Changing shape of schools benefits
Biometric testing and nutritionist appointments aren’t the usual benefits for school employees, but Upper Moreland Township School District in Pennsylvania wants everyone to focus on wellness.
Biometric testing is a health screening that includes testing blood pressure, cholesterol and glucose to identify risk factors for costly health issues such as diabetes or heart disease. A small blood sample from a finger stick could determine which individuals are considered “high risk.” The follow-up care and additional testing correspond with the results.
The district’s health insurance provides three free nutritionist consultations a year. And the district also hosts a “biggest loser” weight-loss program and offers fitness courses on school grounds.
During 2014-15, the first year the district offered biometric testing, approximately 20 percent of the staff participated, receiving $20 gift cards as rewards, says Matthew J. Malinowski, the district’s business manager. However, there is not yet proof the testing improves employee health, Malinowski says.
Wellness programs are one of many changes in benefits packages. This and other modifications to health insurance plans, early retirement programs and voluntary benefits are driven by financial issues. And a new generation of teachers, administrators and support staff have to cope with an economy that’s vastly different from that of the generation nearing retirement.
Other benefits, such as pension plans, are also undergoing a slow metamorphosis. The practice of generous benefits supplementing lower salaries is no longer sustainable for anemic school budgets. While the private sector offers some examples for how to reduce the cost of benefits for the employer, district administration is restricted in what it can do while remaining compliant with state and federal laws and union contract requirements.
Some districts are getting creative in how they address the need to rein in costs and still provide employees with good benefits. They can’t resolve some issues, such as the definition of a full-time employee (the Affordable Care Act uses 30 hours). But unconventional thinking is yielding ideas that other districts can learn from.
The ways in which states are tackling underfunded pensions is forcing some painful changes. Some are obviousÑdramatically increased pension contributions mandated by state programs for the employer and employee.
But others are more subtle, even buried, in pension restructuring, such as reducing the amount retirees will receive upon retirement and completely eliminating some benefits. It’s up to the district to understand and communicate these changes because most states administer pension programs in which school employees must participate.
The most common is a “defined benefit.” A retired employee receives a fixed monthly income calculated according to a formula and paid for a specific time period. It’s the most generous pension plan for the employee and guarantees a fixed income, but this is expensive for the employer.
While still rare, some districts now offer “defined-contribution” retirement plans. Employees contribute a fixed amount of pre-tax income and the employers, the district and the state contribute a set amount, making the retirement benefit dependent on the performance of the fund, similar to a 401(k) plan. It’s cheaper for the employer and provides less income for the retiree.
Only 13 states offer hybrid or defined-contribution plans. Six states offer a choice between the two. Alaska is the sole state offering defined-contribution only.
Sandi Jacobs, vice president and managing director for state policy with the National Council on Teacher Quality, says her group sees growing interest in defined-contribution plans. They give employees more control over the investment of their retirement funds, with no vesting requirementsÑthey can take the plan with them when they leave a district or the profession. In Florida, about 30 percent of teachers choose defined-contribution plans.
Most states have defined benefit plans in place, and changing to a defined contribution plan won’t offer immediate financial relief. Becausemany people are already in this system, states are required to fund the program for those individuals until they no longer receive income from it.
The lower-cost defined contribution plan would need to be established and agreed upon by the unions as the new retirement system for new employees. Eventually, costs of pension funding would drop. So states are slow to make changes, says Kelly Hall, vice president of services and account management for public agency benefits with Keenan and Associates. The brokerage firm also serves as a third-party administrator for the state’s public schools who choose them to manage their benefits program.
Districts have limited options for innovation because state law controls most aspects of the pension program, Hall says. One district bargained that no new employees after July 1, 2010, would have retirement benefits at all, in return for higher salaries, she says. Because the district negotiated these terms with the union, the restrictions and costs of the pension plan were eliminated.
Dave MacLean, vice president of public sector sales for MetLife, says employees want more control over their retirement planning. The ability for employees to choose a contribution level they’re comfortable with and continue to invest in their pension regardless of where they work are sound reasons for states to use defined-contribution programs.
Administrators are in a unique position to advocate for flexible retirement plans with all involvedÑpoliticians, school boards and union representatives, according to MacLean. They can provide legislators with the needs and preferences of their employees when legislation is considered. By keeping school boards and union representatives informed about action on pension changes, administrators can solicit support for mutually beneficial changes.
California has managed to cut health-care benefit costs while meeting employee needs, an innovation that overlaps with retirement, Hall says. Retirees have traditionally used the same health care plan as active employees, but the Supplemental Early Retirement Program (SERP) changes this.
The SERP is funded by districts, and employees age 55 and older are eligible. Those retiring agree not to participate in the school health insurance, even as a self-payer. In exchange, they get a monthly income to spend any way they choose.
The cost of the SERP payment is cheaper than the health insurance premium for older staff, the pool of employees is younger in age (keeping the premium costs down), and the interest earned on the SERP investments can be used for other expenses. This makes the program a win-win because the retiree gets extra cash and the employer has reduced costs, says Hall.
Another change is the option for a high-deductible plan. Dubbed the “Bronze Level” plan by insurance exchanges, this kind of coverage had rarely been available to school employees until now.
The insurance, which sets a high initial out-of-pocket deductible for individuals or families, is combined with a health savings account (HSA). Pre-tax income can be added to the account and saved until it’s needed for a medical expenses. As long as the money is used for medical bills, it’s never taxed.
That ability to choose how to spend health-care money has led to an increase in using high-deductible plans combined with HSA, says Michelle Richardson-Johnson, superintendent of Luther Burbank School District in California. These plans are just now becoming available in her state to meet Affordable Care Act requirements, and they’re new to many school employees.
“Once I sat down with several employees and showed them the difference in how much they would actually be saving with an HSA, 90 percent of them moved to the HSA instead of what they had,” Richardson-Johnson says.
Most changes in health insurance are driven by the Affordable Care Act. Districts must calculate the value of full-time employees’ total compensation, including benefits, and carefully track hours worked by part-time staff, which the Affordable Care Act defines as less than 30 hours per week.
It forces many district leaders to consolidate records from multiple departments, such as health care plan information from human resources and payroll records from accounting.
Keenan is developing a software program that will automatically complete the new IRS forms (6055 and 6056) for those who are using their BenefitsBridge program for tracking staff benefits records. But schools without a third-party administrator will be left to figure out how to consolidate records on their own if their county isn’t responsible for this task.
Districts also need more direction to address the impending “Cadillac health insurance” tax that will be levied on plans deemed “excessive,” and penalties for not offering “affordable” plans, says Kevin Collins, assistant superintendent of business for the Walnut Creek School District in California.
ACA doesn’t give specific guidelines for what affordable and excessive mean, nor does it allow for a cost of living adjustment. He advises administrators to work with a third-party administrator or attorneys to stay current and compliant with changes in the law.
Most benefits packages are created by the employer. In the case of schools these packages have been shaped by union contracts and state and federal laws. But economic uncertainty, varied career paths and changing life circumstances means a one-size-fit-all approach to benefits packages won’t favor all employees. This has spurred a new approach to benefits called the “exchange model,” according to MacLean of MetLife.
An employer might spend $1,000 a month on benefits for an employee. Some employees might choose health or dental insurance but others might prefer disability coverage, life insurance or financial-planning services.
For now, most districts will offer additional benefits to employees on a self-pay basis through a third-party administrator. Some California districts do this through Keenan, says Hall.
The district allows Keenan to offer additional products to their staff. The school isn’t involved in such transactions. Those extras, such as disability or life insurance, are usually available at a lower cost because those individuals are moved into a large buying pool for a better rate. Such benefits and changes to more traditional benefits are in the offing, says MacLean.
“There’s a lot anticipated change coming relative to that, but it’s coming slowly,” he says. “There’s a retirement boom coming, so the public sector has to figure out how they attract and retain the next generation of workers. New (employees) coming into the workforce are just dealing with new realities.”
Margo Pierce is a freelance writer based in Cincinnati.