City Council
Staff Report
From: City Manager
Report Type: CONSENT CALENDAR
Lead Department: Human Resources
Meeting Date: March 17, 2025
Report #:2501-3983
TITLE
Approval of Professional Services Contract Number C25191558 with Life Insurance Company of North America, a wholly owned subsidiary of New York Life Insurance Company, in an Amount Not to Exceed $2,369,216 to Provide Group Life Insurance, Accidental Death and Dismemberment and Long-Term Disability to City of Palo Alto Employees for a Period of Three Years; CEQA Status - Not a Project.
RECOMMENDATION
Staff recommends that Council approve and authorize the City Manager or their designee to execute Contract No. C25191558 (Attachment D) with Life Insurance Company of North America, a wholly owned subsidiary of New York Life Insurance Company, to provide Group Life Insurance, Accidental Death and Dismemberment and Long-Term Disability to City of Palo Alto employees for a term of three years and total not-to-exceed $2,369,216.
BACKGROUND
As part of the employee benefits package, the City of Palo Alto contracts with a third-party administrator to provide Group Life Insurance, which includes Basic and Voluntary Life Insurance, Long-Term Disability (LTD) and Accidental Death and Dismemberment (AD&D) insurance. The current provider that the City contracts with is New York Life Insurance Company (NYL).
•Life Insurance and AD&D benefits provide financial security to employee’s families in the event an employee passes away.
•LTD benefit provides income replacement to employees if they are injured and unable to work due to a non-job-related injury.
Existing agreements with City employee bargaining units provide for maintaining these standard benefit policies. A summary of current benefit levels is shown in Attachment A. The provider of this benefit underwrites the City’s basic and voluntary life insurance, AD&D, and LTD benefits. While the City pays for basic life insurance coverage for its employees, employees can choose to purchase voluntary life insurance plan. For LTD, employees and the City
contribute towards the cost of the plan. The cost share for LTD is based on agreements between City and bargaining units.
ANALYSIS
Procurement Process
A request for proposals (RFP) was issued by the City’s benefit broker, Alliant, on behalf of the City, after it was determined that Alliant’s RFP competitive solicitation process is in alignment with the City’s. Alliant conducted a targeted approach, reaching out to four known life insurance, AD&D and LTD providers. The solicitation period was posted for 15 days, and 4 proposals were received. The solicitation closed on June 26, 2024.
Table 1: Summary of Request for Proposal
Proposal Description Request for Proposal for Life Insurance, AD&D and LTD Benefit
Proposed Length of Project 3 years
Number of Vendors Notified 4
Number of Proposal Packages Downloaded 4
Total Days to Respond to Proposal 14
Pre-Proposal Meeting No
Pre-Proposal Meeting Date N/A
Number of Proposals Received 4
Proposal Price Range $837,122 - $1,292,097
Public Link to Solicitation N/A
The proposals were evaluated and determined to be responsive to the criteria in the RFP.
The City evaluated RFP responses based on each respondent's ability to process claims expeditiously, provide enhancements to current benefits and provide cost savings to the City and employees.
Human Resources staff reviewed the proposals from New York Life Insurance (NYL), The Standard, Voya, and Lincoln. After reviewing all the submissions against the objectives that the City had for this RFP, NYL had the highest score based on the RFP solicitation process and staff decided to continue our relationship with NYL.
The focus of this RFP was to enhance the current benefit that is provided to City employees.
Staff asked all respondents to provide several options for enhancements to voluntary life insurance and LTD benefit, a summary of those options is provided below.
Voluntary Life Insurance
Voluntary life insurance provides financial security to employee’s families in the event of an employee’s passing. Currently, the City provides voluntary life insurance exclusively for employees. To enhance this benefit and provide additional financial security, staff explored options to extend voluntary life insurance coverage to employees' spouses and children. All four providers submitted quotes for spousal and children voluntary life insurance. While the maximum coverage amounts were consistent across all providers, NYL presented the most competitive overall quotes for both spousal and children’s coverage.
Please refer to Attachment B for a detailed summary of the current benefits and the proposed enhancements to the voluntary life insurance program.
Long Term Disability (LTD)
LTD benefit provides income replacement for employees who are unable to work due to a non- job-related injury. Currently, there is a 60-day waiting period before benefits are paid, and a maximum monthly benefit amount is also established. Attachment C provides details on current benefit levels. To enhance this benefit, the City explored options to reduce the waiting period before benefits start and to increase the maximum monthly amount that the LTD benefit pays out to employees. The City does not have a Short-Term Disability program, nor does it pay into State Disability (SDI) insurance. Lack of these two programs was a driving factor in decreasing the waiting period for benefits to begin from 60 days to 45 days. Two of the four providers submitted quotes that decreased the waiting period from 60 to 45 days before benefit payments start, and to raise the maximum monthly benefit amount. Voya, and Lincoln declined to provide a quote that decreased the waiting period from 60 days to 45 days. NYL presented the most competitive quote, providing a 20% cost reduction while enhancing the benefits compared to the current offerings.
Please refer to Attachment C for a detailed summary of the current benefits and the proposed enhancements to the Long-Term Disability program.
NYL has also provided a 16.7% cost reduction to the basic life insurance that the City provides to all employees at no cost to employees.
Following a thorough evaluation of all four proposals, staff has recommended that the City stay with NYL to provide group life insurance, AD&D and LTD benefits. NYL has a track record of providing excellent customer service to our employees. NYL provides several options for our employees to file claims, which includes online, via phone and mail. Furthermore, once a claim is submitted, NYL assigns a claim manager to employees’ case, and their claim is processed with 5 business days of receiving all information. This all leads to an efficient and expeditious process of employee claims. Lastly, all four proposals provided an enhancement to the current benefit offerings, NYL quoted the most competitive pricing.
FISCAL/RESOURCE IMPACT
Approval of this contract will result in savings of approximately $23,000 in FY 2025. Funds for base plans of Life Insurance, AD&D and LTD contract are included in the FY 2025 Adopted Budget in the General Benefits Funding operating budget. Funds for the remaining years will be factored into the development future operating budgets.
The rates for group life, AD&D, and LTD insurance policies are based on the number of City employees, and on the current salary of employees. With a three-year rate guarantee, the annual rate would not increase, however the total annual premium for group life, AD&D and LTD will vary based on changes to employee salaries and enrollment numbers. Cost for Voluntary Life Insurance plans will be paid by employee via payroll deductions. Cost of LTD plans will be a shared cost between employees and the City.
STAKEHOLDER ENGAGEMENT
As a benefit service provider, employees will continue to interact with the current provider, providing a smooth continuity of services. Internal stakeholders have been informed of the enhancements to LTD and Group life insurance benefit. Implementation of new services are being coordinated with partners such as Information Technology Department, Administrative Services and others to align business practices and ensure both continuity and opportunities for improvement in current processes.
ENVIRONMENTAL REVIEW
Council action on this item is not a project as defined by CEQA because approval of this contract for benefit administration services is an organizational or administrative activity that will not result in direct or indirect physical changes in the environment. CEQA Guidelines section 15378(b)(5).
ATTACHMENTS
Attachment A: Current Group Life Insurance, AD&D and LTD Benefit Summary Attachment B: Proposed Voluntary Life Insurance & AD&D Benefit Enhancement Attachment C: Proposed Long Term Disability Benefit Enhancement Attachment D: New York Life Insurance (Life Disability), Contract C25191558 APPROVED BY:
Sandra Blanch, Human Resources Director