Financial Services News

Tulsa County, Okla. Enacts Post-Employment Health Plan

Tulsa County has a strong retirement system, a system that provides a good benefit and is currently funded at more than 100 percent. Tulsa County also has a strong 457 Deferred Compensation program and yet Tulsa County has a problem.

I discovered the problem in August 1995 ,when I started working with the county on its Deferred Compensation program. Tulsa County uses an 80-point retirement system. Basically, when an employee's age and years of service equal 80 that employee can retire.

The problem is that many of the employees who currently have 80 points can't afford to retire because of the increasing cost of their retirement health insurance. That left the employees with two options: retire and be hungry, or stick around the county until Medicare age. The solution to this problem for Tulsa County was the new Post-Employment Health Plan (PEHP) created by the NACo Financial Services Center and PEBSCO.

The Post-Employment Health Plan is a defined contribution health program that gives counties the flexibility to redefine their contribution each year and provide for tax-free deposits into the program, meaning contributions are not subject to FICA. The funds invested for each employee grow tax free, and in post-employment when the money is used for qualified medical expenses, it is spent tax free.

In February, the Tulsa County Budget Board commissioned a PEHP Committee consisting of Commissioner Robert Dick, County Clerk Joan Hasting, County Treasurer Dennis Semler, three other members from the retirement board and myself.

The PEHP Committee was given three specific tasks. One, decide whether the PEHP plan would in fact solve the county's long-term problem. Two, if PEHP was the solution, what contribution should be made. And three, how would the county pay for it?

Of the three tasks assigned to the committee the first was easy. No other program could provide the benefit and flexibility of the Post Employment Health Plan and because of the program's design it would help solve the county's long-term problem.

The second question regarding the amount to fund the PEHP was harder. Ultimately, the county decided on a funding level for July 1, 1997-June 30, 1998 that was two percent of salary and $40 per month per employee, the equivalent of four percent of payroll.

The county felt this amount would give the best long-term benefit to the county while at the same time providing a good benefit for those employees who would leave the county within five years.

The third question, that of funding, was solved through a creative use of existing and new funds. Tulsa County's contribution into the retirement system was seven percent (county's portion) and $1 per year per employee. Because the retirement system is strong and over-funded, the retirement board voted unanimously to lower the county's required contribution into the retirement system to six percent, based on a resolution from the Tulsa County Board of Commissioners to dedicate monies provided by the retirement board to the county's PEHP program.

Another two percent came from the county's general fund and the last percent came from a one percent reduction in employee raises. The county also used the FICA savings from the one percent reduction in payroll raises to pay the $25 annual administrative fee for each employee's account.

In the short-term, reception of the PEHP plan by the employees has been extremely positive.

Not only have they embraced the idea of the benefit, but they are becoming more aware of their own retirement and voluntary contributions into Tulsa County's Deferred Compensation program have increased by 25 percent.

In 1972, a visit to the doctor was $8. In 1995 that same visit was $66.50 or an increase of 731 percent over a 25-year period.

What will the next 25 years bring? I don't know, but I'm sure whatever it is, thanks to the new Post Employment Health Plan, Tulsa County will be ready.

For more information about the PHEP program, call 614/249-4330.

(Financial Services News was written by Leon Rowe, managing director, PEBSCO.)