May 10, 1999

TO:Corporate Services Committee

FROM:Chief Financial Officer & Treasurer

SUBJECT:ADMINISTRATIVE AND UNDERWRITING SERVICES FRO EMPLOYEE BENEFITS

Purpose:

The purpose of this report is to seek authority to enter into an agreement with Sun Life Assurance Company of Canada (hereinafter referred to as "Sun Life"), for the provision of Administrative Services Only (ASO) and Underwriting Services with respect to Group Life, Long Term Disability (LTD), Extended Health Care and Dental Care benefit coverage for the City of Toronto under the terms and conditions outlined in an RFP issued in November, 1998.

Authority is also being sought to terminate existing agreements with the 13 insurance carriers who currently provide ASO and underwriting services for City of Toronto benefit plans.

Funding Sources, Financial Implications and Impact Statement:

Funding of benefits coverage is contained in Departmental budgets. Savings resulting from the consolidation to a single benefits provider will be realized in the Employee Benefits Reserve to offset the City's total unfunded liabilities.

The benefit plans covering Group Life, LTD, Extended Health Care and Dental Care are currently administered for the City of Toronto by 13 external organizations, under contractual agreements for specified annual administrative fees. Administrative fees for 1998 were approximately 6% of claims costs ($82.0 million), amounting to $4.9 million. It is estimated that the City will realize approximately $1.3 million in annual savings or 26.5% in administrative fees by entering into an agreement with Sun Life for the provision of ASO and underwriting services. The estimated administrative fees of $3.6 million represents 4.17% of the claims costs. In addition, Sun Life has offered three full time staff members to work in the City of Toronto Finance Department, as employee contacts and administrative assistants to help ease the burden of administrative duties on City employees particularly during the transition phase.

Recommendations:

It is recommended that:

(1) the Chief Financial Officer & Treasurer and the City Solicitor exercise the City's rights to terminate existing agreements which provide for 30 days written notice for termination, with the present benefit plan carriers;

(2) the City enter into an agreement with Sun Life (subject to Y2K compliance), in a form satisfactory to the Chief Financial Officer & Treasurer and the City Solicitor, for the provision of underwriting and administrative services with respect to the Group Life, Long Term Disability, Extended Health Care and Dental Care benefit plans of the City on the terms and conditions outlined in this report and the Request for Proposals issued on November 27, 1998;

(3) the Minister of Municipal Affairs and Housing be formally requested to amend the Municipal Act to reflect the Ministry's current policy concerning municipal self-insurance of staff group health plans, by conferring an express power on municipalities to provide direct group accident and group sickness benefits with respect to employees without being subject to the Insurance Act, and in the interim the City continue to maintain and apply for its intended purpose, under the control of the Chief Financial Officer & Treasurer, an appropriate reserve (currently approximately $100,000,000.00) to fund employee long-term disability benefits;

(4) the term of the agreement with Sun Life, be for a one-year period effective August 1, 1999, with options to extend for additional one year terms but for no more than five years with administration fees guaranteed for a three year period; and,

(5) the appropriate City officials be authorized and directed to take the necessary action to give effect hereto.

Background:

Prior to amalgamation, an intermunicipal team (the Pensions and Benefits Working Team), comprised of staff from each of the former seven municipalities, was formed to analyze issues related to amalgamation and create a consolidated plan with respect to benefits administration.

The Team's mandate was to provide the framework and strategies necessary to enable the new City to achieve a process for the fair and equitable transition of Benefits and Pension into the new amalgamated City of Toronto.

A consulting firm, Morneau, Sobeco, Coopers & Lybrand, was engaged to review employee benefit plans across the seven municipalities. Their recommendations included:

consolidating providers while maintaining current benefit levels;

maintaining current benefit levels in the short term pending the outcome of Collective Bargaining;

continuation of traditional benefit programs in the short term to ensure that no employee perceived a decrease in benefit levels due to amalgamation; and,

consider implementation of a flexible benefits plan in the future to allow employee flexibility, combat future escalation costs, provide a progressive image, and ensure employees' ability to continue pre-amalgamation coverage levels

In 1998, the consulting firm of William M. Mercer Limited, was engaged to provide ongoing support to the City in benefit matters including the development and issuance of an RFP for ASO and Underwriting Services for benefit plans, the development of an implementation strategy for the selected single carrier and the development of a flexible benefit framework.

The rationale for consolidating the provision of benefits services under one provider include:

Consistent claims assessment for all covered individuals;

Improved and consistent communication to employees;

Opportunities for savings resulting from more advanced technology-including the ability to support smart-card technology;

Improved management information for decision-making purposes;

Reduced adjudication fees; and,

Reduced "stop loss" charges (risk avoidance premium).

A team which included the external consultant (William M. Mercer Limited) and representatives from the Finance Department, released a duly advertised RFP for ASO and underwriting services for Employee Benefit Plans in November, 1998.

Discussion:

Extended Health and Dental

Most benefits are adjudicated by a third party since the coverage is being provided on an Administrative Services Only (ASO) basis. Under an ASO agreement, the employer self-insures benefits using a third-party adjudicator to pay claims on its behalf. Under this method, the employer bears financial responsibility for the entire cost of claims and expenses. To minimize the risk to the employer, third-party adjudicators establish a risk "ceiling" in exchange for a small premium (Stop-Loss). With Stop Loss, the portion of claims exceeding a pre-determined maximum are removed from the ASO plan and become the third party's liability. This helps protect the plan from catastrophic claims.

ASO was the most common funding method used by the former seven municipalities for Extended Health and Dental coverage and it is recommended that this underwriting method be adopted as the underwriting method for the new City.

Group Life Insurance

All of the former municipalities used an insurance company to adjudicate and process life insurance claims. The most common underwriting method for Group Life Insurance was Refund Accounting with Stop Loss.

Under this underwriting method, a premium is paid throughout the year and an accounting of the surplus/deficit position is conducted at year end.

It is recommended that the Group Life Insurance plans continue to be administered under the Refund Accounting with Stop Loss underwriting method with pooling on the Accidental Death and Dismemberment provision. Pooling allows experience of a larger group to determine overall premium rate and adjustments, if any.

Long Term Disability

The most common funding method for Long Term Disability benefits is on an ASO basis where a licensed insurance company is engaged to act as claims adjudicator only, and does not accept any of the risk associated with a claims-over-deposits shortfall.

The City Solicitor has expressed the opinion that ASO funding arrangements for Long Term Disability benefits are contrary to the Municipal Act and the Insurance Act, which require that these benefits be provided by a licensed insurer. However, in discussions with the Ministry of Municipal Affairs and Housing, the Ministry has confirmed that the provisions contained in this legislation are outdated. Five of the seven former municipalities operated the LTD plan as ASO. The former East York and York operated their LTD plans as true insurance.

In order to insure the LTD benefits, it would now be necessary to transfer reserves to Sun Life in the amount of approximately $100 million. It is the recommendation of the Chief Financial Officer & Treasurer, that it would be fiscally more prudent to continue to hold our own reserves and benefit from their investment and proceed with an ASO policy.

Metro Council considered the issue of the transfer of $61.0 million in reserves in October, 1997 and referred the matter back to the Corporate Administration Committee with a request for assurances of protection in the event of insolvency of the insurer and proposals for alternatives to transferring the $61.0 million. On December 10/18, 1997, Metro Council directed that no further action be taken with respect to the transfer of funds at that time. Long term disability claims have been processed on an ASO basis even without a duly signed contract with Sun Life. The practice with former Metro's long term disability claims, adjudicated by Sun Life during the past 2 ½ years.

It is therefore recommended that the contract with Sun Life for the provision of Long Term Disability benefits be on an ASO basis and that the Minister be formally requested to amend the legislation to be consistent with the widespread practice of municipalities in this field.

Comments:

The RFP Context and Requirements:

Staff of William M. Mercer Limited confirmed that ASO agreements are commonplace in large organizations like the City of Toronto which require professional, state-of-the-art claims management processes, as well as impartial claims adjudication. Under an ASO agreement, the employer bears total financial responsibility for the cost of claims and expenses. This is why sophisticated adjudication systems and low administration fees are necessary. Sophisticated computer technology has significantly changed the design and administrative procedures of benefit plans in many organizations.

The consultants identified the need for the City to investigate and assess cost management options and strategies to help control rising benefit costs. The technology required by the City utilizes real time claims processing on-line. This provides for electronic data interchange (EDI) between the direct provider of benefits services (e.g., the dentist or pharmacy) and the company that adjudicates claims under the benefit plans on behalf of the City. Other cost management measures, already in effect in many of the municipalities include concurrent drug utilization review, coordination of benefits, positive enrolment and managed health care. These are all reliant on state-of-the-art technology.

The RFP Process:

The RFP was prepared by City staff and released on November 27, 1998 through the offices of the City's Purchasing & Materials Management Division of the Finance Department. The following schedule of events was followed as described in the RFP:

RFP Information meeting, December 18, 1998

Viewing of City's Various Benefit Contracts, November 30-December 11, 1998 (extended to January 8, 1999)

Proponents' Questions Deadline (Written), December 10, 1998

Confirmation of Proponents' of Intent to Submit, December 21, 1998

Deadline for Submissions of Proposal, January 22, 1999

Interviews with Short-listed Proponents, March 3, 1999

Visit Short-listed Proponents' sites, March 5-18, 1999

Selection of Preferred Proponent, April, 1999

Throughout the RFP process, due diligence was exercised in ensuring fairness, integrity and confidentiality of the RFP process. Specific illustrations include, for example, the requirement for each of the proponent's questions to be documented, responded to in writing and sent to all proponents as formal Addenda for the RFP document.

Evaluation of Submissions

In total, four submissions to the RFP were received and accepted within the specified deadline. Submissions were received from the New Millenium Dental Group, Cumba Health Network, Manulife Financial and the Sun Life Assurance Company of Canada. Representatives of the City's Finance Department, the Corporate Services Department (Human Resource Services and Information Technology), and Internal Audit undertook a three-stage evaluation of the Submissions. Technical advice and assistance for the first stage was provided by William M. Mercer Limited.

Stage 1 Evaluation - Assessment of Submissions against the mandatory RFP Criteria was undertaken in order to eliminate proponents who did not conform to or meet, the requirements of the City. Four of these criteria were deemed to be mandatory - General, Underwriting/Financial, Reporting and Client Services.

The criteria were grouped into 10 categories utilizing Technospecs software supplied by William M. Mercer Limited. Technospecs is William M. Mercer's proprietary software and allowed the team to objectively identify a shortlist of insurers; to obtain a quicker initial evaluation of the submissions, provide consistent cost effective unbiased preliminary ranking of insurers who were able to meet the terms of reference and provide a level playing field for all proponents. Rankings were dependent on the insurers' answers to specified questions.

The four companies were then assessed in detail to determine the degree to which each conformed to the RFP mandatory criteria.

Some of these items included:

• The right to audit all claims payments;

• Access to raw claims data;

• Adherence to plan design, administration services and underwriting/financial arrangements;

• Ability to provide toll free telephone line(s) for City employees and retirees;

• Implementation and ongoing assistance with a dedicated team;

• Successful completion of a government or public sector contract of comparable scope, size and nature described in the RFP;

• Supplied references of satisfactory performance relevant to this;

• Produced recent evidence of Proponent's ability (knowledge, skill, means, and resources) to perform the work (i.e., administer a benefit plan of similar size, level and scope to the City of Toronto as described in the RFP); and,

• Demonstrated technical, administrative capabilities, financial stability and relevant expertise.

The 10 categories assessed in the Stage 1 evaluation process were:

• Administration
• Claims Adjudication

• Client Service
• Cost
• Cost Containment
• Disability Management
• General

• Reporting
• Underwriting

Administration

Some of the items included under this category were:

• Ability to provide a PC-based administration program or an on-line facility whereby the client could tap into the insurer's mainframe in order to:

>Change records on line;

>Track claims experience;

>Check claims payments;

>Produce census reports;

>Produce utilization trend reports;

• Downloading capability between City's and insurers systems; and,
• Email communication.

Claims Adjudication

This category requested information regarding the claims dispute process; adjudication with or without a drug card; adjudication based on dispensing fee cap; ability to adjudicate electronically submitted dental claims; ability to deny dental claims submitted on assignment; adjudication of out of pocket maximums on health and dental claims; ability to adjudicate separate co-insurance for periodontics and endodontics; full use of dependant enrolment data and many other claims adjudication issues.

Client Service

This section asked for confirmation of willingness to enter into a performance standards agreement; availability of a toll-free/local phone number for employee enquiries; cost of providing employee booklets; ability to execute preparation of employee announcement letters; written confirmation for quoted rates; ability to issue administration manual; and, ability to prepare policy booklets, issue claims forms and issue ID cards.

Cost

This section asked for confirmation of the establishment of disabled life reserves and their inclusion in annual renewals. Confirmation of rates for Life, AD&D and LTD to be guaranteed for three years was to be required. Guarantee of expense formula and constant charges for 36 months was to be confirmed. Insurers had to indicate their willingness to draft a financial services agreement.

Cost Containment

This section asked for guarantees that systems were in place to ensure that provincial government health and dental benefits are first paid by government programs. Insurers were asked to detail their experience with Managed Care initiatives.

Disability Management

Proponents were asked to confirm their willingness to extend regular review meetings to develop mutually agreed upon action plans to return employees to work. Various questions dealt with administration and philosophy regarding Rehabilitation and Return to Work.

Flex Benefits

This section assessed the insurer's experience and ability with flex benefits and their handling of Health Spending Accounts.

General

This section dealt with confirmation of quoted fees, the insurance company's financial stability and bond rating. It also dealt with the willingness of the insurer to allow an independent claims audit to determine adherence to the terms of the contract.

Reporting

This section asked questions regarding the insurer's ability to report data in a variety of formats and by various data elements.

Underwriting

This section dealt with underwriting issues, mostly related to policies regarding pre-existing medical conditions, evidence of insurability, conversion to individual policies, Living Benefits for Group Life, etc.

At the end of Stage 1, Sun Life and Manulife were very close in ranking with Sun Life being first, Manulife second and Cumba third.

Cumba's responses to the categories dealing with Cost Containment, Flexible Benefits, General and Underwriting were much lower than the responses provided by Sun Life and Manulife.

At the end of Stage 1, one proponent (New Millenium Dental) had been eliminated from further consideration. Their proposal did not address all of the mandatory criteria specified in the RFP but rather identified an alternate proposal for dental care only.

Stage 2 Evaluation - Interviews of the three short-listed proponents was undertaken by a City panel. The panel members included the Director of Pension, Payroll & Employee Benefits, the Manager of Benefits and Employee Services, the Director of Audit, the Director of Applications Technology and the Director of Human Resources, Employee Services. Formal questions were asked of each proponent and the responses rated by the individual interview team members against pre-determined, minimum expected responses using weighted evaluation criteria.

The categories covered in the Stage 2 Evaluation included:

• Implementation plan
• Implementation experience
• Transition (enrolment, questions)
• Managing disabilities
• Handling changes in adjudication
• Call centre-increased volumes
• Provider audits
• Help in dealing with various groups
• Claims resolution dispute process
• Coordination of initiatives
• Who to call
• Y2K compliance
• Partnership/ongoing service

Implementation Plan

Sun Life was the only insurer to provide a detailed implementation plan including a time-line and detailed task list which indicated that they had given serious consideration to the enormity of the task and broken it down into manageable segments.

Implementation Experience

Sun Life's experience with major public sector implementations includes the former Municipality of Metropolitan Toronto, the Federal Government and the City of Montreal.

Transition

Sun Life presented the most feasible transition plan, based on previous public sector experience. This plan included awareness of the difficulties of administering multiple plan designs, the need to have fully trained staff in their Call Centre and on-site at City locations (to be determined by the City), communications issues to minimize impact of employees and re-enrolment issues.

Managing Disabilities

Cumba does not provide LTD coverage.

Sun Life and Manulife both demonstrated experience and ability in this area, however Sun Life's disability management philosophy was more in tune with the City's efforts to develop an integrated disability management approach emphasizing early intervention.

Handling Changes in Adjudication

Both Sun Life and Manulife have state-of-the-art adjudication systems capable of handling multiple plan designs and changes in plan design. This will become increasingly important as collective bargaining progresses and benefits changes occur as a result.

Cumba's systems are still in the testing stages for Health and their Dental adjudication system is not anticipated to be ready until late 1999.

Call Centre-Increased Volumes

Sun Life had the most realistic expectation regarding increased demand on their Call Centre. This was based on their experience with the former Metropolitan Toronto plan transition which saw volumes increase by 25% in the first month. Sun Life was criticized for this and quickly resolved the problem in the case of the Metro plan. They have already made plans to increase staff accordingly based on their previous experience.

Sun Life relocated their Call Centre in 1997 to allow for expansion and have work stations fully equipped to accommodate increased staff.

Provider Audits

Both Manulife and Sun Life have sophisticated claims adjudication systems and skilled examiners capable of detecting possible fraudulent practices being conducted by providers. The ability of the insurance company to identify fraud helps keep claims costs down by recouping lost dollars and preventing further fraud.

Helping Deal with Various Groups

Proponents were asked to detail how they would work with City Staff in dealing with employees, retirees, the Unions and elected officials. Sun Life proposed a governance model which is detailed under "Value Added".

Claims Resolution Dispute Process

Both Manulife and Sun Life had formalized methodologies for dealing with disputes arising from claims adjudication which involved both City and insurer staff.

Coordination of Initiatives

Sun Life presented the most comprehensive overview of a coordination plan. They will provide a dedicated "install coordinator" who will work exclusively on the City of Toronto transition. This idea was not contemplated by the other carriers whose installation team will have other clients to deal with while trying to install the City plan.

Who to Call

Sun Life clearly identified the team to be assigned to the City of Toronto account. Many of the team members will be assigned exclusively to the City of Toronto account due to its size and complexity.

Y2K Compliance

Sun Life and Manulife both have detailed strategies to have all their systems Y2K compliant by the end of 2nd quarter of 1999.

Partnership/Ongoing Service

The City of Toronto will need an insurer who is responsive to its needs during the transition from 13 existing carriers. In addition, the City will require an insurer who can provide ongoing service in terms of providing reports, responding to plan changes and providing good customer service.

Right Team

This category gave panel members an opportunity to assess the "fit" of the insurer's staff with City staff.

Sun Life presented their front-line staff at the interview who were extremely knowledgeable regarding all facets of the their existing book of business with the City of Toronto and also on the contracts currently held with other carriers.

Supplementary Questions

Various points of clarification were required to address items arising from the presentation. The panel members were able to judge how well the presenters could answer ad hoc questions.

Value Added

• Major items presented by Sun Life were:
• Addition of three Sun Life staff members to work on site with City staff to aid in quicker claims resolution and assist with administrative tasks;
• A Blueprint for Implementation which presented a detailed task list of all items that needed to be addressed -- no other proponent supplied such a detailed plan;
• Data Warehouse - where statistics and financial information would be housed allowing us to run ad hoc reports;
• Access to the Assure Database through the internet: this feature was comparable to Manulife's partner for drug claim handling; and,
• A proposal by Sun Life of a Governance Model whereby a committee comprised of representatives from several areas within the City of Toronto meet on a regular basis to proactively address issues as they arise, share concerns and constructively discuss common approaches and solutions. Such a committee would be comprised of members of the Finance Department, Human Resources and the Unions.

The Governance Model

This committee would ensure that all stakeholders are aware of the level of coverage under the plan, and are informed about plan changes as they are negotiated and implemented. It would ensure that there is a common understanding of these issues and a common message to the employees of the City.

The committee could also have as possible objectives:

• Safeguarding the plan: identifying suitable cost management initiatives to ensure that the plan continues to provide a solid level of benefits protection to members.
• Quality Service - a common definition: the definition of quality service may vary slightly depending on the perspective of the stakeholder. Shaping a common definition helps to find the right balance between claims adjudication philosophy, claims turnaround time, customer service levels, effective disability management, etc.
• Resolving Plan Member Complaints and Disputes: higher profile and more involved claims disputes can be resolved through an open discussion to ensure consistent resolution of issues and to consider the best interest of both the plan and the plan members.
• A Forward Looking Vision: a forum such as this helps to shape the future vision and direction of the plan.

Provision was also made for members of the interview panel to rate their individual assessment of the proponents on:

• Presentation of the right team;
• Answers to supplementary questions; and,

• Presentation of value added items.

The ranking for the Stage 2 Evaluation was Sun Life first, Manulife second and Cumba a distant third.

Sun Life was the only insurer to provide a detailed implementation plan and dedicated staff. They were also the only insurer that included in their proposal three on-site staff to supplement Finance staff involved in benefit delivery.

Stage 3 Evaluation - Site visits were made to each of the three short-listed proponents as specified in the RFP.

The Evaluation Team ranked the proponents in five areas:

• Systems
• Business related systems operations
• Audit
• Call Centre capacity
• Rehabilitation

The ranking for the Stage 3 Evaluation was Sun Life first, Manulife second and Cumba a distant third.

Outcome of the RFP Evaluation:

The final evaluation ranking was based on the total score results of each of the stages and components of evaluation, as presented above, as well as the reference checks subsequently undertaken by the Finance Department. The outcome clearly indicated that Sun Life was the preferred proponent. Sun Life is best able to meet the requirements of the City of Toronto in terms of its overall capabilities including:

• Satisfying the RFP Mandatory Criteria for each of the Group Life, LTD, Extended Health and Dental Care benefit plans;
• Satisfying the other criteria contained in the RFP (namely, Y2K compliance, provision of rehabilitative services and internal controls for audit purposes);
• Meeting, or exceeding the RFP other requirements;
• Offering exceptional on-site availability with the provision of three on-site staff;
• Articulating a strong transition implementation plan;
• Possessing a solid and extensive public sector client base;
• Possessing in-house medical and dental staff;
• Offering home visits to facilitate LTD claims management;
• Providing performance standard agreements and benchmarking reports. These can be evaluated after one year to determine possible renewal of the contract or other courses of action; and,
• Providing cost effective coverage in accordance with the terms of a specified benefit plan.

Sun Life offers specific financial benefits to the City including the guarantee of very competitive administration fees and claims charges for a three year period. In addition, they will also provide the services of three staff members to supplement existing City staff, a value of approximately $123,000.

Sun Life is the incumbent carrier for over one third of the City of Toronto and, in addition to this, administers some of the largest and most complex group benefits plans in the country, e.g., the City of Montreal (11,000 employees) and the Federal Civil Service (470,000 employees).

Attached as Appendix I is a schedule which illustrates the City's current situation as well as the benefits of moving to one carrier, Sun Life.

The Metro Experience

Sun Life was engaged as the insurer for the former Municipality of Metropolitan Toronto commencing January 1, 1997. The resulting reduction in Extended Health and Dental claims costs from 1996 to 1997 was in the amount of $3.6 million. This was largely attributable to two factors including consolidation of all benefit coverage under one provider and Sun Life's more diligent adjudication of the benefits contract.

It is clear from the savings achieved in their first year as insurer for the Municipality of Metropolitan Toronto that Sun Life's adjudication methods followed the corporate specific directions on level of service allowing the municipality to benefit from savings on claims costs as well as reduced administration fees.

The terms of the Metro contract with Sun Life were established by Metro based on negotiated and Council approved benefit levels. Fee guidelines and normal and customary limits on all benefit items were set by Metro. Savings on claims costs can only be achieved by the carrier paying claims in accordance with the contract terms.

The degree to which Metro was to realize significant savings was largely dependant upon the diligence of the carrier in its claims adjudication process. Sun Life has shown itself to have superior adjudication and claims dispute resolution mechanisms than those provided by the previous carrier.

Benefit coverage levels changed as a result of collective bargaining in 1996 just prior to the start of the Sun Life contract. These changes were perceived to be reductions in benefit levels on the part of Sun Life rather than negotiated plan design changes.

The financial agreement with Cumba, Metro's previous benefit carrier for drug claims was, in fact, based on a percentage of claims paid rather than a flat fee per prescription based on drug identification number (DIN) as is the case under the Sun Life contract. Cumba's 1996 proposal would have resulted in higher costs to Metro in administration fees.

Concerns were expressed over the quality of Sun Life's contract performance. There were some initial problems in the transition from the previous carrier relating to volumes of claims and inquiries not anticipated by Sun Life to the degree required. These have been addressed and resolved. There were complaints that claims adjudication was stricter. After careful review, it has been determined that Sun Life is interpreting benefit levels for the Metro plan in accordance with collective agreements. A recent analysis was performed to review the number of errors Sun Life was making in adjudicating claims. During the one year period from January 1, 1998 to December 31, 1998, Sun Life received 25,215 calls. Of those, 20 processing errors were discovered: 12 medical and eight dental - an error rate of .07%.

With over 2,500 identified tasks to be completed in a benefits provider transition, a variety of problems should be anticipated and plans made to minimize their impact on employees. It is our view that Sun Life has demonstrated that they can handle the needs of different employees; they can meet the required service standards and internal audit standards and can deliver on their commitments. They have demonstrated their ability to work with a large organization and respond to its needs.

No plan changes will occur coincident with the changeover to a new benefits provider. The benefits coverages included in the RFP are according to current plan levels. This will alleviate confusion for employees who often, as in the Metro experience, perceived that plan changes were attributed to the carrier rather than to the benefits plan.

Management, employee groups and Sun Life will work together to administer the benefit programs while adhering to the terms of the collective agreements. The health and well-being of the City's employees will not be compromised in attaining this objective.

Next Steps:

The consolidation of all existing benefit plans under one carrier is the first step towards realizing cost management of benefits coverage. Additional options and strategies are available but require the advanced technology of a company such as Sun Life for successful implementation. The City should anticipate creating an environment where such strategies are possible in the future so that any new strategies can be incorporated into the agreement as required.

Conclusion:

Significant savings can be achieved by consolidating providers while at the same time maintaining current benefit levels pending the outcome of consolidated plan design. Accordingly, the City issued a Request for Proposal to this end in November 1998.

This report outlines the context and requirements of the Request for Proposal, the process undertaken by City staff from several departments and, the evaluation criteria, steps and methods employed to assess the submissions received from four interested proponents. Having reached their conclusions, staff is recommending to Council that a new agreement is entered into with the Sun Life Assurance Company of Canada. The availability of departmental funds to support the payment of annual administration fees and claims costs has been confirmed. An agreement with Sun Life will provide the City of Toronto with approximately $1.3 in cost avoided fees for the year 2000.

Contact Name:

Ivana Zanardo

Director

Pension, Payroll & Employee Benefits

397-4143

Chief Financial Officer & Treasurer