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Chief Administrative Office and Human Resources Department recommending the Board:
1) Find that a public benefit is derived by offering an opportunity for employee attrition through a voluntary separation monetary incentive to achieve General Fund and other fund savings;
2) Approve the Retirement Incentive Plan (Plan) for Fiscal Year (FY) 2025-26;
3) Authorize the Director of Human Resources, with concurrence of the Chief Administrative Officer, to approve Plan applicants;
4) Authorize the Director of Human Resources to execute any documents relating to the establishment of Health Reimbursement Arrangement accounts for approved Plan participants, contingent upon approval by County Counsel;
5) Grant Human Resources the authority to correct any minor clerical errors or adjustments, if necessary, to the Summary of Plan Provisions, Application, and/or template agreement; and
6) Direct the Chief Administrative Officer to include funding for the Plan in the FY 2025-26 Adopted Budget, including to cover approved employee separation incentive payments, any employer fees related to setting up the Health Reimbursement Arrangement accounts, and the Patient-Centered Outcomes Research Institute Fee.
FUNDING: Retiree Health Fund.
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DISCUSSION / BACKGROUND
On November 5, 2024, with Legistar file 24-1916, the Board directed staff to explore options for potential General Fund savings. The County has previously used separation incentives, including most recently in 2015, to achieve General Fund savings in an effort to mitigate the need for reductions to the workforce. On April 8, 2025, with Legistar file 25-0654, the Board directed staff to develop a Retirement Incentive Plan.
The Retirement Incentive Plan (Plan) aims to reduce salary and benefits expenditures by offering an opportunity for attrition through a voluntary separation incentive. The Plan in its simplest form provides as follows for those approved participants:
If the participant retires from County service no later than December 31, 2025, they will receive $2,500 per year of full-time equivalent service, not to exceed $50,000 deposited into a Health Reimbursement Arrangement (HRA) account.
If the participant retires from County service after December 31, 2025 but no later than June 30, 2026, they will receive $2,000 per year of full-time equivalent service, not to exceed $50,000 deposited into an HRA account.
The Plan would be open to County employees, excluding elected officials and extra help, who have at least 5 years of continuous County service, and who are eligible to retire through CalPERS. A full Summary of Plan Provisions and Application for participation are attached (Attachments A, B). Approved participants would be required to sign an Agreement and Release of Claims related to their voluntary participation and separation; County Counsel has reviewed and approved the template agreement (Attachment C).
Post retirement, participants can request reimbursement of qualified medical expenses and/or medical insurance premiums from the HRA, which in addition to the one-time contribution, accrues investment earnings; participants currently have 30 investment options within the HRA. An account Fact Sheet is attached (Attachment D).
The County would offer the HRA through Nationwide, an existing record keeper (vendor) for deferred compensation plans available through the County. Participants would be responsible for Nationwide’s asset management fee (currently 0.5%) and annual administrative fee ($30 per year) and have the ability to elect a managed account for independent, professional financial money management of the HRA for an additional fee. There is no charge for claims reimbursements.
Contributions to the Health Reimbursement Accounts will come from the Retiree Health Fund, not from the General Fund. Therefore, the Chief Administrative Officer will need to include funding for the Plan in the FY 2025-26 Adopted Budget.
ALTERNATIVES
The Board could approve a separation incentive but not grant authority to the Director of Human Resources and Chief Administrative Officer to approve Plan applicants and instead direct staff to present all applicants to the Board for approval.
The Board could approve a separation incentive but direct staff to expand eligibility to non-regular employees, such as elected department heads, or direct staff to make other changes to the Plan.
The Board could choose to not approve a separation incentive and can direct staff to identify alternative options to achieve salary and/or other budget savings.
PRIOR BOARD ACTION
04/08/2025 Legistar file 25-0654: Board directed staff to develop a Retirement Incentive Plan.
11/05/2024 Legistar file 24-1916: Board directed staff to explore options for potential General Fund savings.
06/02/2015 Legistar file 15-0640: Board most recently adopted an early separation incentive program.
OTHER DEPARTMENT / AGENCY INVOLVEMENT
County Counsel
Treasury/Tax Collector
FINANCIAL IMPACT
The Fiscal Impact will be determined based on the actual number and classifications of employees approved to participate in the Plan; provided, however, maximum participation shall be capped such that the total cost to the Retiree Health Fund for the Plan does not exceed $2,000,000. This is not a General Fund cost. The Retiree Health Fund is a limited use fund for the purpose of funding contributions towards eligible retirees’ health insurance costs. If the entire $2 million is expended for the Retirement Incentive Plan, the Retiree Health Fund would still have a fund balance of approximately $8 million.
There can be leave balance payout costs for accumulated vacation and sick leave associated with the separations; this is a liability to the County regardless of the Plan. Any additional General Fund cost in FY 2025-26 as a result of leave balance payouts will be evaluated and balanced against long-term savings that could be obtained. Each position vacated through this Plan will be evaluated by Chief Administrative Office staff, in conjunction with the Department Head and Human Resources, to determine the best option to achieve salary savings within service levels acceptable to the Board. Options could include deleting the position, alternately filling the position, or maintaining the position as-is. Maintaining the position as-is could achieve salary savings in a situation where the employee retiring receives benefits, such as longevity or Classic Member CalPERS designation, is replaced by an employee that is not eligible for those benefits.
The Patient-Centered Outcomes Research Institute (PCORI) fee is a per covered life fee paid annually by insurance carriers for insured plans, and by plan sponsors for self-funded plans. Post Employment Health Plans accounts, such as the HRA, are considered a self-insured group health plan and eligible under the PCORI rules. The PCORI fee began as a result of the Affordable Care Act and was renewed in conjunction with the Secure Act. It is payable to the IRS by July 31 of each calendar year and is currently scheduled to remain in effect until year 2029. The PCORI fee for 2025 is $3.47 per covered life. The HRA plan administrator (Nationwide) would inform the County annually of our PCORI fee obligation, which the County would remit directly to the IRS.
CLERK OF THE BOARD FOLLOW UP ACTIONS
N/A
STRATEGIC PLAN COMPONENT
N/A
CONTACT
Sue Hennike, Interim Chief Administrative Officer
Joseph Carruesco, Director of Human Resources