Employee Benefit Study
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HAY
ASSOCIA TES
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ONE EAST WACKER DRIVE
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CHICAGO. ILLINOIS 60601
312-644-5700
.
Corrected Copy
February 25,' 1978
Mr. William Harris
Deputy City Manager
City County Building
City of Salina, Kansas
Dear Bill:
67401
Enclosed is our benefit value calculations ~n the benefit programs in effect
for four different types of City employees. Note that the calculations were
made at four assumed salary levels. These values include the following:
1.
All city-provided benefits; and
2.
Social Security, except for Police and Fire personnel,
with a value of 6.05% of salary up to $17,700 and a
flat $1,071 on salaries over $17,700; and
3.
A flat $100 for workers I compensation and unemploy-
ment insurance, both State and Federal.
,
Bill, these values are not your costs for the benefits I but are the value
of the benefits exclusive of what the employees pay for them. In other
words the employer-provided value of the benefits. We calculated these
values in the same way we calculated benefit values for the 468 organiza-
tions in our 1977 nationwide benefit survey.
If you wish to approximate the benefit values at other salary levels than
the four we used you can factor the dollar values as we discussed on the
phone. You do it this way:
. Step 1:
Step 2:
Step 3:
Take dollar value from sheet and subtract $479 dollars.
(This is the two flat dollar benefit values -- group life
and medical).
Multiply remainder from Step 1 by salary you want values
for, then divide answer by salary our calculation used.
Add $479 to answer -- this is value at new salary level.
AUSTRALIA' BRAZIL, CANADA' FINLAND, FRANCE' GERMANY' ITALY. MEXICO. THE NETHERLANDS, NEW ZEALAND. SPAIN. U. K. . VENEZUELA
. .
HAY ASSOCIATES
Mr. William Harris
February 25: 1 c}78
Page Two
For example:
Assuminq: Nonexempt at $10,000
. . , .. ,". .' .,
Step 1:
$2,392 - $479 = $1,913
Step 2:
$1,913 X $10,000 (New Salary) divided
by $8,000 (Old Salary) = $2,391
Step 3:
$2,391 + $479 = $2,870, which is value
at $10,000. This is 28.7% ($2,8707- $10,000)
If you use a salary of $l7 , 700 or more Step' One is changes and you subtract
$1,550 ($479 + $1,071) instead of $479; and then add $1,550 back in for
Step Three.
Please call me if you have any questions on this material (312/644-5700).
Since~ely ,
ß "-t
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~<~vI-, --; }{l ~
Robert M. James
Director I Benefits Consulting
Services
RMJ/pab
Enclosure
cc: Jerry Bratkovich
HAY ASSOCIATES
E1vii'i.ûYER PRûVIDED BEN!:?!! "y"A'LüES CA.'LCüLAT£::Û BY
HAY ASSOCIATES - February 1978
DOLLAR VALUE OF BENEFIT ITEM FOR:
Benefit Public Safety Non-Exempt Professional Management
Area Personnel (Clerical) ( Exempt) (Exempt)
Annual Salary $11,000 $ 8,000 $14,000 $20,000
Benefit Item:
. Group Term Life -Al1 ( 1) 28 28 28 28
. Group Term Life-Fire 62
. KPERS Death Benefit 34 59 84
. police/Fire Retmt.
Plan Surv. Benefit 302
. Sick Leave 303 221 386 553
. KPERS LTD Benefit -0- 1 34
. Police/Fire LTD Benf. 41
. Medical (BC/BS) (1) 451 451 451 451
. KPERS Retmt. 428 734 ' 1068
. Police/Fire - Retmt. 900
. Holidays 423 308 538 768
. Vacations /. 486 354 619 884
. Otherþl~r - t' 'i} 100 584 947 1171
". ,
Total Dollar Vàlue
All $ $ 2,408 $ 3,763 $ 5,041
Police 3,034
Fire 3,096
Value as % of
Annual Salary
All % 30.1 % 26.9 % 25.2 %
Police 27.6
Fire 28.1
Note: All death benefit values are calculated without regard .to death benefit
from Public Officers Benefit Act. This $50,000 death benefit applicable
to Police and Fire personnel only, for a work-related death, has a value
of $36. OO/year (0.3 % of as sumed .nnual salary) .
These are flat dollar amounts not subject to change by salary.
( 1 )
(2)
"Othern includes Social Security (not applicable to police and
fire personnel), workers I compensation and unemployment insurance.
&
March 30, 1978
Bob James, Hay Associates called 3-29-78 and advised the following is how
they arrived at the values of Holidays, Vacations and Sick Leave.
Refer
to his letter dated February 25,1978.
Annual rate t 2080 = Hourly rate
Hourly rate x 8 = Daily rate
$11,000.00 Public Safety Employee = $42.24 DR
8,000.00 Non-Exempt Clerical = $30.72 DR
14,000.00 Prof. Exempt = $53.84 DR
20,000.00 Management Exempt = $76.88 DR
Hol idays ----
10 x Daily rate = Value
Vacations ----
Used 11.5 days because some employees have 2 weeks (majority)
but those over 15 years service hav~ 3 weeks.
11.5 x Daily rate = Value
Sick Leave ----
Used approximately 7.18 days x Daily rate.
They averaged it - considering a day per month is earned and employee
can accummulate up to 90 days.
~d?i
HAY ASSOCIATES
SECTION
I
II
III
IV
v
VI
VII
VIII
TABLE OF CONTE NTS
INTRODUCTION
SUMMARY OF RECOMMENDATIONS
1976 HAY-HUGGINS NONCASH COMPENSATION
COMPARISON
DEATH BENEFITS
A. Existing Benefits
B. Statistics from 1976 NCC
C. Hay Comments and Impressions
D. Hay Recommendations
INCOME REPIACEMENT
A. Existing Benefits
B. Statistics from 1976 NCC
C. Hay Comments and Impressions
D. Hay Recommendations
MEDICAL BENEFITS
A. Existing Benefits
B. Statistics from 1976 NCC
C. Hay Comments and Impressions
D. Hay Recommendations
RETIREMENT BENEFITS (KPERS)
A. Salient Features of KPERS
B. Statistics from 1976 NCC
C. Hay Comments and Impressions
PERSONNEL POLICIES
A. Existing Benefits
B. Statistics from 1976 NCC
C. Hay Comments and Impressions
D. Hay Recommendations
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PAGE
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3
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7
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8
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19
20
22
22
23
28
28
30
30
31
35
37
37
38
41
41
HAY ASSOCIATES
I
INTRODU CTION
Hay Associates has been engaged by the City of Salina to review the City' s
current noncash compensation practices (benefits) and comment upon them
making whatever recommendations seem appropriate to Hay. In undertaking
this project, Hay has concentrated on those benefits or personnel practices
which apply to most of the City's employees, as opposed to those special
benefits and practices applicable to Fire and/or Police Department personnel.
These special benefits are addressed only briefly in this report when signifi-
cant differences exist.
In order to undertake this project, Hay has been given the following material
by the City:
3.
4.
5.
1.
Group H~a1th Booklet - A summary of the Blue Cross/Blue
Shield health insurance coverage applicable to employees
other than Fire Department personnel.
2.
Blue Cross/Blue Shield Contracts - The full contracts re-
specting this coverage for both Fire Department and other
personnel.
Personnel Manuals - Two manuals detailing all aspects of
benefits and personnel practices. One is considerably out
of date, but i's supplemented by other manual and additional
material.
Retirement Benefit Pamphlets - Two pamphlets describing the
Kansas Public Employees Retirement System (hereafter re-
ferred to as KPERS), and the other describing the separate
statewide retirement program applicable to Fire and Police
personnel.
Other Policies - Other insurance policies covering group term
life insurance and a personal liability protection policy for
City employees and elected or appointed officials which un-
derwrites City Ordinance Number 8476.
All of the comments and recommendations found in this report are based on the
information available in the above mentioned material.
-1-
HAY ASSOCIATES
The objecti-,,-¿; of this report 15 to address i..l1C: degree of external compeU.i.:Î.ve-
ness, internal equity, and design efficiency found in those existing noncash
compensation practices over which the City is able to exercise meaningful
control, and to make recommendations for possible change as appropriate.
As indicated by the Table of Contents, this report contains the following ma-
terial, in sequence, in order to meet this obj ective.
.
A summary of recommended changes. for the City's consider-
ation in future planning.
.
A brief description of the 1976 Hay-Huggins Noncash Com-
pensation Comparison (1976 NCC), which is the prime tool
used by Hay in measuring the external competitiveness of
present practice.
.
A brief benefit-by-benefit analysis of the present noncash
compensation practices of the City of Salina.
It should be noted that the area of retirement benefits is addressed in a more
brief fashion by this report. Most City employees are currently covered for
retirement purposes by the statewide KPERS program. The value of these ben-
efits to individual employees and the significant cost to the City of providing
thèse benefits can obviously not be ignored in desigining an overall benefit
practice strategy. However, since the City cannot exercise any meaningful
control over the design or implementation of these retirement income programs,
Hay does not consider them an appropriate subject for indepth analysis.
Similarly, an indepth comparison of the salary equivalent value of the Cityl s
noncash compensation practices in relation to those in effect at other specific
municipalities is beyond the scope of this report. Such an analysis, using
specific municipalities and salary levels of the City' s own choosing, is avail-
able through use of the Hay-Huggins Benefit Value Comparison (BVC) which
can be purchased by an individual client or on a "club" basis by a group of
clients.
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HAY ASSOCIATES
II
SUMMARY OF RECOrviivïLNDAIIûNS
Those noncash compensation changes which Hay recpmmends be consid-
ered by the City of Salina are summarized below. The rationale for all these
recommendations is to be found in the balance of this report in each respec-
tive benefit area. For ease of reference, the recommendations are shown by
benefit area and asterisks are used to indicate those items which Hay con-
siders to be of the highest priority.
1.
Death Benefits
*.
Some form of salary related group term life insurance should
be added as a high priority item.
.
Consider the eventual addition of after-retirement life insur-
ance.
2.
Income Replacement
*.
Adopt some additional, partial salary sick leave benefits for
long service employees.
.
Consider some form of supplemental LTD coverage.
3.
Medical Benefits
.
Consider adding some form of after-retirement medical cover-
age.
4.
Retirement Benefit s
No specific recommendations are made with respect to retirement ben-
efits because the City cannot exercise any meaningful control over
the two statewide and state-controlled programs in effect for City
employees. Hay does suggest that some supplemental coverage,
which is integrated with Social Security, for higher paid employees
may be worth considering.
5.
Personnel Policies
*.
The generally excellent Personnel Manual should be updated
to reflect new benefits.
-3-
HAY ASSOCIATES
*.
Conduct and periodically update a local survey of hoUday
and vacation practices.
*.
Consider improving vacation policy for all employees and
adopting a special, more liberal, schedule for execuUve
level personnel.
6.
General
.
Continue and expand communication efforts with respect
to benefits and consider an annual employee benefit state-
ment as a key part of these efforts.
Hay will, of course, be happy to discuss any of the above recommendations
with City personnel at any time and is well qualified to assist the City in any
phase of benefit design, implementation, or communication. Appropriate City
personnel are urged to carefully review this entire report and not just this sum-
mary section.
"
l!
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HAY ASSOCIATES
ill
197ôHAY-HUGGINS NONCASH COMPENSATION COMPARISON
In the process of measuring the external competitiveness of existing City ben-
efits, Hay has relied heavily on the statistics generated by the 1976 Hay-
Huggins Noncash Compensation Comparison (1976 NCC). This reliance is
justified since, to the best of Hay' s knowledge I the 1976 NCC represents the
largest indepth benefit data bank available in the United States. Some brief
facts concerning the 1976 N CC are set forth below.
The 1976 NCC represents the seventh such indepth benefit survey prepared by
Hay-Huggins since 1968, and the fifth consecutive annual survey" Participa-
tion has increased from 104 participants in 1968 to 443 in 1976. Participation
in the 1976 NCC includes data reported or updated as of Spring 1976, and in-
cludes 301 industrial and 142 financial/service organizations.
Participation is not taken lightly, as an annual fee and completion of a lengthy
and detailed questionnaire are required. In return, the participants all receive
a detailed statistical report of over 230 pages I plus a graphic illustration of
the cash equivalent value of their benefit program in relation to that in effect
for other participants at various levels of direct annual compensaUon. In ad-
dition, participants who also use the Hay job evaluation system receive a
similar comparative chart using job evaluation points instead of annual salary
levels; and indicating cash, noncash, and total remuneration practices. Both
sets of charts are developed independently for industrial, financial, and ser-
vice companies.
Included in the 1976 NCC are responses from 29 government, academic, or
other nonprofit organizations, and 79 organizations located in the Plains or
Southwestern states. With respect to annual operating budgets, the nonprofit
participants range from under $10 MM to over $100 MM, with the 9reatest
single concentrations being in the "under $10 MM" and "$20 MM to $25 MM"
categories. With respect to the total number of employees reported by all 443
survey participants, approximately one-quarter reported fewer than 500 nonex-
empt and fewer than 250 exempt employees.
Due to the ever increasing mobility of the labor force, particularly in the man-
agement and professional/technical categories, Hay considers the use of a
national benefit practice survey to be an appropriate tool for measuring external
competitiveness. In addition, benefit practice trends are becominQ more na-
tional in scope due to the combined influence of sophisticated communications,
the proliferation of organizations with mult1state operations, and the ever in-
creasing interest being shown in benefit practices by the federal government.
-5-
HAY ASSOCIATES
Statistics from the 1976 NCC are used in each benefit area covered by this
report, including retirement benefits. While Hay feels these statistics do
provide the City with a representative measure of external competitiveness
with respect to present benefit practices, the City must recognize that ex-
ternal competitiveness is only one measure of the vðlue of a benefit package.
Each organization must make its own decisions with respect to benefit plan-
ning in light of internal economic realities, organizational philosophy, and
any other considerations which are appropriate to its own specific situation.
-6-
HAY ASSOCIATES
IV
DEATH BENEFITS
This section addresses the area of life insurance benefits provided for City
employees.
A.
Existing Benefits
Death benefits are provided by two separate programs for all but
Fire and Police personnel as described below.
1.
. d.
f.
2.
City Group Term Life Plan
a.
Employee Contributions - None.
b.
Basic Death Benefits - Flat $4,000 regardless
of salary level.
c.
Group AD & D - Flat $4,000 regardless of sal-
ary level.
Supplemental Group Life - None.
e.
After-Retirement Coverage - None other than
normal conversion rights.
Dependents I Life Insurance - Available on an
employee-pay-all basis. Spouse's benefit
$2,000. Children I s benefit of $1,000 from 6
months of age to 19 (23 if students).
Death Benefits Under KPERS
a.
b.
c.
Employee Contributions - 4% of base salary.
Basic Death Benefit - Insured lump sum death
benefit equal to about 60-65% of salary.
Retirement Related Death Benefit - Return of
contributions plus interest (equal to fund per-
formance) if under age 55. If 55 or older and
spouse survives, spouse receives lifetime ben-
efits equal to 50% of accured benefit adjusted
for early retirement.
-7-
HAY ASSOCIATES
Death benefits for fire and Police personnel are considerably more
liberal, consisting of the following:
3.
Group Term Life
For Fire Department personnel only: $10,000 plus $10,000
AD & D, financed by City contributions (15%) and special
2% premium on fire and lightning insurance written in state
(85%). Police have same $4,000 a's other employees.
4.
Special Police-Fire Retirement Program
Survivor benefits to spouse until death or remarriage and
children to 18 equal to 50% of final average salary (7S%
if work related death) available if employee has at least
5 years service. Otherwise, return of contributions plus
interest. Employee contributions are 7% of salary (they
are not covered by Social Security) and City contributions
based on actuarial determination (18.2 % of salary for Fire
Department personnel and 16.6% of salary for Police De-
partment personnel in 1976).
5.
Public Safety Officers' Benefit Act
Additional death benefit of $50,000 will be payable under
this federally financed program for work related death.
B.
Statistics from 1976 NCC
The next few pages illustrate the death benefit practices of the 443
participants in the 1976 Hay-Huggins Noncash Compensation Compar-
ison (1976 NCC). Asterisks are used to indicate those practices
which reflect the death benefits available for other than Fire and Police
Department personnel. With respect to basic group life, the City's
group life coverage is used, and with respect to supplemental group
life, the KPERS death benefits are used.
-8-
HAY ASSOCIATES
- DEATH (LIFE INSURANCE) BENEFITS -
STATIST!CS ON COM PET~IVE PPJ'.CTICE
FROM
1976 HAY-HUGGINS NONCASH COMPENSATION COMPARISON (1976 NCC)
1 )
2)
Benefit Area
% of 1976 NCC
Participant s
General Coverage
With Basic Group Life
With Supplemental Group Life
With Group AD & D
With Quasi-Group AD & D
With Dependents I Life Insurance
With Survivor Income Benefits
Basic Group Life
a) Employee Contributions - Basic Life
None, Fully Employer-Paid
Employee Pays Less than 50% of Cost
Employee Pays 50% of Cost
Employee Pays 51% to 75% of Cost
Employee Pays over 75% of Cost
Employee Shares, but Percentage Unspecified
b}
Determination of Ba sic Life Benefit
Flat Dollar Amount
By Salary or Job Title Brackets
Earnings Multiple
c)
Earnings Multiples Used - Basic Life
Ix Earnings or Less
Over 1 but Less than 2x Earnings
Exactly 2x Earnings
Over 2x Earning s
d)
Maximum for Basic Benefit
Less than $100,000
From $100,000 to $149,000
From $150,000 to $199,000
$200,000 to $299,000
$300,000 or More
No Maximum, Straight Earnings Multiple
*This is the same or equivalent to your current practice
-9-
99%*
55%
69%*
37%
23%*
15%
65%*
14%
8%
6%
2%
5%
11%*
24%
65%
24%
14%
44%
18%
29%*
14%
8%
14%
13%
22%
HAY ASSOCIATES
COMPARATIVE DEATH BENEFIT PRACTICE (cont'd. )
Benetit Area
2)
Basic Group Life (cant 'd. )
e) After-Retirement Coverage - Basic Life
None
Provided with Gradual Reduction
Provided with Immediate Reduction
Provided with Immediate then Gradual
Reduction
Full Continuation of Preretirement
Coverage
- \
f)
Type of After-Retirement Coverage
Percent of Salary
Flat Amount
Percent of Preretirement Coverage
Other
g)
Cost of After-Retirement Coverage
Fully Employer-Paid
Shared
Fully Employee- Paid
3)
Supplemental Group Life (55% report this coverage)
a) Employee Contribution s - Supplemental Life
None, Fully Employer-Paid.
Employee Pays 50% or Less of Total Cost
Employee Pays 51% to 75% of Total Cost
Employee Pays 76% to 99% of Total Cost
Employee Pays Full Cost
b) Determination of Benefit - Supplemental Life
By Earnings Class
Earnings Multiple
Other
(Note: 23% of plans permit employee to
elect varying amounts of supple-
mental life coverage. )
.1
-1
.
% of 1976 NCC
Participants
1
, }
29%*
24%
37%
. '1
¡
j
6%
4%
~
;
j
26%
37%
29%
8%
"'I
I
j
J
86%
11%
3%
9%* (1)
15%
10%
11%
55%
27%
63%*
10%
j
1
J
,
¡
j
*This is the same or equivalent to your current practice
(1) Employee contributions are used for retirement and
not death or disability benefits.
-10-
1
¡
J
, ,¡
,
1
HAY ASSOCIATES
COMPARATIVE DEATH BENEFIT PRACTICE (cont'd. )
Benefit Area
% of 197f; 1\TÇC
Participants
3)
Supplemental Group Life (cont'd. )
c) Earnings Related Coverage - Supplemental
Life
Ix Earnings or Less
Over 1 but Less than 2x Earnings
Exactly 2x Earnings
Over 2x Earnings
38%*
13%
28%
21%
d)
After-Retirement Coverage - Supplemental
Life
None
Some Continuation at Reduced Level
Coverage is Paid-Up so Amount
Purchased Continues
67%*
30%
3%
*This is the same or equivalent to your current practice
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HAY ASSOCIATES
c.
Hay Comments and Impressions
The death benefits provided to Fire and Police personnel are very com-
petitive with generallndustry practice in all respects except cost
where the premiums are much higher than for n,..'Xmal term insurance
coverage. Obviously, both the high level of benefits and re]lative
cost are directly related to the hazardous nature of these public safety
occupations.
Hay's comments and recommendations, which are included below, re-
late to the death beneíits available to City employees in other than
the Fire and Police Departments.
The City' s death benefits program is competitive only with respect to
the absence of employee contributions. The flat $4,000 benefit is not
only very low from a competitive standpoint, but is also very inequit-
able. Any benefit which is ba sed on a flat dollar amount rather than
a multiple of earnings is going to be inequitable in relation to salary
as illustrated below.
Annual Salary Level
$8,000 $12,000 $20,000 $30,000
City's Group Term Benefit
Benefit as % of Salary
$4,000
50%
$4,000 $4,000
33 1/3% 20%
$4,000
13 1/3%
The fact that the KPERS program provides earnings related death bene-
fits helps this situation, but as these KPERS benefits are only 60-65%
of earnings, the combined benefits available fall well below the 1 1/2
to 2 times salary death benefits commonly found in industry.
The survivor benefits available under the KPERS program to employees
who are age 55 (and eligible for early retirement) essentially eliminate
this problem for such employees, but do nothing for younger .employees
who probably have the greatest need for life insurance protection.
The addition of life insurance for dependent s, even on an employee-
pay-all basis, is a plus for City employees. This benefit, although
growing, is still only reported by about one-fourth of 1976 N CC par-
ticipants.
On the other hand, 71% -of 1976 NCC participants report somE~ form of
after-retirement life insurance coverage which is not available to City
employees except through conversion rights.
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HAY ASSOCIATES
D.
Hay Recommendations
With respect to employees not engaged in public safety occupations,
Hay recommends the City consider the following improvements.
.
Some form of salary related group term life insurance should
be added as a high priority item.
.
Consider the eventual addition of after-retirement life :insur-
ance.
Some form of salary related group term life benefits will correct the in-
equities created by the present flat dollar benefit approach. This type
of benefit is recommended as a high priority item because Hay feels
that benefit programs should serve to reinforce the whole compensation/
reward system and the present group term life plan penalizes those em-
ployees held most responsible for providing needed municipal services.
In designing any salary related plan, the benefits available from the
KPERS program must not be ignored and a revised group term life plan
should coordinate with such benefits and not duplicate them. Hay sug-
gests that City-paid group term life insurance along these lines would
be a great improvement over the present system:
Death Benefits for Full Time Employees
Prior to Age 55 After Age 55
Basic
AD & D
Ix salary
Ix salary
1/2 salary
1/2 salary
From a cost standpoint, the decline in coverage at age 55 will have a
favorable impact on required premiums as older employees are natu-
rally more expensive to insure. The City should be aware that this
suggested system is somewhat unfair to unmarried employees as the
KPERS survivor benefits at age 55 only apply to surviving spouses.
However, it can be argued that the "need" is probably less if no
spouse exists.
Should cost considerations prohibit such a change I the present $4,000
benefit could be retained and additional, salary related benefits pro-
vided on a supplemental basis requiring full or partial employee contri-
butions. As long as group rates are available, such coverage I even if
fully employee-paid, wo,uld still be a benefit to most employees as
-13-
HAY ASSOCIATES
group rates are more favorable than those available on an individual
basis, except for very young employees. It is suggested that any
such supplemental coverage also be coordinated with the benefits
available from the KPERS system.
With respect to after-retirement coverage, some such benefits will
eventually be needed from a competitive standpoint. The City must
be aware, however, that after-retirement life insurance is expensive
as it is essentially a guaranteed death benefit. In exploring' such
coverage, it is suggested the City investigate one or more of these
potentially cost-saving approaches.
.
Limit benefit to only executive level employees at least
initially. Any such limitation must be based on a defen-
sible "class" of employees using a standard eligibility
criteria such as job evaluation (Hay) points over some
level.
.
Provide a gradual reduction in preretirement coverage such
as 5% per year to a continuing benefit of about 25% of sal-
ary. From an equity standpoint, a flat dollar benefit should
be avoided.
.
Limit coverage to employees with some extensive period of
service, such as 20 years.
.
Base coverage on service, such as 1% of salary per year
of service up to a maximum of 25%.
.
Require fairly heavy employee contributions.
It is suggested that the City obtain competitive bids on both after-
retirement coverage and a revised group term life benefit, and explore
the many alternatives available with respect to coverage and some
combination of basic and supplemental benefits 0
" "
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HAY ^§§OCIAfE6
v
INCOME REPLACEMENT
'I'hlê ê§fJUOfl. addresses the areas of sick leave or short-term disabHity and long-
têfm di~gbHity benefits.
A,
~I1(;L Benefits
1,
§1ck Leave - Short-Term Disability
Employees accumulate 1 day of paid sick leave for every
month of service up to a maximum of 90 working days.
Sick leave is not paid off at retirement and termination,
and may be used for family illness or death (7 day max-
imum ) .
2.
~ng-Term Disability
No formal insured or noninsured plan exists. However,
the KPERS system provides LTD-like benefits as des-
cribed in Section VII.
3.
Fire and Police Personnel
Sick leave benefits are essentially the same as those
available to other employees. Considerably more lib-
eral LTD-type benefits apply to such employees under
the applicable retirement program as no Social Security
offset is applied.
B.
Practice Reported in 1976 NCC
Competitive practice in this area is illustrated by statistics from the
1976 Hay-Huggins Noncash Compensation Comparison (1976 NCC)
which appear on the next few pages. Asterisks are used to illustrate
practices which parallel the City's sick leave benefits and the KPERS
LTD-type benefits for other than work related disabilities.
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HAY ASSOCIATES
- INCOME REPIACEMENT (DISABILITY) BENEFITS -
STATISTICS ON COMPETITIVE PRACTICE
FROM
1976 HAY-HUGGINS NONCASH COMPENSATION COMPARISON (1976 NCC)
Benefit Area
1)
Short-Term Disability (Salary Continuation)
a) Type of Plan
Formal
Discretionary
None
b)
Determination of Benefit
Service-Related Schedule
Specified Number of Days Per Month
of Service
Other
c)
Salary Provided
Full Salary Only
Full and Partial Salary at 50%
Full and Partial Salary at 60%
Full and Partial Salary at Other
than 50-60%
d)
Duration of Payments at Various Service Levels
Service Weeks at Weeks at
(Years) Full Salary Partial Salary
3 - 5 5 - 7 or 8 -12 8 -12 or 18 - 2 1
6-10 8-12 8-12 or 14-17
15-30 26 Negligible
2)
Long-Term Disability (LTD) Coverage
a) Trend and LTD Coveraqe in 1976
With LTD - 1973 NCC
With LTD - 1974 and 1975 NCC
With LTD - 1976 NCC
Without LTD - 1976 NCC
% of 1976 NCC
Parti ci pant s
84%*
11%
5%
59%
15%*
26%
42%*
31%
14%
13%
81%
86%
88%
12%
*This is the same or equivalent to your current practice
-16-
. HAY ASSOCIATES
COMPARATIVE INCOME REPLACEMENT PRACTICE (cont'd. )
Long-Term Disability (LTD) Covera~ (cont'd.)
b} Eligibility for LTD
All Employees
All Salaried Employees
Only Some Salaried Employees
(only exempt, etc.)
2}
c}
d)
e}
f)
g)
-1
Renefit þ.r~a
% of 1976 NCC
Participãnt s
37%*
51%
12%
,
¡
J
Benefit Target, Including Offsets
Less than 50% of Salary
50% of Salary
60% of Salary
66 2/3% of Salary
Other
-"!
ì
,
J
4%
28%*
49%
10%
9%
~
Offsets Taken from LTD Payments
Primary Social Security
Family Social Security
Workers I Compensation
All Employer-Sponsored Plans
1
J
45%*
46%
77%*
62%
"!
,
¡
Exclusion (Waiting) Period if Disabled
End of Salary Continuation
Six Months
Other
1
J
20%
56%*
24%
ì
¡
\
Á
Monthly Maximums for LTD Benefits
Under $1,500
$1,500
$2,000
Other, but under $2,500
$2,500
$3,000
Over $3,000 or None (15%)
¡
.,¡
8%
14%
29%
5%
20%
7%
17%*
ì
Cost of LTD CoveraGe
Fully Employer-Paid 53%* (1)
Cost Shared Between Employer and Employee 25%
Fully Employee-Paid 22%
i
, j
, ,
ì
1
*This is the same or equivalent to your current practice
( I) Employee contributions to KPERS system not used
for disability benefits.
-17-
, 1
. 1
HAY ASSOCIATES
COMPARATIVE INCOME REPLACEMENT PRACTICE (cant 'd. )
2 )
Benefit Area
Long-Term Disability (LTD) Coverage (cant 'd. )
h) Coordination with Disability Retirement
Under Pension
No Disability Pension Benefit Exists
Disability Pension Deferred to Normal
Retirement
Disability Pension Paid, but Integrated
with LTD
Disability Pension Paid in Addition to LTD
% of 1976 NCC
Palrtic1pant s
46%
25%*
14%
15%
*This is the same or equivalent to your current practice
-18-
HAY ASSOCIATES
c.
Hay Cc;;-.ment3 ùüd Impr.::;ssions
As indicated by the statistics from the 1976 NCC, most partlc1pants
have both an LTD plan and a service related short-term disability
(sick leave) program. With respect to municipalities, however, a
days-per-month method of providing sick leave benefits is very com-
man. The following additional statistics, which reflect the practices
of the 61 participants in the survey (15%) who use this method of pro-
viding sick leave benefits, are included for the Cityl s information.
Benefit Area
% of 6 1
Participants
Days Granted Per Month of Service
Less than one
Exactly one
More than one
19%
78%*
3%
Maximum Accumulation
Less than 30 days
30 to 89 days
90 to 99 days
100 days or more
32%
28%
18%*
22%
*Same as City practice
As indicated above, the present City practice is very representative
when compared to those N CC participant s using thi s method.
Hay is pleased to see the careful control procedures built into the
generally excellent Personnel Manual to control abuse s of the sick
leave program. The City is urged to retain such procedures and ac-
tively enforce them since not paying off unused sick leave at retire-
ment or termination (which Hay agrees with) presents employees with
a "use it or lose it" situation.
Despite the generally competitive nature of the present sick leave
program, the maximum accumulation of 90 days does leave a "hole"
of about 3 months in income protection for a seriously disabled em-
ployee who is not involved in a work related disability. This is true
because disability benefits from both the KPERS program and Social
Security would not begin until after about 6 months of disability,
whereas the maximum sick leave accumulation is equivalent to only
3 months.
-19-
HAY ASSOCIATES
With respect to LTD-type coverage, the KPERS benefit is representa-
tive in design, but not in benefit level. As indicated by the 1976
NCC statistics, mo st survey participates use a 60% of salary bene-
fit and the KPERS program uses a 50% target.
D.
Hay Recommendations
Hay recommends that the City consider two possible changes in its
present program of income replacement benefits.
.
Adopt some additional, partial salary, sick leave benefits
for long service employees.
.
Consider some form of supplemental LTD coverage.
The first recommendation is directed toward filling in the income
"hole II mentioned earlier by providing an income bridge between full
employment and eligibility for the longer-term disability ben ~fits
available from Social Secur~ty and the KPERS system.
This recommended coverage could take many forms, but something
along these lines makes sense to Hay.
Service (Years)
Additional Sick Leave Benefits
at 50% of Salary
Under 10
10
11
12
13
14
15 or more
None
45 days
60 days
75 days
90 days
105 days
120 days
In all cases I these additional sick leave benefits would not com-
mence until all accumulated sick leave is exhausted and would
cease (even if not all used) following 180 days of continuous dis-
ability. No accumulation need apply nor any buildup of such ben-
efits on a month-by-month l)asis. If, at the time of disability an
employee had at least 10 years of service with the City, these ad-
ditional days would be availdbl¿> if needed.
-20-
HAY ASSOCIATES
Any action with respect to LTD is less critical, but should neverthe-
less be considered. As only about 10% of salary is needed to in-
crease the KPERS coverage to the more competitive 60% benefit tar-
get, the City might consider providing this coverage on a self-
insured basis (by resolution) with payments coming directly from
City funds as needed. Any such coverage should be limited to dis-
abilities which are not work related as no real need exists f.or work
related disabilitie s .
To avoid the need for amendments whenever KPERS coverage is changed,
a resolution for self-insured coverage should be written to provide
60% of salary (or 55% if desired) minus whatever the employee is eli-
gible to receive from the combination of Social Security and the KPERS
program. With respect to Social Security, the KPERS benefit offsets
primary (as opposed to family) benefits and "freezes" the offset at
the onset of disability. For simplicity purposes, an identical offset
makes sense I although such an approach is more expensive than off-
setting family benefits and/or reducing City-provided benefits as
Social Security increases.
Particularly for the potentially more mobile executive/management
level of employees, a few extra benefits such as a supplemental LTD
plan could pay dividends for Salina. Since many of the key benefits
like retirement are common statewide programs I an employe€~ can
move from one public service position to another with little change
in benefits. If Salina had a few "extra" benefits, which would be
forfeited in such a move, at least some element of retention would be
created. Naturally, the very real cost can sideration s requir.e a care-
ful approach to additional coverage.
-21-
HAY ASSOCIATES
VI
MEDICAL BE!'!E~ITS
This section addresses the general area of health care benefits wh:ich, for the
City of Salina, means Blue Cross/Blue Shield medical benefits as no dental or
optical plans exist.
A.
Existing Benefits
At the present time, employees of the City and their eligible depen-
dents have the following medical benefits program, assuminçr care
is provided by the readily available Blue Cross/Blue Shield partici-
pating hospitals and physicians.
1.
Basic Type - basic and Major Medical Coverage (BC/BS).
2.
Employee Cost - none for individual coverage, 100% of
cost for dependents I coverage.
3.
Room and Board - 120 day coverage for semi-private room.
4.
Hospital Miscellaneous - full reasonable and customalY
coverage during hospital confinement up to 120 days.
5:
Surgical - covered under Major Medical.
6.
Medical, X-Ray, and Laboratory - covered under Major
Medical unless x-ray/laboratory done as in-patient.
7.
Major Medical
a.
Annual Deductible - $100 ($200 maximum per
family) .
b.
Lifetime Limit - $250,000.
Co-insurance - 80/20.
c.
d.
Cap on Employee Expense - co-insurance be-
comes 100% if an employee's out-of-pocket
expenses reach $ 200 in any calendar year. A
family coverage "cap" of $400/year also ap-
plies. This ."cap" for both the employee and
the family does not apply to out-patient psy-
chiatric and nervous conditions.
-22-
HAY ASSOCIATES
8.
Maternity - coverage under insured plan like any other
disability.
9.
Supplemental Accident - 100% coverage for accident re-
lated expenses within certain time periods.
10.
After-Retirement Coverage - none ,ather than conversion
rights to the best of Hay's knowledge.
A separate Blue Cross/Blue Shield program applies to Fire Department
personnel. However, Hay does not see any significant difference in
coverage except that an employee-pay-all dental benefit is available
to the employee (not dependents).
B.
Statistics from 1976 NCC
Competitive practice as reported in the 1976 Hay-Huggins Noncash
Compensation Comparison is shown on the next several pages with
asterisks used to indicate coverage similar to that provided under the
City I S program.
-23-
HAY ASSOCIATES
- MEDICAL BENEFITS -
STATISTICS OF COMPETITIVE PRACTICES
FROM
1976 HAY-HUGGINS NONCASH COMPENSATION COMPARISON (1976 NCC)
Benefit Area
% of 1976 NCC
Participants
1)
Types of Plans
Basic Only
Basic and Major Medical
Comprehensive
1%
70%*
29%
2)
Employee Cost as Percent of Total Cost
a) Employee Coverage
None, Fully Employer-Paid
Less than 20%
20% to 25%
26% to 49%
50% or More
63%*
11%
11%
10%
5%
b)
Dependents I Coverage
None, Fully Employer-Paid
Some Unspecified Percentage Paid
by Employee
Less than 20%
20% to 25%
26% to 49%
50%
51% to 90%
100% I Fully Employee-Paid
39%
13%
9%
10%
14%
7%
3%
5%*
3)
Method of Finance
Self-Insured (including claims paid by carrier)
Insured through Private Carrier
Blue Cross/Blue Shield
Ot her
15%
52%
30%*
3%
*This is the same or equivalent to your current practice
-24-
HAY ASSOCIATES
COMPARATIVE MEDICAL PLAN PRACTICE (cont'd. )
4)
5)
6)
7)
8)
9)
1
Benefit Area
% of 1976 NCC
Partici!,~ nt s
Room and Board Coverage (Semi-Private)
a) Specified Number of Days (87% use
this method)
70 Days or Less
120 Days
180 Days
365 Days
Over 365 Days or Other Limit
11%
29%*
3%
39%
5%
ì
b)
Specified Dollar Limit or Other Method
13%
Hospital Miscellaneous Expenses
Included as Part of Room and Board
Separate Coverage
72%*
28%
Surgical Coverage
Usual (or reasonable) and Customary
By Schedule
Relative Value Units
Covered Under Major Medical Only
34%
53%
8%
5%* 1
j
25% 't
!
24% ...
18%
33%
70% 1
59%
49%
Surgical Schedules,
Under $500
$500 to $699
$700 to $999
$1,000 or More
Maximums Reported
Surgical Schedule Maximums - Trend
Maximum Under $700 - 1974 NCC
Maximum Under $700 - 1975 NCC
Maximum Under $700 - 1976 NCC
Out-Patient X-Ray Laboratory Coverage
Reasonable and Customary
Dollar Limit (per year, test I or individual)
Covered Under Major Medical
50%
36%
14%*
ì
j
*This is the same or equivalent to your current practice
1
I
J
-25-
HAY ASSOCIATES
COMPARATIVE MEDICAL PLAN PRACTICE (cont'd. )
10)
11)
12 )
l3 )
Benefit Area
% of 1976 NCC
Participants
Medical Benefits - Home and Office
No Coverage
Coverage for Employee Only **
Coverage for Employee and Dependents **
** (69% of coverage is on Major Medical basis)
Major Medical Coverage
a) Lifetime Maximums (3/4 of plans use
lifetime maximum)
Under $50,000
$50,000
$ 75 , 000 (1 %) or $ 1 00 , 000
$250,000
Over $250,000 or No Maximum
b)
Annual DeductiLle (98% use a dollar amount)
$50 or Less
$ 75 (3 %) or $ 100
Over $100
c)
Family Limit on Deductibles
None
Two per Family
Three per Family
Other Limit
Major Medical, Co-Insurance
80%-20% Regardless of Amount
Other Fixed Amount .
Variable (usually 100% after some limit)
Maternity Coverage
Same as Other Expense s
Dollar Limit
Limit on Number of Days for Hospitalization
42%
9%
49%*
16%
16%
18%
37%*
13%
20%
76%*
4%
29%
34%*
34%
3%
77%
7%
16%*
60%*
13%
27%
*This is the s~me or equivalent to your current practice
-26-
HAY ASSOCIATES
COMPARATIVE MEDICAL PLAN PRACTICE (cont'd. )
14)
15)
16)
Benefi! Area
Nursing Home or Extended Care Facilities
No Coverage
Coverage After Hospital Stay Only
Coverage Without Requiring Hospital Stay
After-Retirement Coverage
No Coverage
Coverage to Age 65 Only
Coverage both before and after age 65. (Virtually
all plans offset Medicare payments and only 22%
pay all or part of employee I s cost for Medicare
Part B)
Other Types of Health Coverage
Dental Plans
Optical Plans
HMO (dual choice) Option Available
Regular Required Medical Examinations,
Nonexecutive
-1
% of 1976 NCC
Participants
, j
S2%*
2:8%
2:0%
J
J
2:5%*
11%
64%
3:4% * (Fire)
3%
16%
1
j
j
2:3%
)
í
,
J
*This is the same or equivalent to your current practice
-27-
)
ì
1
j
']
1
f
,
,
I
j
HAY ASSOCIATES
Co
Hay r.nmmf"r'1t ~ nnd !mpr'?s sions
Hay considers the medical benefits provided to City employees to be
excellent in both overall benefits and design. Although the use of
Major Medical-type payments for surgical expenses and a 120 day
limit on "first dollar" room and board coveragé' are essentially non-
competitive when measured against 1976 NCC statistics, the very
generous "cap" on employee out-of-pocket expenses makes up for
these deficiencies.
With the marked upward trend in medical costs, the present heavy
reliance on co-insurance in the City' s plan may help to control abuse
in a meaningful way, while still providing employees with excellent
protection against catastrophic expenses.
The $200 limit used for the "cap" on employee out-of-pocket expenses
is among the lowest limit Hay has seen. The use of a family "cap"
as well further increases the value of this excellent feature.
Hay approves of the 100% employee cost required for dependents' cov-
erage and cautions the City against reducing this requirement. With
the cost of medical care rising dramatically, providing fully City-paid
dependents' medical could be a large and rapidly increasing cost.
The only significant noncompetitive problem is the total lack of any
medical coverage at retirement. However, as such coverage can be
expensive and other, more critical, improvement s are needed (like
life insurance), any such benefit should be considered a long-term
proposition.
D.
Hay Recommendations
Medical benefits are clearly the least in need of any change. Hay's
only recommendation is:
.
Consider adding some form of after-retirement medical cov-
erage.
When the City begins to seriously consider adding after-retirement
medical, any or all of the following alternative s should be part of the
decision.
-28-
HAY ASSOCIATES
.
Limit coverage to employees with long service, such as
20 years.
.
Limit coverage to certain "classes" of employees, at
least as an initial step.
.
Limit coverage to a fixed lifetime reimbursement, such
as $20,000.
.
Provide only co-insurance benefits with no "cap" provi-
sion.
.
Require substantial employee contributions for both em-
ployee and dependents' benefits.
Regardless of what benefits, if any, are provided, a full offset for
any benefits payable from Parts A and B of Medicare should be taken.
With respect to dental coverage, the City should be aware that this
is probably the fastest growing fringe benefit in existence today.
The NCC surveys show the following statistics over the last four
years.
NCC
% of Participants
Offering Dental
1973
1974
1975
1976
10%
17%
24%
34%
It is not recommended that dental coverage be offered at this time.
However, the City should be fully aware of the proliferation of this
benefit and its presence in the Fire Department program probably
means all employee dental coverage is not too far away. When an
all employee dental plan is eventually considered, Hay.would strongly
urge that the shortest possible advance notice be given to employees
as statistics indicate an additional first year cost of upwards to 20%
if employees receive singificant advance notice of the adopt:lon of a
dental plan.
-29-
HAY ASSOCIATES
VII
RETIREMENT BE1'J£FITS
This section addresses the area of retirement benefits. Since City employees
(other than Fire and Police personnel) are covered by the KPERS system with
respect to retirement benefits and the City cannot exercise meaingful control
over this program I the format of this section does not contain any recommen-
dations. However I it was felt that the City would appreciate some comments
on the KPERS program and comparative retirement benefit statistics from the
1976 NCC so this section has been included in the report.
A.
Salient Features of KPERS
4.
5.
'\
1.
Eligibility - Full time employees hired prior to age 60
participate. All benefits and contributions are in ad-
dition to Social Security.
2.
Contributions - EmplC'yees contribute 4% of base salary.
Employers contribute substantially more on an actuarially
determined basis and I as of 1969 I the employer cost was
7.3% of salary per employee. Contributions are higher
for Police and Fire personnel.
3.
Retirement Eligibility - Normal retirement is age 65, early
retirement is available on or after age 60. A minimum of
10 years service is required for early retirement benefits.
Normal Retirement Benefits - A two part benefit using a
past service benefit for public service employment prior
to participation in KPERS, and a future service benefit for
years of participating service. Annual past service ben-
efit is 1 % of highest annual salary in last 3 years prior
to participation times past service. Annual future ser-.
vice benefit is 1.25% of average annual salary in high(:!st
5 years (not consecutive) in last 10 years times future
service. No integration with Social Security of any sort.
Normal form of payment is a life annuity, but options are
available.
Early Retirement Benefits - Available at age 60 on an ac-
tuarially reduced basis.
-30-
HAY ASSOCIATES
9.
10.
6.
Preretirement Death Benefits - Refund of employee con-
tributions plus interest which is calculated annually on
the basis of the performance of the trust. Actuarially
determined monthly payments available in lieu of lump
sum. Also, lifetime benefits equal to 50% of accrued
benefit to surviving spouse if employee was eligible
for early retirement at death (in lieu of refund of con-
tributions plus interest).
7.
Disability - Work Related - Lifetime payments equal to
50% of "final average" (high 5 in last 10 years) earnings
reduced by Workers I Compensation benefits.
8.
Disability - Not Work Related - Service accrual continues
to age 65 when normal retirement benefit s commence. Prior
to age 65, an LTD-like benefit is payable equal to 42% of
salary when disability begins reduced by Social Security
(unspecified as to whether this is family or primary Social
Security) .
Vesting - Benefits fully portable between participating em-
ployees in the public sector. If outright termination and
portability is not applicable, employee receives refund of
contributions plus interest. Employees with at least 10
years of service may leave contributions in the trust and
receive fully accrued deferred benefits.
Options - Three options are available on an actuarially
reduced basis. These are a ten year certain option and
either a 100% or 50% contingent annuitant option.
Fire and Police personnel are covered by a separate, and much more
liberal, statewide retirement program. Both the costs and the bene-
fits provided by this separate plan are much higher than those appli-
cable to the KPERS program. However, some of this differen ce is re-
duced by the fact that Fire and Police personnel are no longer covered
by the retirement benefit portion of Social Security. Details of this
separate benefit program are not included in this report.
B.
Statistics from 1976 NCC
Statistics related to retirement coverage reported by 1976 NCC parti-
cipants are shown on the next few pages. As appropriate, asterisks
to indicate similar practice under KPERS are shown.
-:::::
-31-
HAY ASSOCIATES
- RETIREMENT (PENSION) BENEFITS -
. STATISTICS ON COM PETIT!'.':: PRACTICE
FROM
1976 HAY-HUGGINS NONCASH COMPENSATION COMPARISON (1976 NCC)
2)
3)
4)
5)
6)
Benefit Area
1 )
General Coverage
With Some Form of Retirement Plan
With Some Form of Capital Accumulation Plan
(Profit Sharing or Thrift/Savings) in Addition
to Retirement Plan '
Employee Contributions
None, Fully Employer-Paid
Employee Contributions Required for Benefit
Voluntary Contributions Permitted (part of 87%)
Type of Benefit - Current Plan Service
Final Average Formula
Career Average Formula
Other (moaey purcha se, flat dollar amount, etc.)
Final Average Methods (82% of participants)
Five Year Average (over 2/3 are high 5 in last
10 years)
Final Ten Year Average
Final, or Highest, Three Year Average
Other Method
Coordination with Social Security
None, Formula Ignores Social Security Benefits
Integrated with Social Security in Some Manner
Method of Social Security Integration
Step Rate Method (1% of first $500 plus 2% of
excess, etc. )
Offset (50% of earnings minus 50% of Social
Security, etc.)
*This is the same or equivalent to your current practice
-32-
% of 1976 NCC
Participant s
93%*
57%
87%
13%*
6%
82% *
12%
6%
89% *
3%
6%
2%
12% *
88%
:34%
66%
HAY ASSOCIATES
COMPARATIVE RETIREMENT (PENSION) PRACTICE (cont'd. )
7)
8)
9)
10)
1
¡
Benefit !'.rca
% of ]l976 NCC
Participa~!~
Earnings U sed for Retirement Calculation
All Compensation (base plus incentive,
etc.) **
Base Salary Only
Base Plus Other Nonincentive Additive
overtime,
** Of organizations which pay bonus/incentive
compensation, 88% include bonus/incentive
Benefit Target at 65 for Long Service (25-30 years)
Employee, Including Social Security (180 participants)
40% of Compensation or Less
41 % to 50%
51% to 60%
61% to 75%
Other
(Weighted average for base salary only plans is
about 55%, and about 54 % for total compensation
plans. )
Vesting
Full After 10 Years of Service (ERISA standard)
Graded from 5 to 15 Years (ERISA standard)
IIRuie of 45" (ERISA standard)
Other (includes 1 0% who have not amended plan
since ERISA)
Early Retirement (age 55 with 10 years service is the
overwhelming choice for eligibility)
Actuarial Reduction from Normal Retirement Age
Reduction, but More Liberal than Actuarial
Full, Unreduced Benefit Prior to Normal Retire-
ment at Some Age or Age and Service Combination
Some Type of Early Retirement Supplement
~~7%
S2%*
11%
2%
:38%
:3 7% *
20%
3%
'76% *
5%
4%
15%
49%*
Sl%
44%
8%
*This is the same or equivalent to your current practice
-33-
.j
1
¡
(Varies)
i
..!
1
i
J
HAY ASSOCIATES
COMPARATIVE RETIREMENT (PENSION) PRACTICE (cont'd. )
11)
12)
Benefit Area
Disability Retirement
None as such
Immediate, Unreduced Benefits
Full Accrued Benefits but Deferred to 65 **
** (77% of these plans permit service accrual
to age 65. )
Preretirement Death Benefits (334 participants)
ERISA Only (enrollment and actuarial charge for
50% joint/survivor benefit for spouse)
50% Joint/Survivor Provided Automatically with
No Enrollment or Actuarial Charge
% of 1976 !JCC
Participants
34%
41%
25%*
43%
57%*
*This is the same or equivalent to your current practice
-34-
HAY ASSOCIATES
c.
Hay Comments and Impressions
Hay has reviewed the statewide pension programs of several states
and finds the KPERS program to be representative of this type of plan.
This type of program has one major plus from the employee's stand-
point which is rarely found in the private sector, at least for sal-
aried employees. This is the full "portability" of benefits and ser-
vice from one employer to another. As the KPERS program applies to
all participating public employees in Kansas, employees can be quite
mobile without fear of forfeiting pension right s .
With respect to general overall design in comparison to most: indus-
trial plans, the KPERS plan (and most such programs) contain some
less than desirable or noncompetitive features. These are the heavy
employee contributions required, the provision for an LTD-type ben-
efit within the pension plan, and the total lack of any integration
with Social Security. A glance at the 1976 NCC statistics will show
that 87% of the reported plans are noncontributory, and 88% are inte-
grated with Social Security. In addition, almost 90% of the survey
participants provide LTD benefits through an LTD plan, as this is
generally more cost-efficient than providing such benefits through
a pension plan.
The lack of Social Security integration is a less than desirable fea-
ture for industrial plans because this causes total retirement: income
(Social Security plus pension plan benefits) to decline rapidly, as a
percentage of salary, as income levels increase above the level of
F.I.C.A. taxable wages ($16,500Iyear in 1977). This can be illus-
trated by using the KPERS formula and assuming 30 years of partici-
pating (future) service at various levels of "final average" earnings
(F /A/E) in this example.
Level of F IA/E
$10,000 $20,000 $30,000 $40,000
KPERS benefit
(1.25% x F/A/E x 30) $3,750 $ 7,500 $11,250 $15,000
Estimated Soc. Sec. 3,960 4,560 4,800 4,800
Total Annual Income $7,710 $12,060 $16,050 $19,800
As % of F IA/E 77.1 % 60.3% 53.5% 49.5%
The trend illustrated above would continue as salary levels increased
above $40,000. This is not an overwhelming problem for Salina at this
time unless the salaries for key jobs increase into the upper levels in
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HAY ASSOCIATES
future years. Should this occur, some form of supplemental plan,
paid directly by the City I may be desirable to increase retirement
benefits for higher paid employees. Sorr.ething like 1% of final av-
erage earnings in excess of $20 I 000 times service with the City
would work fairly well. Two side advantages would be that:
(a) the City would have an "extra" to help retain key employees
which would be forfeited if they left for other public sector employ-
ment; and (b) the City would have a valuable recruiting tool for
key positions.
There is a second problem with a nonintegrated plan, like KPERS,
which should be of concern to Salina. Since a nonintegrated plan
ignores Social Security and Social Security is increasing dramati-
cally, the potential for total retirement income levels which reach
or exceed 100% of final average earnings exists at salary levels in
the $10-12,000 range or below. Should the KPERS formula be in-
creased on a nonintegrated basis, the City may find it next to im-
possible to retain employees once they become eligible for early
retirement. This situation bears watching from a manpower plan-
ning standpoint.
If the City is not already doing so, Hay would suggest the City's
annual contributions to the KPERS be made known to employees in a
positive way so that this sizable "hidden paycheck" is not over-
looked by employees. An annual benefits statement which highlights
the City. s cost for all benefits on a personalized basis each year is
something to consider. Hay I in conjunction with its subsid:lary
Pensurdata I has recently been engaged to produce such a statement
for all employees of a midwestern state. The increasing cost of all
benefits makes a major communications effort highly desirable for all
organizations.
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HAY ASSOCIATES
VIII
PERSONNEL POLICIES
This section addresses personnel policy areas such as holidays, vacations,
and practices with respect to jury duty and similar items.
A.
3.
Existing Benefits
At the present time, the following major personnel policies apply
to employees of the City of Salina.
1.
Holidays - There are currently 10 paid holidays per year
with an indication that special holidays may be declar.ed
for City employees by the Mayor. None of the 10 days
are of the floating (variable) type. Employees who are
on suspension do not receive holiday pay.
2.
Vacations - Vacations accrue on a "days per month
worked" basis, but the schedule for a fully employed
individual is:
Years of
Service
Weeks of Paid
Vacation
1-15
15 or more
2
3 (maximum)
Vacations cannot be accumulated without special permis-
sion and accumulated, unused allowances are paid in
cash at retirement. Special accumulation provisions ap-
ply to Fire Department personnel due to the 24-hour shift
nature of their work.
Paid Personal Leave - Granted on a discretionary basis
with certain types of absences approved in advance. For
jury duty I the City provides full salary not reduced by
jury duty pay. Funeral leave is provided through the use
of IIsick leave" days (maximum of 7 days), and no salary
payments are made for temporary military leave, except
vacation time can be used by employees.
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HAY ASSOCIATES
B.
Statistics from 1976 NCC
Meaningful statistics in many of these general personnel policy areas
are not readily available from the 1976 Hay-Huggins Noncash Compen-
sation Comparison. However, data with respect to holidays and vaca-
tions is available as indicated on the following pages with asterisks
used to reflect City practices.
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HAY ASSOCIATES
- HOLIDAY AND VACATION PRACTICE -
STAT!STICS OI-! COM PETITIVE PRACTICE
FROM
1976 HAY-HUGGINS NONCASH COMPENSATION COMPARISON (1976 NCC)
Benefit Area
% of 1976 NCC
Participants
1 )
Holidays Granted Annually
7 or Less
8
9
10
11
12 or More
6%
9%
28%
28%*
14%
15%
2)
10 or More Holidays - Trend
In 1972 NCC
In 1973 NCC
In 1974 NCC
In 1975 NCC
In 1976 NCC
45%
49%
48%
49%
57%
3)
Use of Floating Holidays
None
One Floater
Two Floaters
Three or More Floaters
45% *
29%
18%
8%
4)
Determination of Floating Holiday( s)
Unscheduled, Varies by Employee (e.g., birthday)
Set for All, but Varies Year-to-Year
Other Method
32%
63%
5%
5)
Vacations - Service Required for Three Weeks
Under 5 Years
5 Years
6-7 Years
8-9 Years
10 Years
Over 10 Years
12%
37%
9%
10%
31%
1% *
*This is the same or equivalent to your current practice
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HAY ASSOCIATES
COMPARATIVE HOLIDAY AND VACATION PRACTICE (cont'd. t
B~nef1t Area
(N/A)
6)
Vacations - Service Required for Four Weeks
Under 10 Years
10 Years
11-14 Years
15 Years
16-19 Years
20 Years or More
7)
Vacations - Maximum Granted
3 Weeks
4 Weeks
5 Weeks
6 Weeks or More
8)
Special Executive Vacation Schedules
No Special Schedule (individual arrangements may
be negotiated on hire)
Uniform and More Liberal Schedule Applies
*This is the s~ me or equivalent to your current practice
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% of 1976 NCC
Participant s
'1
5%
11%
6%
39%
8%
31%
~
1
I
5% ...
46%
39%
10%
65%*
35%
.,
¡
í
.J
1
!
¡
j
1
1
HAY' ASSOCIATES
c.
Hay Comments and Impressions
When measured against the national practices reflected in the 1976
NCC, the City's holiday schedule is quite competitive, while the
vacation policy is considerably less than competitive. However,'
Hay feels that of all benefit areas, holiday and vacation practices
should be measured against local rather than national practice to
determine the proper competitive posture.
If the City is not already doing so, a thorough local survey should
be conducted periodically to determine local practice in this area.
This "local basis" is important for several reasons. First I these
benefits are easily understood and comparable. Second I because
of this, holidays and vacations are frequently discussed and are
easy marks for union organizing drives if a noncompetitive practice
exists. Third, employees can easily detect their "loss" if all of
their neighbors happen to be off when they have to work.
No change seems necessary in current holiday practice as 10 per
year reflects present majority practice. Hay is pleased to S'ge the
absence of any 1/2 day holidays since the 1/2 day worked in such
situations is usually very nonproductive. Hay is also pleas'9d to
see the use of an occasional "special" holiday and suspects the
City r~ceives great morale value out of these" surprises." Hay is
somewhat surprised to not find the common control method which re-
quires work (or excused absence) on the day before and/or after a
holiday in order to receive holiday pay. If absenteeism is a problem
for the City, and this is not now in effect, such a control is sug-
gested when the holiday schedule is eventually improved.
The City's vacation policy will be discussed below under "Recom-
mendations" so comments will not be made here. The other personnel
policies are essentially common or competitive practices. The City
should be commended on its very thorough and generally wen written
Personnel Manual. Hay is particularly impressed with the easily un-
derstood style of writing and the use of "purpose" or "intent II state-
ments for some areas which can most clearly reflect the City's reason
for establishing a benefit or rule and help make the more technical
description understandable.
D.
Hay Recommendation s
Hay recommends the City consider these changes in its existing per-
sonnel practices area.
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HAY ASSOCIATES
.
The generally excellent PersoDn~l Manual should be up-
dated to reflect new benefits.
.
Conduct and periodically update a local survey of holi'-
day and vacation practice s .
.
Consider improving vacation policy for all employees and
adopting a special, more liberal schedule for executive
level personnel.
The first two recommendations need no additional discussion. The
recommendations with respect to vacation practices are twofold.
For all employees, the City's present vacation schedule is generally
low with regard to both the maximum vacation allowed and the ser-
vice requirement for three weeks of paid vacation. Whether a change
is necessary should be dictated heavily by local practices, but Hay
suspects improvements will probably be indicated soon. On a na-
tionally competitive basis I a vacation schedule like this would be
justified.
Years of Service
Weeks of Vacation
1 to ¡ (or 8)
7 (or 8) to 14
15 or more
2
3
4
Even a more modest improvement to 3 weeks after 10 years I and 4
weeks after 15 years would be a much more competitive policy than
the present situation.
The additional vacation eligibility for top level employees is recom-
mended for the City's consideration for two main reasons. First,
these employees probably are required to work longer hours than other
employees on a regular basis I despite the stated hours of work. Sec-
ond, this is one additional item which can be added to the whole man-
agement/reward system without actually adding any real expense.
This is true because employees in such positions are generally task,
and not clock, oriented so that the job will be done even if additional
vacation is granted.
In addition to the two main reasons discussed above, a somewhat
faster vacation schedule would also help the City in recruiting exper-
ienced personnel for key posts who would tend to be people with at
least three weeks vacation with their present employer.
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HAY ASSOCIATES
Any number of vacation schedules are, of course, possible to meet
this objective. Hay would recommend simply adding one week to the
present "all employee" schedule for all employees holding, or pro-
moted or hired into, a top level position. Whatever is done, an im-
mediate eligibility for three weeks vacation is necessary if the "re-
cruiting" advantage is to be obtained.
If this type of selective change is made, the criteria for eligibility
must be established on the basis of a logical, and fully communi-
cated, method which avoids all pas sibility of discretionary treat-
ment on an individual basis. The use of job evaluation points would
be a particularly appropriate criteria.
No specific recommendations seem appropriate with respect to other
personnel policies which are very well defined and permit the neces-
sary discretion for equitable administration.
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