HomeMy WebLinkAbout5.E.1. Short-Term Disability and Supplemental Life Insurance Benefits
City of Shakopee s: E. ) .
Memorandum
CONSENT
TO: Mayor and City Council
Mark McNeill, City Administrator
FROM: Kris Wilson, Assistant City Administrator
SUBJECT: Short- Term Disability and Supplemental Life Insurance Benefits
DATE: November 17, 2006
Introduction
The City Council is asked to authorize the offering of one new and one amended employee
benefit, both of which will be optional and paid for entirely by employees.
Background
Life Insurance
The City currently pays for $25,000 in life insurance for all benefits-eligible City employees and
provides employees with the option to purchase up to $25,000 in additional life insurance, at
their own cost. This insurance is purchased from a company called Lafayette Life Insurance and
administered through National Insurance Services. Our representative from National Insurance
Services has informed us that we may offer our employees the option of purchasing up to
$100,000 in additional life insurance, at their own cost, for the same incremental rate currently
being charged for up to $25,000 in coverage. This incremental rate is $1.25 per month per
$5,000 of coverage. This change will not affect the rates the City pays for the $25,000 in
coverage it purchases for employees and there is no minimum participation required.
Short-Term Disability Insurance
The City currently provides long-term disability insurance for all employees, which takes effect
after someone has been unable to work for 180 calendar days. Employees are allowed to
accumulate enough sick leave to carry them to this point; however, it takes most employees
many years to reach this point. Currently the only option for employees that want some type of
protection and don't have enough sick leave accrued is to purchase a short-term disability policy
through AFLAC.
Through conversations with our National Insurance Services representative, we have learned that
we can offer our employees another alternative for covering short-term disabilities, which may
be more favorable than what they have through AFLAC. This option is a buy-down of the City
provided long-term disability coverage. Through this program, interested employees would pay
a monthly premium to have their long-term disability insurance kick-in after only 30 days, rather
than the normal 180 days that they receive under the City-paid policy. For our younger and
shorter-term employees, accumulating enough paid-leave or personal savings to cover 30 days is
certainly easier than doing so to cover 180 days.
In addition to this buy-down option, we also explored a true short-term disability option that
would be completely separate from employees' long-term disability insurance, but found that
coverage to be significantly more expensive for employees.
The 30 day buy-down option would provide employees with tax-free disability payments totaling
two-thirds of their monthly salary. There is no minimum participation required, but interested
employees would have to provide evidence of insurability, such as a health history and/or
physical evaluation. The cost to employees for this benefit would be $0.74 per month per $100
of salary covered. For an employee earning $48,000 per year, this would total $29.60 per month.
Again, we believe this will be a better option for some employees than what AFLAC can offer.
If approved by Council, both the additional supplemental life insurance and the buy-down of
long-term disability insurance would be offered to employees for 2007. Additionally, we would
continue to offer payroll deduction for coverage purchased through AFLAC for those employees
that wish to stay with AFLAC.
Budget Impact: There is no budget impact to the City as a result of offering these two
employee benefits.
Staff Recommendation: Staff recommends that the City Council authorize offering employees
the option to purchase up to $100,000 in supplemental life insurance, at their own cost, and the
option of buying-down their long-term disability insurance so that it takes effect after 30 days,
again, at the employee's cost.
Requested Action: If the Council concurs, it should offer a motion to offer employees the
option to purchase up to $100,000 in supplemental life insurance, at their own cost,. and the
option of buying-down their long-term disability insurance so that it takes effect after 30 days, at
their own cost.
~LJ~~
Assistant City Administrator