August 18, 1998
SUBJECT: LONG TERM DISABILITY (LTD) POLICY RENEWAL FOR 1998/2000 (RTC #98-301)
REPORT IN BRIEF
The purpose of this report is to recommend the renewal of the Long Term Disability (LTD) Insurance benefit contract with U.S. Life Insurance Company for the three year period 1998 to 2000.
BACKGROUND
Johnson & Higgins Marsh & McLennan is the City of Sunnyvale insurance broker and is charged with assisting the City in locating appropriate insurance coverage.
A marketing of the LTD plan was undertaken in August 1997 and potential savings were identified. After review and analysis of all potential providers City staff asked Johnson & Higgins Marsh & McLennan to negotiate coverage with U.S. Life.
Staff has determined that a change of carrier is appropriate and is recommending a new provider, U. S. Life.
EXISTING POLICY
The previous LTD policy was provided by Trans General. Due to the potential for savings in policy costs the City opted to look for alternative providers and is recommending coverage from U.S. Life.
The expiring rate is $.69 per $100 of payroll. The new rate is fixed for a three year period at $.51 per $100 of payroll. Trans General was unable to compete at this rate.
DISCUSSION
As part of its benefits package the City of Sunnyvale provides all full time employees with a comprehensive long-term disability insurance benefit. Long term disability insurance provides the employee with a substitute income equivalent to 66% of the employee’s monthly salary after they have exhausted
90 days of disability per injury/illness until they are medically able to return to work or other gainful employment.
The employee must show a medical disability sufficient to preclude him/her from work to qualify for this benefit. The determination of qualification is left to the carrier.
FISCAL IMPACT
Program 784 the Benefits Fund is adequately budgeted to cover these costs.
Following is a history of costs involved in providing this benefit.
Year |
1990to 1991 |
1991to 1992 |
1992to 1993 |
1993to 1994 |
1994to 1995 |
1995to 1996 |
1996to 1997 |
1997to 1998 |
1998to 1999 |
Provider |
Group America |
Group America |
Group America |
Group America |
Group America |
Trans General |
Trans General |
Trans General |
U.S. Life |
Rate/$100 |
$1.92 |
$1.50 |
$1.45 |
$1.25 |
$0.69 |
$0.69 |
$0.69 |
$0.69 |
$0.51 |
Premium |
$549,416 |
$487,426 |
$493,741 |
$452,520 |
$287,135 |
$214,399 |
$217,008 |
$213,564 |
$145,757 |
(
1995/95 to 1997/98 includes premiums for PSOA)The premiums are calculated based on the rate ($.51) per $100 of payroll.
Over the last eight years (1990/91 to 1998/99) when you compare the annual premium from one year to that of the previous year, a cumulative savings of $341,070 has been realized.
It is anticipated that premiums for 1999 and 2000 will reflect an additional 35% savings.
PUBLIC CONTACT
This is a Consent Calendar Agenda Item.
ALTERNATIVES
RECOMMENDATION
Risk & Insurance & Benefits Staff recommend Option 1.
Prepared by:
James Harrington
Risk & Insurance Manager
Reviewed by:
David Nieto
Director, Department of Human Resources
Approved by:
Robert S. LaSala
City Manager