R-01-07-26-14-B1 - 7/26/2001RESOLUTION NO. R- 01- 07- 26 -14B1
WHEREAS, the City of Round Rock desires to retain professional
consulting services for an independent review of the City's benefit
program, and
WHEREAS, Watson Wyatt & Company has submitted a letter of
agreement to provide said services, and
WHEREAS, the City Council wishes to enter into said letter of
agreement with Watson Wyatt & Company, Now Therefore
BE IT RESOLVED BY THE COUNCIL OF THE CITY OF ROUND ROCK, TEXAS,
That the Mayor is hereby authorized and directed to execute on
behalf of the City a letter of agreement with Watson Wyatt & Company
for an independent review of the City's benefit program, a copy of same
being attached hereto and incorporated herein for all purposes.
The City Council hereby finds and declares that written notice of
the date, hour, place and subject of the meeting at which this
Resolution was adopted was posted and that such meeting was open to the
public as required by law at all times during which this Resolution and
the subject matter hereof were discussed, considered and formally acted
upon, all as required by the Open Meetings Act, Chapter 551, Texas
Government Code, as amended, and the Act.
RESOLVED this 26th day of Jul ,
AT ST: City of Round Rock, Texas
LAND, City Secretary
Oi\ WPEOCS \AESOLVfI \111072601.1G0 /ec
44
ROB T A. " J 4 i Mayor
Watson Wyatt
worldwide
July 5, 2001
Ms. Teresa Bledsoe
Director, Human Resources
City of Round Rock
221 E. Main Street
Round Rock, Texas 78664
Suite 4200
2001 Ross Avenue
Dallas,TX 75201 -2989
Telephone 214 530 4200
Fax 214 530 4250
Subject: Benefits Review
Dear Teresa:
Thank you for the opportunity to serve the City of Round Rock ( "the City") in a review of your current
health & welfare plan offerings.
In response to your request, Watson Wyatt & Company d/b /a Watson Wyatt Worldwide ( "Watson
Wyatt") is pleased to offer group actuarial and benefits consulting services to the City. This letter
confirms the scope of services and terms of our engagement.
Scope of Services
Watson Wyatt & Company
We understand that you are requesting a review of the current benefit programs in order to determine
the appropriate steps toward more effective cost management. The programs under review will
include:
1. Medical (including prescription drugs)
2. Dental
3. Vision
4. Life insurance (Basic and Optional)
5. Disability (short- and long -term)
6. Time -off (sick leave & vacation)
7. Flexible spending accounts
Based on our discussion, we will review the current insurance contracts, other vendor contracts,
insurance premiums, and plan designs to provide a summary of potential changes to the City with an
estimate of the cost impact of these changes, where applicable. The outcome of our analysis will be a
formal report and presentation.
Ms. Teresa Bledsoe
July 5, 2001
Page 2
Information request
In order to complete the work described in the above, we will need the following information from the
City:
D Current insurance contracts (including employee - pay -all programs)
D Current administrative service contracts
D Current and previous years premiums and fees
• Most recent insurance renewals
D Most recent administrative services contract renewals
D Current census data for all active employees, COBRA participants and retirees including:
1. Age
2. Gender
3. Salary
4. Years of service
5. Medical election
6. Dental election
7. Vision election
8. Life insurance election (optional)
9. Healthcare spending account election
10. Dependent care spending account election
D Current Summary Plan Descriptions
D Medical plan rates by coverage tier for the last three years
• Medical plan paid claims by plan year for past three years
D Average medical plan enrollment by plan year by coverage tier for the past three years
D Medical plan active employee contributions rates by coverage tier for the last three years
D Medical plan retired employee contributions rates by coverage tier for the last three years
D Contact name and phone number at the current third party claims administrator
D Summary of high claims for the past three years, including diagnosis, total amount paid, and
reimbursement amount from stoploss carrier (separate for aggregate and specific insurance)
D Network utilization reports received by third parties, showing percentage of service provided in-
network, discounts provided by the network, etc.
Schedule
We estimate that this engagement will be completed within six weeks following acceptance of this letter
and our receipt of the necessary data. Based on our discussions, we will schedule a conference call in the
middle of this timeframe to provide the City with an overview of what our preliminary findings are.
Ms. Teresa Bledsoe
July 5, 2001
Page 3
Consulting Team
Jerry Turner will serve as both as your Lead Consultant and Actuary. In this role, Jerry will be ultimately
responsible for the quality and timeliness of the deliverables.
Carl Cudworth will serve as your Project Associate. Carl will use his experience and expertise in the
areas of vendor management and financial analysis to support this project.
Rik Lindahl will serve as a Technical / Strategic Advisor. Using his experience in working with both
clients in the public and private sector, Rik will provide additional guidance in the areas of plan design
and vendor management.
Sarah Hutchinson will also serve as a Strategic Advisor to the project team. Sarah's experience with the
City will provide great value in the project delivery.
The team has been assembled based on their expertise in the areas where they will serve the City on this
project. Information on each member's background and experience is attached to this correspondence.
City's Responsibilities
The cost and schedule estimates contained in this letter are based on our understanding that you will
make available the necessary people (including the City's employees, legal counsel, plan trustees,
accountants and other service providers), as may be required to enable Watson Wyatt to perform the
Services. We also anticipate that the City will provide any required data and information and the data
will be accurate, timely and in the proper formats and media. If the City is unable to participate in the
project as required or if the information provided by the City is inaccurate, incomplete or delayed, then
the scope of the project may be different, the schedule may be delayed and/or Watson Wyatt's fees
may be higher than described in this letter.
Change In Scope
Watson Wyatt shall notify the City of any problems that are likely to affect the schedule or change the
scope of the work. Similarly, the City shall notify Watson Wyatt of any changes that will affect the
project as originally planned. In these situations, we will discuss the problem or issue and agree to a
resolution and to any budget adjustment or schedule change that may be required. We will confirm
any change in scope and the related budget and/or schedule issues in writing following our
discussions.
Consulting Fees
Watson Wyatt's consulting fees are based on the time spent by our associates in performing the
Services for you. The time of our associates will be invoiced at our customary hourly rates in effect at
the time the Services are performed.
We estimate that our fees for the Services described above will be $25,000 - $30,000. During the
course of the engagement, we will advise you promptly if we anticipate that our fees will exceed this
estimate.
4�
Ms. Teresa Bledsoe
July 5, 2001
Page 4
At the City's request, we may provide additional services not specifically described in this letter.
Unless otherwise agreed, these services will be provided at Watson Wyatt's then - prevailing hourly
rates.
In addition, Watson Wyatt will charge a technical and administrative charge equal to 5% of the
consulting fees to help us recover our ongoing investments in technology and support systems that
enable our associates to work more effectively for our clients.
Invoicing
We will invoice you on a monthly basis for our fees and reimbursable expenses. Invoices are payable
upon receipt and payment is due 30 days following the date of the invoice. Watson Wyatt will assess a
late charge at the rate of 1% per month on any balance outstanding more than 30 days following the
date of the invoice. The City is responsible for any sales, gross receipts or similar taxes but not taxes
based upon Watson Wyatt's net income.
Service Quality
At Watson Wyatt, we believe in total client satisfaction. To that end, Watson Wyatt shall perform all
services with due care and in accordance with prevailing industry standards and the requirements of
this letter of agreement. If any of the services do not conform to the requirements of this agreement in
all material respects, please notify us and Watson Wyatt will promptly re- perform any non - conforming
service at no additional charge to the City.
Complete Agreement
This letter states our entire understanding concerning our provision of the Scope of Services described
herein and supersedes any prior proposals, correspondence or discussions concerning this engagement.
The terms and conditions of this letter agreement may only be amended by a writing signed by the
duly authorized representatives of both parties.
Very truly yours,
iT er
tson yatt Worldwide
* * * * * * * * * * * * **
If this letter accurately describes the terms of our engagement, please sign and return the enclosed copy to
me.
Watson Wyatt Worldwide appreciates this opportunity to be of service to the City. If you have any
questions now or during the course of our engagement, please contact me.
CITYi ": I O
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Date: 7-10--101
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ACCEPTED AND AGREED:
WATSON WYATT WORLDWIDE
By:
Title:
Date:
07/20/01 FRI 09:58 FAX 214 530 4258
CITY OF ROUND ROCK
By:
Title:
Date:
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JUL -20 -2001 10:36
WATSON WYATT
ACCEPTED AND AGREED:
WATSON WYATT WORLDWIDE
By:
Title:
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Jerry Turner
Jerry Turner is a Health Actuary in the Dallas office of Watson Wyatt Worldwide. He has 15
years of benefits consulting experience with a number of major employee benefits consulting
firms.
Jerry has done extensive work in the employee benefits area for a variety of organizations
including publicly and privately held firms, governmental agencies, and not - for - profit entities.
He has extensive employee benefits and group insurance experience and has assisted numerous
employers in planning, evaluating, designing, and implementing employee benefits programs.
Listed below are some of his representative accomplishments:
• Calculating, analyzing, and disclosing postretirement (FAS 106 & 132) and postemployment
(FAS 112) benefits liabilities and making recommendations for effective cost management.
• Calculating reserves for Multiple Employer Welfare Arrangements (MEWAs).
• Calculating funding limits and requirements for retiree health and for major medical
Voluntary Employees Beneficiary Association Trusts (VEBAs).
• Performing flexible benefits plan implementation analyses and designing and pricing health
and welfare benefits, including credit options, for flexible benefit plans.
• Evaluating the impact of health plan managed care alternatives and assisting employers in
market surveys and in the selection and implementation of cost - effective managed care
programs as well as conducting market searches for health and welfare vendors to administer
and/or insure flexible benefits plans.
• Analyzing health care utilization patterns and trends, claims experience studies and cost
analysis for self - insured health and welfare benefits plans.
• Negotiating on behalf of employers with employee benefits vendors (including insurance
carriers, third -party administrators, disability managers, and pharmacy benefits managers) on
fee and performance requirements and guarantees.
Jerry is an Associate of the Society of Actuaries, a Member of the American Academy of
Actuaries and an Enrolled Actuary under ERISA. He holds a bachelor's degree in Mathematics
from Northeast Louisiana University.
Carl L. Cudworth
Carl Cudworth is a benefits analyst in the Dallas office of Watson Wyatt Worldwide. Since
joining Watson Wyatt, Carl has worked with clients of all sizes and types, including the Teacher
Retirement System of Texas and Tenet Health Care.
Carl has gained experience in a variety of different areas, including vendor management. Carl
has successfully negotiated significant rate reductions with vendors on behalf of several clients.
His work has also encompassed strategic planning and legislative compliance. Carl has
experience in preparing and evaluating competitive bids. He has also assisted with the
development and marketing of Watson Wyatt's new executive reporting tool.
Carl is a licensed attorney. Prior to joining Watson Wyatt, Carl actively practiced law, primarily
in litigation, and has a great deal of negotiating experience. He also gained experience
reviewing, analyzing, and drafting proposed legislation. Carl's background and experience as an
attorney provides the consulting team with a unique perspective and set of skills.
Carl earned his Bachelor of Science degree from Southern Illinois University at Edwardsville in
1990. He received his Master of Science degree in economics in 1991. In 1994, Carl received
his Juris Doctorate from the University of Illinois.
Rik D. Lindahl
Rik Lindahl is the Group and Health Care office practice leader for our Dallas and Houston
offices and has over 24 years of consulting experience. He serves on the firm's national Vendor
Management Committee and chairs the practice's Quality Standards Committee.
Rik has assisted numerous employers in defining their employee benefits strategy and in the
design and implementation of employee benefit programs. Some of his clients include: British
Aerospace (BAE), Fleming Companies, Inc., Tenet HealthSystem, J.B. Hunt Transport Services,
Inc., Kvaerner, Inc., and Dynegy. Listed below are some of his representative accomplishments.
• Providing employee benefits strategic planning for a wide range of businesses with employee
populations ranging up to 150,000 employees.
• Assisting organizations in the development and measurement of appropriate benchmarks to
evaluate employee benefits plan performance.
• Developing best practices in employee benefits plan management and application of results
to client organizations.
• Performing operational reviews and medical claims audits of third -party administrators in a
wide range of industries including retail, manufacturing, financial institutions, and state and
local governments.
• Assisting health care providers in evaluating marketing strategies, delivery efficiency, and
operational performance for employer- sponsored health care plans.
• Negotiating on behalf of employers with employee benefits vendors (including insurance
carriers, third -party administrators, disability managers, and pharmacy benefits managers) on
fee and performance requirements for over 50 employers during the past two years.
Prior to Watson Wyatt, Rik was a partner at KPMG and joined Watson Wyatt through the
acquisition of the employee benefits practice from KPMG. He recently served as the president
of the SouthWest Benefits Association and is the chairman of a regional mental health authority.
Rik is also a frequent author and lecturer. He has contributed to numerous publications, both
locally and nationally, including The Wall Street Journal and the Journal of Compensation and
Benefits. For over 12 years he served as an instructor at Southern Methodist University, College
of Continuing Studies.
Rik holds an M.B.A. degree from Southern Illinois University (Edwardsville) and a B.S. degree
in economics from the University of Nebraska (Omaha). He also holds multiple professional
designations.
Sarah Hutchinson
Sarah Hutchinson, an executive compensation consultant in the Human Capital Group of Watson
Wyatt, has over 14 years of human resource and compensation consulting and managerial
experience.
Sarah's client assignments have included organizations in the high tech, utility, healthcare,
manufacturing, financial services, nonprofit, and retailing industries. She has worked with
organizations undergoing organizational changes such as mergers and acquisitions.
Sarah joined Watson Wyatt from another human resources consulting firm, where she worked
with a variety of clients in the design and implementation of incentive plans, sales incentives,
and performance management systems. She conducted organizational assessments,
compensation training, and team - building sessions.
Previously, Sarah was the head of corporate compensation and HRIS for The Aerospace
Corporation, a nonprofit research and development organization. While in that position, she was
responsible for the design and implementation of competency -based maturity curves for more
than 2,500 scientists, engineers, and other members of technical staff. She developed a
leadership recognition program for all employees and a market -based compensation system for
administration employees.
Sarah previously held human resources and line management positions at Tellabs, a Chicago -
based telecommunications equipment manufacturer, and at Target, a major retail division of
Dayton Hudson Corporation.
Sarah has been a frequent presenter at human resources and compensation events, including the
American Compensation Association National Conference and local ACA and SHRM chapters
in Dallas, Austin, Houston, and Fort Worth.
Sarah, a Certified Compensation Professional (CCP) with the American Compensation
Association and a Senior Human Resources Professional (SPHR) with the Society for Human
Resource Management, received a BS in Mathematics from the University of Texas, and an
MBA from Southern Methodist University. She has completed graduate study at the University
of Redlands, where she was a member of the Alfred Whitehead Leadership Society.
DATE:
SUBJECT:
ITEM:
Resource:
History:
Funding:
Cost:
Source of Funds:
Outside Resources:
Impact/Benefit:
Public Comment:
Sponsor:
July 20, 2001, 2001
City Council Meeting — July 26, 2001
* 14.B.1. Consider a resolution authorizing the Mayor to execute a letter of
agreement with Watson Wyatt & Company for an independent review
of the City's benefit program.
Teresa Bledsoe, Human Resources Director
The City health, dental and vision benefit program for its employees is
currently structured as a Preferred Provider Organization (PPO). A
PPO contract with a network of doctors, hospitals and other health
care providers who deliver services for negotiated discounted fees.
The PPO offers more choice to the patient in that he or she may visit
any provider as needed in the contracted network. The City partially
self - insures by absorbing a certain amount of claims costs, directly
hiring a claims administrator and reinsurer to protect against
catastrophic losses.
The plan has worked well in providing quality care at affordable costs
to the City and its employees.
However, over the past three years, extremely high utilization of the
plan has driven costs upward. It is the recommendation of staff that an
independent professional be engaged to review the plan in order to
determine if the plan is providing the quality benefits at a competitive
cost.
$25,000 to $30,000
General and Utility Operating Budget
Watson Wyatt Worldwide
The study is to determine the appropriate steps toward more effective
plan design and cost management. The study will provide a written
summary of potential changes to the City's plan with an estimate of
the cost impact of these changes.
N/A
N/A
Mayor
Robert A Stluka, Jr.
1ayor Pro -tem
Tom Nielson
Council Members
Alan McGraw
Carrie Pitt
Earl Palmer
Isabel Gallahan
Gary Coe
City Manager
Robert L Bennett, Jr.
City Attorney
Stephan G Sheets
CITY OF ROUND ROCK
November 29, 2001
Mr. Jerry Turner
Watson Wyatt & Company
2001 Ross Avenue
Suite 4200
Dallas, TX 75201 -2989
Dear Mr. Turner:
The Round Rock City Council approved Resolution No. R- 01- 07 -26-
14B 1 at their regularly scheduled meeting on July 26, 2001. This
resolution approves the letter agreement for an independent review of
the City's benefits program.
Enclosed is a copy of the resolution and contract for your files. If you
have any questions, please do not hesitate to contact Teresa Bledsoe at
218 -5494.
Sincerely,
0
Christine R. Martinez
City Secretary
Enclosures
Fax: 512- 218.7097
1 -800- 735 -2989 TDD 1- 800 - 735 -2988 Voice
www.ci.round- rock.tx.us
221 East Main Street
Round Rock. Texas 78664
512-218-5400