February 10, 2000

To: Administration Committee

From: Benefits Carrier Working Group

Subject: Administrative and Underwriting Services for Employee Benefits

Purpose:

The purpose of this report is to report on the results of the meetings held of the Benefits Carrier Working Group and to recommend a benefits carrier for the City.

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.

Recommendations:

It is recommended that:

(1) recommendations (1) and (3) contained in the report, dated May 10, 1999, from the Chief Financial Officer & Treasurer be adopted;

(2) the City enter into an agreement with Manulife 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 in acccordance with the terms and conditions outlined in the Request for Proposals issued on November 27, 1998, the Manulife proposal and otherwise on terms and conditions satisfactory to the Chief Financial Officer & Treasurer and in a form satisfactory to the City Solicitor;

(3) the term of the agreement with Manulife, be for a one-year period effective March 1, 2000, 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;

(4) the Benefits Carrier Working Group be renamed the Benefits Administration Advisory Group to assist the Chief Financial Officer & Treasurer and Director, Pension, Payroll & Employee Benefits in the implementation of the recommended benefit carrier and ongoing issues with respect to benefits administration; and,

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

Background:

City Council, at its meeting held on July 6, 7 and 8, 1999, had before it Clause No. 1 of Report No. 7 of the Corporate Services Committee, titled 'Administrative and Underwriting Services for Employee Benefits'. Council directed that the aforementioned clause be struck out and referred to the Administration Committee for further consideration. In addition, Council recommended that,

"(1) a working group, comprised of the following, be established to develop Terms of Reference and a process for the selection of a benefits carrier for City of Toronto employees:

- two Members of Council to be appointed by the Mayor;

- the Chief Financial Officer and Treasurer;

- representatives from the office of the Chief Administrative Officer;

- one representative each from the following organizations:

- Local No. 79;

- Local No. 416;

- the City of Toronto Administrative, Professional and Supervisory Association, Incorporated (COTAPSAI); and

- the Toronto Firefighters' Association

(2) the working group be requested to submit its report to the Administration Committee within three months' time; and

(3) in the interim, the existing benefits administration contracts continue."

Comments:

The Benefits Carrier Working Group was established with the following membership:

- Councillor Lorenzo Berardinetti

- Councillor Gordon Chong

- Wanda A. Liczyk, Chief Financial Officer & Treasurer

- Alan Slobodsky, Chief Administrative Officer's Office

- Ivana Zanardo, Director, Pension, Payroll & Employee Benefits Division

- Anne Dubas, President, CUPE Local 79

- Robert Feeney, CUPE Local 79

- Mike Kemp, Outside Divisional Chair, CUPE Local 416

- Bob Toop, National Representative, CUPE Local 416

- Dave Sickles, Benefits Chair, IAFF Local 3888

- David Neil, President, COTAPSAI

- Bob Parkes, Treasurer, COTAPSAI

While the size of the group was larger than recommended by Council, it was agreed that the above group was acceptable in order to ensure continuity of discussion and information sharing.

The Terms of Reference, attached as Appendix A, were reviewed and discussed.

The Group met five times from November 1999 to January 2000. At the first meeting, the Group decided to discuss the following topics:

- Membership of the Working Group

- Terms of Reference

- Process Review

- Criteria Review

The balance of the first meeting was spent reviewing the process that was followed by staff in making the recommendations presented in the May 10, 1999 report of the Chief Financial Officer & Treasurer. That process, as described in that report, involved the preparation and release of a Request for Proposal and the evaluation process.

The second meeting of the Group focused solely on the first stage of the evaluation process which was the selection of proponents that qualified for the short list. Four firms submitted proposals which were reviewed by the staff team with the assistance of a benefit consultant from William M. Mercer. At the end of stage one, three firms were recommended for the second and third stages, i.e., interviews and site visits. Members of the Group requested further information be provided regarding the questions that were posed at the initial evaluation, interview and site visit stages.

The benefit consultant from William M. Mercer was invited to assist the Group in the review of the nature and type of questions that all respondents were requested to respond to as part of their proposals. Stage 1 of the evaluation was performed by William M. Mercer using their proprietary software called Technospecs. Members of the Group requested, that in addition to the scheduled meetings of the Group, that the material used in the evaluation process in stage one be available for review in greater detail in separate individual meetings in order to be better prepared for the Group meetings and discussion. This request was accomodated in this review process.

The Group raised questions about how the questions in all three stages of evaluation were marked by the City staff team, i.e., what were the 'right' answers that were determined by the City staff team. The criteria as well as the questions related to each of the criteria were then discussed in detail.

The next meeting of the Group was spent discussing each of the criteria defined by the city staff team for assessing the RFP responses in detail. The criteria used in the evaluation are listed in Appendix B.

The relevance of each of the criteria was agreed by the Group but the relative importance of the criteria in the evaluation process was cause for great discussion. The members of the Group were requested to consider the criteria and relative weighting of each of the criteria. It should be noted that the actual weightings used by the City staff team were not disclosed to the Group members.

At the next meeting of the Group, the Group went through an exercise of changing the weighting to what they would individually have assigned to the criteria; in essence, it performed 'what if' scenarios.

At this point in the review process, the ratings assigned by the city staff in the initial evaluation to the answers to the questions were then applied to each members' weighting with a total evaluation score being derived. It should be noted that the Group did not re-rate any of the original staff team's scoring of the answers to the questions.

The findings from this exercise were then the subject of much discussion within the Group. Only two of the respondents to the City's RFP were considered capable of providing the services requested in the RFP process, Sun Life and Manulife. The Group weighting exercise demonstrated that these two firms were very close in terms of their final scoring. Likewise, when reviewing the City staff team's original final scoring of the top two firms, it reinforced the view that the two top firms were very close in scoring and that the ranking displayed in the staff report did not relay to Council how close the scoring really was in the evaluation process.

It should be noted that the original staff team report identified the relative ranking of the three firms that proceeded past the first stage of evaluation on to the interview and site visits. These rankings had scores attached that were not disclosed in the staff report but which were disclosed in the Council discussion of this matter in camera. It was noted though, at that meeting that the scoring results were very close.

Discussion then ensued on the qualitative elements of the top two firms in light of the very close scoring after both the original staff weighting and scoring and the Benefits Carrier Working Group scoring. After a comprehensive and lengthy review of various elements of service, the Group considered carefully and came to a consensus decision that Manulife be recommended as the successful proponent in this evaluation process.

It should be noted that the original RFP was developed without the input of the City's bargaining agents. The initial evaluation of the RFP responses was also performed without the input of the City's bargaining agents. The Benefits Carrier Working Group, through the series of meetings held over the past three months, has participated in the review process and provided a due diligence overview to the original process. The nature and level of benefits for active and retired employees remains unchanged as a result of these recommendations.

As noted previously, the Group over the past three months, had very fruitful discussions on many issues surrounding the administration of benefits. It was agreed to recommend that the Group would be renamed The Benefits Administration Advisory Group and assist the Chief Financial Officer & Treasurer and the Director, Pension, Payroll & Employee Benefits in the implementation of the recommended benefits carrier and ongoing issues with respect to benefits administration.

Conclusions:

The Benefits Carrier Working Group met over the past three months and comprehensively reviewed the process, the questions, the criteria and weightings used in the original staff process. After careful consideration of qualitative service factors, the Group unanimously supports amending the benefit carrier to Manulife.

The Group has also recommended its ongoing assistance to City staff in the implementation of the new benefits carrier and other benefits administration issues.

Benefits Carrier Working Group

Appendix A

Benefits Carrier Working Group

Draft Terms of Reference

Overall Mandate

The Benefits Carrier Working Group will be established to develop Terms of Reference and a process for the selection of a benefits carrier for City of Toronto employees. The working group be requested to submit its report to the Administration Committee within three months time; and in the interim, the existing benefits administration contracts continue.

Membership

The membership will be comprised of:

- two members of Council to be appointed by the Mayor

- the Chief Financial Officer & Treasurer

- representative from the Office of the Chief Administrative Officer

- one representative from each of the following organizations:

- Local No. 79;

- Local No. 416;

- the City of Toronto Administrative, Professional and Supervisory Association, Incorporated (COTAPSAI);

- the Toronto Firefighters Association.

Specific Responsibilities and Roles

- Review the process followed for the current staff recommendation

- Provide feedback and input to the selection process followed - overall as well as specific components

- Review the criteria used in the current staff recommendation for evaluation, including the weighting of each criteria

- Provide feedback and input to the criteria and weighting - overall as well as specific components

- Recommend next steps to Council.

Appendix B

Evaluation Criteria

Stage 1 - Assessment of Submissions Against RFP

- Mandatory Criteria Compliance

- General

- Underwriting

- Reporting

- Client Services

- Other Criteria

- Administration

- Claims adjudication

- Cost

- Cost containment

- Disability management

Stage 2 - Interviews

- Implementation plan

- Implementation experience

- Transition (enrollments, questions)

- Managing disabilities

- Handling changes in adjudication

- Call centre - increased volumes

- Provider audits

- Help in dealing with various groups

- Claims resolution dispute process

- Who to call

- Y2K compliance

- Partnership/ongoing service

Stage 3 - Site Visits

- Systems

- Business related systems operations

- Audit

- Call centre capacity

- Rehabilitation