 45 valuation, including the review of alternatives, will be for internal discussion purposes to assist City of Port Arthur in your analysis of your existing plans and how you want them to be structured on an ongc~mg basis. Once City of Port Arthur has finalized it's plans, Milliman will prepare a template for a formal actuarial report to be used in presenting the results commencing with the f'mst date that your organization is required or elects to comply with the new rules.. The report will reflect all of the decisions you have made based on the preliminary results, and include: · Summarized valuation results · Discussion of significant issues · Exhibits detailing the results of the actuarial valuation, such as Participant census summary statistics Asset reconciliation Development of accounting reconciliation Develop of annual expense Funded stares, with comparison of assets to various liability measures · Actuarial methods · Actuarial assumptions · Summary of plan provisions This report, or addendums to it, will be tailored to your needs. We can provide a sample valuation report upon request. I~ Milliman USA City of Port Arfllur Actuarial Services - Page 3 Special Milliman will perform one-time special actuarial services at the Actuarial commencement of this engagement. This will entail a 4 phase Services approach. Phase 1 is the evaluation of your eligibility to receive thc prescription drug subsidy', and the provision of the actuarial attestation if applicable, under Medicare Part D. Phase 2 includes the development and presentation of preliminary valuation results for your current post employment benefit program and pay as you go funding arrangement. Phase 3 includes the development and presentation of 3 to 5 alternatives to the current post employment benefit program, reflecting revised benefit structures (e.g. deductibles, co pays, caps, freezing, etc.), alternative approaches to coordination with Medicare, and alternative funding arrangements. Phase 4 includes implementation of final plan changes, potential establishment of a Trust or other funding arrangement, and establishment of policies and procedures for the ongoing valuation process. Milliman will assist Plan Sponsor in managing your obligations by explaining how various options impact costs over time. Milliman will present these preliminary results to help Plan Sponsor in the decision making process, to achieve optimal cost and funding levels, to achieve business objectives, and maintain the ongoing financial viability of the plan. General actuarial consulting not included in Basic Actuarial Services that may be needed from time to time as approved in advance by the Plan Sponsor. Examples include responding to requests from auditors, benefit plan change analyses, and communication projects. Phase 1 - Evaluation of your eligibility to receive the $4,000 prescription drug subsidy, and the provision of the actuarial attestation if applicable, under Medicare Part D. Phase 2 - Development and presentation of initial $8,000 GASB 45 valuation of current post employment benefit programs. Phase 3 - Development and presentation of GASB 45 $8,500 valuations of 3 to 5 alternative (benefit structures, funding arrangements, and coordination of medical benefits with Medicare) post employment benefit programs. 0 Milliman USA City of Port Arthur Actuarial Semites - Page 4 Phase 4 - Implementation of final plan changes, TBD potential establishment of a Trust or other funding arrangement, and establishment of policies and procedures for the ongoing valuation process. Ongoing Annual Actuarial Valuations GASB 45 Valuation $7,500 The Phase 1-3 fees quoted above anticipate 1 meeting at City of Port Arthur offices, plus additional conferences as needed using ix, filliman's Webex conferencing facilities. Travel expenses are not included. General Provided based on time & expense charges using Milliman's discounted Consulting as may hourly billing rates. be needed from time-to-time Pricing I. Participant counts are approximately 580 active participants and 183 Assumptions and retirees and beneficiaries. Factors 2. Census data will be provided in electronic format, and will require mimmal data editing. 3. Fees will be guaranteed for 3 years. 0 Milliman C~ of Port Arthur Actuarial Services - Page 5