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Office of the City AuditorInternal Service Funds-Insurance,
Internal Audit Report
August 2000
August 18, 2000

Stockton City Council

INTERNAL AUDIT SUMMARY: INTERNAL SERVICE FUNDS - INSURANCE

In accordance with our 1999-2000 audit plan, we have completed an audit of the Insurance related Internal Service Funds (ISFs). We conducted our audit in accordance with Generally Accepted Government Auditing Standards.

Our primary objective was to evaluate the system of internal controls related to the City’s ISFs. Very little authoritative guidance exists regarding how ISFs must be operated, providing management with a significant degree of flexibility. We turned our attention to the operational aspects of the insurance related funds, which represented more than 60% of the approximately $33 million in total ISF operating expenses.

The Personnel Services Department, Benefits Division has been charged with most insurance related functions. We were impressed with the knowledge and innovation demonstrated by the management and staff operating these programs. The Benefits Division seemed comfortable balancing the need for effective and efficient operations while providing responsive customer service.

With one exception, we found that adequate internal controls were in place and functioning as intended. Our one concern was that management did not have a process in place to monitor contracted services related to administration of the Dental and Vision programs. Management has devised a plan that will correct the condition.

During the course of the audit, we offered suggestions to strengthen internal controls, and in many cases management took immediate action to address the issues. Management is to be commended for their prompt responses and continued efforts to improve the City’s insurance programs.

Additional information about our audit can be found in the attached INTERNAL AUDIT REPORT.

F. MICHAEL TAYLOR, CIA
CITY AUDITOR


original signed by:

JIM HENTHORN, CIA
SENIOR INTERNAL AUDITOR

cc: Dwane Milnes, City Manager
Richard K. Denhalter, City Attorney
Katherine Gong Meissner, City Clerk
John Hinson, Administrative Services Officer
McKinley Lloyd, Director of Personnel Service Department
Delores Roach, Public Information Officer
Lynn Lankford, Deloitte & Touche LLP
The Record

TABLE OF CONTENTS
Internal Service Funds – Insurance

Summary Letter

Audit Report

INTERNAL AUDIT REPORT
INTERNAL SERVICE FUNDS - INSURANCE

In accordance with our 1999-2000 audit plan, we have completed an audit of the Insurance related Internal Service Funds (ISFs). We conducted our audit in accordance with Generally Accepted Government Auditing Standards.

BACKGROUND

Internal Service Funds are established to account for the financing of goods and services provided by one department to other departments of the organization on a cost reimbursement basis. The purpose of centralizing certain activities in an ISF is to achieve a level of operating efficiency that may not be available if multiple units within the organization performed the same activities. Costs associated with these funds are billed to other departments through allocation methodologies deemed reasonable by management for each activity.

In general, ISFs are designed to serve as cost allocation devises. That is, to accumulate the costs associated with providing a particular good or service and then to charge users their fair share of the cost. Ideally, an ISF should break even, with revenues equal to expenses. In practice, however, it is appropriate for an ISF to maintain a level of resources sufficient to meet future needs, or to incur temporary fund deficits. The large accumulation of resources or incurring material deficits over the long-term will raise concern that users are not being charged appropriately for the services they receive. Aside from these general guidelines there are very few requirements for how ISFs must be handled. This provides management with considerable flexibility in administering the ISFs.

The City uses ISFs to account for the financing of equipment and services provided to other City departments on a cost-reimbursement basis. The following ISFs were identified in The City of Stockton’s Comprehensive Annual Financial Report for the year ending June 30, 1999: Central Garage, Computer Equipment, Radio Equipment, Other Equipment (includes Telephones and Printing and Mailing), General Insurance, Worker’s Compensation (WC), Health Benefits Insurance, and Other Insurance.

The City’s use of ISFs has been expanding. For the fiscal year 1998-1999, the Computer Equipment ISF was expanded beyond just the equipment to include most of the costs related to the Management Information Services Department, which had been classified as General Fund activity. In addition, for the 1999-2000 fiscal year a new ISF has been created to account for retirement contributions submitted by the City to the Public Employees Retirement System. For the 2000-2001 fiscal year the projected activity for the Retirement Benefits ISF was budgeted to be $9.5 million. These additions to the City’s ISFs do not represent new expenditures, just a change in the manner in which existing costs are handled.

For the fiscal year ending June 30, 1999, the City reported $33,737,000 in operating expenses related to the activities of the ISFs. Clearly the largest group of funds were the City's Insurance funds, with 64% of the total expenses. Central Garage (Fleet) was the next largest fund, followed by Computer Equipment (MIS), and the Other Equipment (Equip) and Radio funds.

Though each ISF has an operational manager, the Administrative Services Officer centrally controls all of the ISFs. The Administrative Services Officer monitors the activities of the funds, with an emphasis on ensuring that adequate fund balances are maintained. Fund balances are controlled primarily by changing the allocation rates charged to user departments.

Rates are initially established as part of the annual budget process, and may be adjusted during the year based on assessments of the changing needs of the funds. Though each of the ISFs are unique, requiring individual evaluation and monitoring, the resources of all the ISFs may be treated as available in the aggregate to meet the needs of any one ISF. This becomes important when reviewing the City’s experience with the Workers’ Compensation fund, which has maintained a negative fund equity position for the last four years.

Being self-insured for WC, the City must recognize a liability for the estimated future costs of each claim. As claims are identified and measured by the actuary, the total future cost must be recognized as an expense in the period in which they are incurred. The allocation rate charged to City departments has generally been high enough to cover claims payments and administrative costs during the year, but not high enough to also cover the estimated future claims expense. The result has been a negative equity position that has grown to $6,925,000 as of June 1999. Despite the impact of the WC fund, taken as a whole the ISFs have maintained a positive fund equity position. Management’s position has been that raising rates to cover future claim expenses would create an unnecessary reserve of cash that could be better used to fund current services.

In reviewing financial trends over a ten-year period for the ISFs taken in the aggregate, we noted that total assets and total fund equity had reached a 7-year low. We also noted that total liabilities were near a 10-year high, and that net losses had been incurred for the last four out of five years. Both of these conditions can be attributed largely to the impact of the WC fund losses.

The focus of this audit was the insurance related ISFs, which are managed by the Personnel Services Department, Benefits Division. Insurance ISFs include Employee Health Benefits, Worker’s Compensation, General Liability, and Other Insurance (comprised of Unemployment, Life and Long-Term Disability insurance). Of these funds, Health Benefits and Worker’s Compensation are the largest, with $11.9 million and $6.1 million respectively in total operating expenses for the year ended June 30, 1999.

The costs related to the insurance ISFs are charged to other City departments through the payroll system as part of the benefit calculation for each employee. Funds are accumulated in the payroll clearing account and then transferred to the proper ISF revenue account.

The majority of the expenditures related to the insurance programs are processed by third parties contracted to administer the programs, using bank accounts jointly controlled with the City. In addition to the claims monitoring performed by the Benefits Division, the City’s Accounting Section monitors and reconciles the bank account activity.

A general description of each of the insurance ISFs can be found in the appendices to this report.

SCOPE AND OBJECTIVES

The objective of this audit was to gain an understanding of the City’s Insurance related ISFs. We wanted to determine how ISFs were used to meet the City’s insurance needs, and how departments were charged for insurance related services. We also wanted to determine whether sufficient controls were in place to ensure the attainment of program objectives, the safeguarding of assets, and regulatory compliance.

Based on our assessment of program risks, which considered the character of the related assets and the design of internal controls, we focused our efforts on those areas representing the highest risk to the City.

We identified and evaluated the internal controls established to monitor the claims administration services provided by third parties. We also identified and evaluated the City’s efforts to control claims costs, and efforts to ensure compliance with applicable policies, laws, and regulations. We tested transactions to the extent necessary in order to evaluate the systems as of June 16, 2000.

METHODOLOGY

Our audit was performed using the standard office methodology of documenting and evaluating internal controls. Our understanding of the system of controls was gained through interviews, reviewing documentation, and observations.

We began by obtaining a basic understanding of the purpose, objectives and critical processes of the Insurance ISFs. We interviewed City employees and vendors; reviewed applicable criteria, contracts, and system related documentation; and observed day-to-day operational tasks. Transactions and controls were tested to verify our understanding of the internal control system, and to determine whether controls were implemented and operating as intended.

RESULTS

Based on our observations, interviews, and field testing, it is our opinion that sufficient internal controls are in place and functioning adequately, with the following exception:

Unlike the Worker’s Compensation and Medical Benefit programs, management does not monitor claims administration related to the Vision and Dental plans. Claims are not independently monitored by the City to ensure eligibility per the program requirements, or to assess the accuracy and timeliness of payments. The City relies on the internal auditing systems of the third party administrator (TPA) to verify claims. Though the City’s costs related to the Vision plan have been relatively low (approximately $240,000), the costs of Dental claims are approaching $1,000,000 annually.

Of particular concern is that Delta Dental stopped providing any claims detail to the City, citing California Health & Safety Code section 1374.8 prohibiting health services disclosure to employers. Without access to claims detail, the City is unable to perform even basic oversight of the payments made by the administrator.

MANAGEMENT’S PLANS

Management of the Personnel Services Department submitted the following response:

1. The Personnel Services Department is preparing a letter to Delta Dental Services to request that monthly claims detail reports be provided again so that the City can perform periodic claims reviews to ensure only eligible claims are paid. If Delta Dental declines to provide this information, the City Attorney’s Office will be consulted for a legal opinion regarding Delta’s recent interpretation of the California Health and Safety Codes, Section 1374.8, which Delta cited when it stopped providing the monthly claim detail reports.

2. The Personnel Services Department has already initiated the process of arranging for an independent audit of Delta Dental Services claim processing, to ensure Delta is in compliance with the City’s program requirements and industry standards related to timeliness and accuracy.

Target Date for Corrective Action - We have received one price quote and timeline from one auditor, and are waiting for two more quotes. We expect the first Dental plan audit to be completed by December 2000.

NOTEWORTHY ACCOMPLISHMENTS

Management Responsiveness: Benefits Division management was receptive to comments and suggestions, and took prompt action to address minor control issues observed during the course of the audit.

Request for Proposal (RFP) Process: Performances of the TPAs are critical to the City’s insurance programs. This makes the initial selection of the TPA an important step in assuring success. The Requests For Proposals related to the recent service contracts for the Workers Compensation program and Employee Medical Plan were well written, and included a clear vision of the services required by the City. The selection process included input from City employees with claims administration experience, and an understanding of the needs of the program.

The service contracts included claims administration performance measures linked to the TPA’s compensation, which are intended to ensure that high quality service is maintained. An independent claims reviewer periodically verifies that the performance measures have been met.

Preventative Care Efforts: The City conducts a number of preventative care efforts as a means of improving employee health, and potentially reducing Health Benefit program costs. These efforts include: offering flu vaccinations during high-risk seasons, promoting the availability of various annual exams, sponsoring periodic health fairs, and subscribing to an employee health and wellness newsletter. Circulation of the newsletter was recently expanded to include mailing to the homes of all employees. This was seen as a way to disseminate the health awareness information to all covered dependents.

Fraud Detection and Prevention: Historically, California Worker’s Compensation programs have been susceptible to abuse perpetrated by both healthcare providers and program participants. Insurance fraud can be difficult and expensive to detect. One effective, low cost method of detecting fraud is the use of a fraud hotline. The Benefits Division has begun advertising a fraud hotline telephone number in the Stockton City Columns employee newsletter.

Suspected fraudulent activity is investigated. In recent years, three Worker’s Compensation fraud cases have been prepared and submitted to the District Attorney’s Office, all resulted in convictions.

OTHER COMMENTS

During the course of our audit we noted that the City’s insurance programs do not have clear and quantifiable program performance objectives. Audit work in other areas of City operations has identified a similar situation. Absent quantifiable objectives and systems of performance measurement, there is little basis to assess the effectiveness of program efforts. The City Auditor’s Office advocates the establishment of performance objectives and implementation of systems of monitoring to encourage continuous improvement of City operations.

The City’s financial statements for the year ending June 30, 2002 must be prepared in accordance with Governmental Accounting Standards Board (GASB) 34. The

requirements of this new standard include changes that could affect the way activities of ISFs are presented in financial reports. It is conceivable that these changes will have an impact on management’s policies related to the use of internal service funds.

Appendix A

Health Benefits:

Employee Health Benefits include medical care, dental, and vision coverage, which are comprised of a mixture of self-insured and fully insured programs. Depending on the employee’s Memorandum of Understanding (MOU) or compensation plan, there are options regarding the type of coverage an employee can select. In general, the City pays all health benefit premiums as part of the employee’s compensation plan. In addition to insuring current employees and their eligible dependants, there are a number of individuals no longer employed by the City that are eligible to receive or purchase health benefits from the City’s programs. Currently, this includes approximately 30 Consolidated Omnibus Budget Reconciliation Act (COBRA) participants and 400 retirees.

Medical - Most eligible employees participate in the City’s self-insured medical plan, which was modified in January 1993. Less than 115 participants continue to be covered under the original medical plan; all are retired. In addition to the City’s medical plan, one bargaining unit allows its members to elect a plan outside of the City’s system. For these employees, the City pays an amount equal to the per employee cost of the City’s plan. The employee pays any difference in premium through payroll deduction.

The City purchases stop-loss insurance to limit individual claim liability. The City is insured for claims in excess of $150,000, up to a maximum of $1,000,000 per individual, per policy year. Eligible claim amounts paid by the City in excess of $150,000 are refunded. The policy year currently runs from May 1, through April 30. The cost of stop-loss insurance is included in the cost allocated to departments.

The City contracts with a Third Party Administrator (TPA) to perform claims administration services for the self-insured medical plan. Zenith Administrators, Inc. (Zenith) replaced San Joaquin Foundation for Medical Care as the City’s TPA in September 1998. Zenith performs all functions related to claims administration, including directing members to participating preferred providers, processing payments to healthcare vendors, providing utilization review and case management services, and pursuing third party recoveries. Requirements of the contract with Zenith included the assignment of dedicated claims personnel to the City’s account, and the placement of a customer service representative on-site in the City’s Personnel Services office, as a means to ensure responsive customer service and efficient management of the program.

On an annual basis, the City contracts with an independent claims reviewer to assess the services provided by Zenith. The reviewer verifies and reports on compliance with the terms of the City’s plan document, performance standards stated in the contract, the accuracy of claim payments, and makes comparison to industry standards.

Dental – Eligible employees have the option of two dental programs; one is self-insured and the other is fully insured.

Delta Dental: This is a self-insured plan administered by Delta Dental Services, Inc. (Delta). Dental claims are reviewed, processed and paid by Delta, who then requests reimbursement from the City. Approximately 90% of eligible City employees participate in this program.

Pacific Dental (previously Health Benefits Incorporated): This program is fully insured, and administered by Pacific Dental. Insurance premiums are paid as billed.

Vision – This is a self-insured plan, administered by Vision Services Plan (VSP). Vision claims are reviewed, processed and paid by VSP, who then submits a request for reimbursement to the City.

A single allocation rate is calculated to cover all Health Benefit insurance costs. The rate is considered a composite rate, in that the same rate is charged regardless of whether or not the employee has covered dependents. The allocation rate per employee is a flat monthly amount, which is set high enough to absorb the costs related to retired employees covered by the Health Benefit program who are not required to make premium payments. The City contracts to have an actuary report on the Health Benefit program liability on an annual basis.

Claims liability for Health Benefits are based on the "runout" liability for the program. Runout liability, the time between the date claims were incurred to the date claims were paid, is estimated to be approximately two months. The rationale for using such a short period for accruing future claims liability is the assumption that the City is able to convert to a fully-insured program, and would retain only the runout liability. Though the City’s claims liability has nearly doubled during the last ten years, it has been fairly stable for the last five years.

Management has demonstrated the ability to increase program revenues as needed. Over time, fund equity has remained positive and sufficient cash reserves have been maintained to meet runout liability.

Appendix B

With few exceptions, all California workers are eligible for Worker’s Compensation (WC) benefits if they incur an illness or injury resulting from their employment. Benefits include medical care, temporary disability, permanent disability, vocational rehabilitation, transportation cost reimbursement, and death benefits. The timing and form of WC benefits are generally dictated by California Code of Regulations. The City has negotiated with some employee bargaining groups to provide a higher benefit than statutorily required in the form of salary continuation during qualifying temporary disabilities.

Employers have the choice of purchasing WC insurance, or self-insuring. The City has elected to self-insure for WC since July 1, 1976, purchasing stop-loss insurance coverage to limit the liability of individual claims. Current loss retention is $250,000 per incident, per employee. The City contracts with a third party specializing in WC program administration. The current Third Party Administrator (TPA), Gregory B. Bragg & Associates, Inc. began providing services to the City as of September 1999.

Once a work related injury has been reported, the TPA performs all claims management activities, including directing the employee to services, monitoring progress towards recovery, maintaining required records, and pursuing any possible cost recoveries. The City’s WC caseload is approximately 450 claims. With the exception of salary continuation payments for qualifying temporary disabilities made through the City’s payroll system, the TPA makes all payments related to the employee’s claim using a bank account jointly controlled with the City.

The Benefits Division employs an experienced, state certified, Worker’s Compensation Analyst who monitors the services provided by the TPA to ensure regulatory compliance, reasonableness of disbursements, and to ensure employees are receiving good customer service. The City’s Worker’s Compensation Analyst has on-line access to the TPA’s claims management system, and performs periodic on-site claims reviews. In addition, the City contracts with an independent claims reviewer to monitor specific performance measures on an annual basis.

Costs of the Worker’s Compensation program are allocated to City departments based on a percentage of payroll, as part of the benefits calculation for each employee. Allocation rates are calculated for six job classifications, into which all City employees are assigned. The classifications are: Fire(sworn), Police(sworn), Clerical, Library, Non-manual, and Manual. The allocation rate for each work classification varies, generally due to the nature of the work performed. The high-risk categories, such as Police and Fire, have a higher allocation rate. The charges are accumulated in the payroll clearing account and transferred to the WC ISF as revenue.

The City is required to report the estimated loss from claims as an expense and as a liability if prior to issuing the financial statements it is probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. The loss recognized must be sufficient to reflect the probable total future cost of compensation and medical benefits due or potentially due. The City contracts on an annual basis to have an actuary report on the WC program liability. For the period ending June 30, 1999, the City reported claims liability of $11,858,000, which was the highest in eight years.

There is no standard level of liability reserve funding that public entities must maintain in California. Some public entities operate on a pay-as-you-go basis, and do not maintain any self-insurance reserves. Other entities fund 100% of their estimated WC liability. For the fiscal year ended June 1999, the City reported an unfunded liability of $6,925,000. The City intends to meet the unfunded liability over time by adjusting the allocation rate paid by City departments. The City has demonstrated the ability to make allocation rate adjustments when deemed necessary.

Safety Training The main advantage of being self-insured is that it creates an opportunity for reduced costs through better claims control. One way to reduce costs is the prevention of injuries and illnesses through education, training, and safety awareness. Benefit Division staff coordinates the City’s injury and illness prevention efforts.

In response to State mandates and City Manager Administrative Directives, the City has established an Injury and Illness Prevention Program (IIPP). The objectives of the IIPP are to establish a safe work environment for Stockton City employees and to reduce the incidents of loss due to work related injury and illness. The City’s IIPP manual provides specific guidance related to safety, training, periodic safety inspections, recordkeeping, and injury and illness prevention. Statute requires the City to identify preventable injuries and take reasonable steps to correct the situation. The City’s Safety Officer, assigned to the Benefits Division, is responsible for coordinating the IIPP, and providing assistance to City departments.

Due to the diversity of workplace environments and tasks within City employment, responsibilities for safety are delegated to the department heads. Each department has appointed a safety officer and provides various levels of safety training. Many departments, generally those with higher claim experiences, conduct regularly scheduled safety workshops, and operate safety incentive programs. The safety officers share their experiences with other departments during quarterly Executive Safety Committee meetings.

In addition to the efforts of the individual departments, the City provides a number of citywide safety training opportunities. The Personnel Service Department Training Officer maintains a library of videos and other material, and provides safety classes for supervisors covering the supervisors’ responsibility for safety, employee-training requirements, and how to conduct safety inspections.

Appendix C

General Liability:

The City is exposed to a number of risks related to torts, error and omissions, employment actions, and natural disasters. The City protects itself through a combination of self-insured and fully insured efforts. Since 1997, the duties of the General Liability Insurance program have been shared between the Personnel Services Department, Benefits Division and the City Attorney’s Office. The focus of the Benefits Division is to limit the City’s claims exposure. The Attorneys’ Office focuses on settling claims that have been filed against the City.

The Benefits Division coordinates the City’s loss prevention efforts. This includes identifying what areas are to be self-insured and which to fully insure, working with insurance brokers to secure coverage, ensuring that City vendors and those who utilize City property maintain the required insurance coverage, and performing site inspections to identify potential hazards.

In 1987, the City joined other public entities to form the California Joint Powers Risk Management Authority (CJPRMA). The purpose of the CJPRMA is to arrange and administer programs of insurance for the pooling of self-insured losses, and to purchase excess insurance coverage. The program provides up to $10 million in excess general liability coverage. Members can participate with self-funded retention levels of either $500,000 or $1,000,000. The City has elected to retain liability of $1,000,000. Annual deposits are paid by the members, adjusted retroactively to cover program costs.

All claims against the City are filed in the City Clerk’s Office, and forwarded to the Attorney’s Office. The Attorney’s Office employs an experienced claims investigator, who handles the approximately 300 claims filed each year. Based on the claims investigation and legal review, a decision is made whether to deny the claim or to settle. Most disbursements are made through the Accounts Payable process, subject to the spending limits stated in the City Charter.

Departments are charged through the payroll process, based on an allocation rate that is part of the benefit calculation for each employee. The rate is the same for all employees, and is based in part on the results of an annual independent actuarial assessment of the City’s claims liability. The City’s claims liability has averaged $3.7 million over the last ten-year period.

Appendix D

Other Insurance:

Other Insurance includes Unemployment, Life, and Long-Term Disability Insurance.

Unemployment Insurance: (UI) is a nationwide program, based on federal law but executed through state law, to provide partial wages to eligible unemployed workers while they actively search for new work. The California Employment Development Department (EDD) administers this employer-financed program, making weekly benefit payments to eligible individuals. UI benefits range from $40 - $230 per week, for up to 26 weeks depending on the wages earned by the individual and the duration of employment.

The UI Code was changed in 1978 to include coverage for local government employees. In the past, the City contracted out the handling of UI claims, but throughout the 1990’s the function has been performed in-house. The majority of claims experienced by the City are related to temporary workers, mostly in Parks and Recreation, who are employed to staff seasonal programs.

The Benefits Division has been designated as the City’s contact with the EDD. The Benefits Division is notified by the EDD when an individual files a claim for UI benefits listing the City as a prior employer. If it is believed that the individual is not eligible for UI benefits, the City may submit written protest to the EDD within a specified timeframe. Generally, the City will protest only those claims that involve a resignation or termination.

The ultimate decision regarding eligibility and benefit amount is made by the EDD. Both the City and the employee may appeal the decisions of the EDD to an administrative law judge. The Benefits Division’s program manager currently represents the City in UI administrative hearings, reportedly winning approximately 95% of the 2-6 cases appealed per year.

The City has elected to pay UI claim costs through the reimbursement method. The EDD submits a quarterly report that lists each benefit recipient and the benefit amount paid on the City’s behalf. The Benefits Division submits payment through the Authorization for Payment process.

Departments are charged through the payroll process, based on an allocation rate that is part of the benefits calculation for each employee. The rate is the same for all employees. The fund is considered a pass through account, with few expenses other than the reimbursements to the EDD. UI reimbursements have been approximately $100,000 per year.

Life and Long-Term Disability Insurance:

In 1994, the City converted the Group Life and Long-Term Disability (LTD) Insurance from a self-insured to a fully insured program. Benefit payments are made to eligible employees in accordance with the provisions of the insurance policy and the Memorandum of Understanding or Compensation Plan applicable to the employee. Benefits are based on a percentage of base salary. The LTD benefit paid to eligible employees is approximately 2/3 of monthly base salary, reduced by "other sources of income" specified in the policy. Life Insurance benefits range from 100% to 300% of annual base salary.

Life Insurance - Life Insurance benefits are paid upon evidence of loss, and are calculated as a percentage of annual base salary. The benefit percentage varies depending on the employee’s bargaining unit. The insurance company sends benefit checks to the Benefits Division, who assists the deceased employee’s family with the death claim and other related details.

Long-Term Disability Insurance - The LTD Insurance policy states that benefits begin 60 calendar days after the disability date, or after all accrued sick leave has been depleted, whichever is later. The City’s agreements with employee bargaining groups state that the waiting period will be 30 days. The City is therefore self-insured for days 31 – 60 of the disability. Benefit payments accrued during this self-insured period are paid through the City’s payroll system in a lump sum, payable after the 60^th day. The Benefits Division completes a LTD Benefit Calculation/Authorization form to calculate the benefit amount due, and submits this to Payroll for processing. LTD benefits paid during the self-insured period are charged to individual departments in the same ratio as the employee’s salary distribution. Annual payments for the self-insured portion of LTD benefits have been less than $15,000.

Departments are charged through the payroll process, based on an allocation rate that is part of the benefits calculation for each employee. The allocation rate for LTD is calculated as a percentage of monthly salary, and is the same for all covered employees. The allocation for Life Insurance is a dollar amount per thousand of annual regular salary, rounded to the next higher thousand. The dollar amount charged is dependent on the benefit level the employee is entitled to receive. The fund is considered a pass through account, with few expenses other than the payment of insurance premiums. Annual premiums for Life and Disability Insurance have been approximately $900,000.