A supplemental retirement benefits proposal for employees in the School District of Fort Atkinson was presented to the board of education Thursday night.
During their regular monthly meeting, board members heard Jason Demerath, director of business services, outline the proposal, which has been in the works for several years.
Ultimately, board members advised proceeding with adopting the benefits plan design. A proposed method for financing the plan likely will be presented to the board in November or December.
“I was asked at August’s Personnel Committee meeting to share this proposal with the full board at this meeting for thoughts, feedback and advisement on next steps,” Demerath said.
He was joined Thursday by the consultants who have supported the district throughout this study process: Al Jaeger, district benefits consultant from Associated Benefits and Risk Management; Ken Zastrow from National Insurance Services; and the district’s financial advisor, Brian Brewer from Baird.
The proposal began as a simple bullet on the 2013-18 strategic plan for the district.
“In 2015-16, we began the process of researching and considering plan design options for supplemental retirement benefits,” Demerath said. “We now are here in September 2019 with a proposal for the board of education.”
The director took a brief look at the history of this work over the past four years.
“As we do with all of our compensation and benefits planning, we take a strategic look at them at various points in time,” Demerath said. “This may be most noticeable with the changes to health insurance where we went from a traditional plan, to an HRA (Health Reimbursement Arrangement) plan and now are adding an HSA (Health Savings Account) plan this year for the first time. We also look at our other benefits with a strategic lens focused on attracting and retaining staff through building a mutually beneficial compensation and benefits package.”
One of the main reasons this benefit was considered, he said, is because any employees hired after June 30, 2011, do not have any supplemental retirement benefits offered to them.
“As time has passed since Act 10, and other districts have adjusted compensation and benefit plans, it has become apparent that this is one area where we are not being competitive,” Demerath pointed out. “As a result, a District Benefits Advisory Committee studied this benefit offering in 2015-16 and then again this past year.
“While the benefit was studied at two different points in time by a committee with changing staff members on it, the result was the same,” he said. “And that is what we are here to present this evening.”
The director said the district intentionally designed the committee to be a cross-section of staff classifications, ages, full-time and part-time, etc. There even have been retirees on the group, he said, adding that Board Personnel Committee members are invited to all of the meetings to learn more and listen to the conversations since any recommendations from this group of staff gets advanced to the Personnel Committee.
“In studying this benefit, it became apparent that this was one area where we are not competitive in our offerings to potential and current employees,” Demerath informed. “Several comparable and area districts offer some form of supplemental retirement benefits to their employees.”
He then dug into the proposed design of the benefit being proposed to the board of education.
“The focus of the design of this benefit structure is to attract and retain high quality staff,” Demerath said. “With a focus on retention, we were careful to put together a gradual implementation timeline so that current employees weren’t negatively impacted as they are approaching retirement.
“So those within five years of retirement will receive whatever benefit structure was promised to them,” he added. “This currently varies based on employment category and hire date.”
Those within five to 10 years of retirement, the director noted, would receive a form of the new benefit after they retire. They would receive HRA deposits in an amount roughly equivalent to the health insurance premiums they would have received under their current promised benefit, he said.
“Any employees more than 10 years from retirement would be fully transitioned to a new HRA plan where the district would contribute annually each year they are employed here,” Demerath explained. “This proposal also builds in a catch-up contribution to fund the years of service current employees may have with the district in order to transition them to this new benefit structure.”
Also within this structure is a vesting schedule, he said.
“Beginning at 10 years of service the employee would be 25 percent vested in the deposits that have been made to their HRA account,” Demerath told the board. “It then increments up every five years of service in hopes of providing a feature to retain staff.”
Lastly, he said, this structure requires that retirees with the HRA funds find their health insurance coverage elsewhere rather than continuing on the district plan. He noted this does provide mutual benefit both to active and retired employees as well as the district.
The business director took a moment to talk about those mutual benefits by first looking at the plan from an employee perspective.
“If a current employee was hired after 2011 they would now have a new benefit that they had not had before,” Demerath said. “If they were hired before 2011 and transition to this new benefit structure, they would now have a fully funded benefit as opposed to an unfunded promise when they retire at some point in the future.”
He reiterated that this benefit enhances the package the district offers to employees to increase its competitiveness.
He said the benefit of requiring retirees to seek health coverage elsewhere would be that they can find and select a plan that meets their individual needs at the time.
“Once an employee hits those vesting benchmarks, the funds are owned by the employee,” Demerath indicated. “They also will have the ability to manage the investment of the funds to meet their individual investment preferences and their own retirement goals.
“For active employees, if retirees are no longer are on the district plan, we would expect to see that positively impact our premium rates,” he continued. “Since current employees pay a portion of the premium, they will see the benefit of that premium impact.”
He then looked at some of the benefits from the employer perspective.
“Again, as an employer we create a more well-rounded compensation and benefits package to attract and retain high quality employees,” Demerath said. “The vesting schedule contributes to the effort to retain those employees and does not provide a full payout for employees that might leave the district. It provides a benefit for employees that were hired within the last eight years that is similar to what they may receive in other districts.”
The district, he said, moves away from an unfunded future liability of paying for health insurance coverage in retirement and moves toward a fully funded benefit design.
“Finally, again, with retirees seeking coverage elsewhere, the district’s portion of premium payments also is likely to be positively impacted,” Demerath stated.
There is a cost to this proposal for the board of education to consider, he pointed out.
“Since we are creating a benefit for employees that do not currently have one, there are future costs that are created through the implementation of this plan,” Demerath said. “There are also catch-up contributions to employees that have been with the district as we transition them to this new plan.”
As a result, he said, there is this transition period with the tiers of those closer to retirement receiving the old benefit and those further from retirement receiving the new benefit ... and there is a period of time where the district is paying for both.”
He then moved into possible plans to finance that transition.
“What you see here is an actuarial costing of the transition from the old plan design to the new one that was completed in March of this year by Key Benefit Concepts,” Demerath showed the board. “This actuarial costing covers the next 30 years and takes into account various assumptions throughout that time.”
He also showed the increased costs or savings year by year of the proposed plan versus doing nothing.
“Should this plan be implemented with the catch-up contributions in the first year, the catch-up contribution is estimated to be roughly $1.5 million,” Demerath said. “Over the course of the 30 years, the total increased cost versus status quo is estimated to be about $1.8 million, of which $1.5 million is the catch-up contributions.”
As the district transitions to the new benefit over the next 13 years, he said, there is an increased cost per year due to paying for health coverage for retirees in those years and funding the new HRA annually for current employees. “Once we phase out the paying for coverage for retirees, the next 12 or so years show a savings over the current plan design,” Demerath said. “Finally, the last five years show increased costs again as we are funding the HRA annually for employees that otherwise would not have had any benefit at all.
“With this investment needed to transition to this benefit plan design and the way the next 20 years will increase and then decrease, our next step was to look at possible funding mechanisms to make this happen,” he noted.
Brewer then took to the lectern to review the financing options to make this plan happen. He said considerations for OPEB (other post-employment benefits) transition funding could involve: using funds on hand with a current district general fund balance of $9 million; or using the Fund 73 Trust Account fund balance currently at $610,000.
Another option, he said, would involve borrowing the money.
“By borrowing you could structure the operating budget increase to achieve a level annual amount, currently estimated at $130,000 annually for 2020 through 2040,” Brewer said. “And the low interest rate environment reduces interest cost related to financing the OPEB transition funding.
“Also, it (borrowing) provides flexibility, giving the district the ability to prepay debt as future information becomes known, such as 2020 referendum plans,” he added. “The district also could take a phased borrowing approach to allow for debt restructuring and prepayments.”
The Baird representative said the district could determine the method of borrowing closer to the sale date, dependent on market conditions, and private placement at a bank versus a public offering.
“So, to recap, what we presented here (Thursday) evening is a benefit plan design for supplemental retirement benefits that was developed and confirmed by two Benefits Advisory Committees and the current Board Personnel Committee,” Demerath said. “This plan design is focused on attracting and retaining quality staff.
“The plan has mutual benefits to both the employee and employer,” he added. “It creates a very robust, well-rounded, and competitive total compensation and benefits package. And the financing options create a transition plan to this new benefit structure.”
With that information, Demerath said administration was looking for the following advisement from the board of education: Is the board interested in adopting this benefit plan design? And if so, how would the board like to finance the investment needed to make the transition to this plan design?
“We absolutely need to do this — it will make us competitive with other school districts,” board member Rachel Snethen remarked. “And right now, interest rates are low. At referendum time we can decide how to pay it (benefits plan) off.”
Meanwhile Thursday, the board:
• Accepted the resignation request from Rebecca Schleppenbach, full-time Rockwell Elementary School special education teacher, upon satisfaction liquidated damages for failure to perform in the amount of $1,000. The board thanked Schleppenbach for her four years of service,
• Accepted the resignation request from Tom Dembski, director of student nutrition, upon satisfaction of liquidated damages for failure to perform in the amount of $1,000. The board thanked Dembski for his three years of service.
• Approved the appointment of Brittany Engstrom, full-time cross-categorical teacher at Rockwell Elementary School, one-year only, effective with the 2019-20 school year, and contingent upon release from current contract, and upon completion and satisfactory results of the pre-placement health screening and background check.
• Appointed Sally Koehler to serve on the Fort Atkinson Community Foundation Board.
• Recognized Crossroads graduate Jayden Guyette, who met all academic program requirements established by the School District of Fort Atkinson and the state Department of Public Instruction. She was presented her diploma by high school principal Dan Halvorsen.
• Approved the School-Based Behavioral Health Program Agreement with Fort HealthCare for services from Sept. 3, 2019, to the end of school summer in 2021.
• Approved the sale of approximately an acre to the City of Fort Atkinson, for $1, for increased parking at Haumerson’s Pond, contingent upon the relocation of a baseball backstop.
Further, the School District of Fort Atkinson will have reversionary rights to the property in the event that Bark River Nature Park no longer exists and or if the City of Fort Atkinson no longer is using the property for public purposes.
• Accepted the following donations: Automatic External Defibrillator battery from St. John’s Community Church; monetary donation from Compeer Financial to purchase three-dimensional models for the Agricultural Department; monetary donation from the Theodore W. Batterman Family Foundation to purchase new risers at Fort Atkinson High School; monetary donation from Richard Olson, of Modern Woodmen of America, to the high school show choir program in honor of Craig Engstrom; and school supplies from Richard Olson of Modern Woodmen, school supplies from the American Association of University Women, school supplies and monetary donation from Frostie Freeze, and school supplies from Grace United Church.