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HomeMy WebLinkAbout1996 04 30 Regular Item 2 COMMISSION AGENDA ITEM II REGULAR X CONSENT INFORMATIONAL April 30. 1996 Special Meeting MGR 'Jvj1 /DEP Authorization REQUEST: The City Manager requesting the City Commission consider alternatives for increasing the defined contribution of the City Pension Plan from 6% per year to 10% per year. PURPOSE: The purpose of this Commission Item is for the City Commission to elect an alternative for improving the City Pension System. CONSIDERA TIONS: The City Manager was mandated by the Commission to develop recommendations for improving the City's retirement plan. In response to the Manager's direction, the General Services Department conducted pension surveys of all fifty-one (51) cities in Florida with Defined Contribution Plans. Data was also obtained from the 1995 Florida Local Government Retirement System Annual Report prepared by the Department of Management Services Division of Retirement, and the International City Management Association. Based on our survey data, the average contribution of cities in Florida with defined contribution plans is 9.2% with 7% contributed by cities and 2.2% by employees. According to International City ManagemeJ;lt Association representatives, the national average is approximately 10% for total contributions. I.C.M.A. did not have comparative information on the mix of employee and employer contributions in the 10% figure. April 30, 1996 Special Meeting AGENDA ITEM Page 2 On April 23, 1996, the City Pension Board voted unanimously to recommend the City Commission increase the defined contribution of the plan from a 6% employer contribution to a 10% employer contribution as quickly as economically feasible. The alternative for a split employer/employee contribution was rejected for the following reasons: 1. The split employee/employer contributions would result in the increased cost and complexity of two separate accounting systems to account for the City contribution and employee contribution. 2. Cost of changing the plan: Attorney costs for rewriting the plan for the split alternative is estimated to be between $5,000 - $7,500 as compared to $500 for increasing the employer contributions from 6% to 10%. Allocation costs would be $100 higher in the employer/employee contribution plan. The Investment Management Fee would remain the same. 3. Low employee morale resulting from a mandatory employee contribution. 4. Overall Simplification and Ease of Administration: The straight City contribution plan would be less complex to administer because City contributions would not require two accounting systems, investment systems, new plan documents, etc. ISSUES: The issues that need to be addressed are as follows: 1. Does the Commission desire to adopt the Pension Board's recommendation to increase the City contribution rate for the Pension Fund from 6% to 10% as rapidly as possible. 2. If the Commission decides to adopt the Pension Board's recommendation, which of the following schedules does it desire to follow: a. I % increase for four (4) years, b. 2% increase for two (2) years, c. 4% increase in year one. April 30, 1996 Special Meeting AGENDA ITEM Page 3 3. If the Commission decides not to adopt the Pension Board's recommendation of a City contribution of 10%, what City/employee contribution combination does it desire? The alternatives are: Employee City Total a. 1% 9% 10% b. 2% 8% 10% c. 3% 7% 10% d. 4% 6% 10% I am in agreement with the recommendations of the Pension Committee for the following reasons: In general, the 10% City contribution rate is the simplest to understand and administer. The primary objective of the City in changing the plan is to offer a better benefits package to help recruit and retain employees. Currently, the City's turnover rate of 19% is unacceptable. While the cost of retraining, leave, and pension benefit payments upon voluntary termination have not been determined, it is surely costing the City unacceptable levels of financial and productivity losses. The City's pension has been so far below that of other cities, I am truly uncomfortable in asking our employees to help us play catch up. FUNDING: Based on current contribution formulas, the funding requirements are as follows: $43,400 per 1 % of contributions plus expenses, identified in Option A and B. The funding requirements are option A, increasing the City contribution from 6% to 10% and Option B, employer/employee contributions. April 30, 1996 Special Meeting AGENDA ITEM Page 4 Funding will be split between the General Funds, and the Enterprise Funds approximately as follows: General 80% Enterprise Funds 20% REcOMMENDA TION: The City Manager recommends that the Commission approve increasing the employer contribution from 6% to 10%. If the Commission approves the 10% employer contribution option, the City Manager recommends the 4% increase be implemented; 2% in Fiscal Year 1996/97, and 2% in Fiscal Year 1997/98. If the Commission approves a split contribution alternative, the alternative be fully implemented in Fiscal Year 1996/97. IMPLEMENTATION SCHEDULE: Same as presented in the recommendation. ATTACHMENTS: 1. Option A - City Contributions. 2. Option B - Employer/Employee Contributions. COMMISSION ACTION: OPTION A .funployer Contribution Plan Current 6% ($260,400) + I11wosed 4% ($173.600) Total 10% ($434,000) Attorney Fees $500.00 (One timefee) , . OPTION B City Contribution (CC)/Employee Contribution (EC) 9%/1 % 8%/2% 7%/3% 6%/4% CC CC CC CC $390,700 $347,300 $303,900 $260,500 EC EC EC EC $ 43,400 $ 86,800 $130,200 $173,600 Total $434,100 $434,100 $434,100 $434,100 Attorney Fees $ 7,500 $ 7,500 $ 7,500 $ 7,500 ~..,r=- "'i)i COMMISSION PENSION MEETING 4/29/96 ~. As the past pension chairman of the bd. of trustees of the presently structured "money purchase pension plan", and the individual charged by the city commission governing at that time, to put in place a pension plan that would benefit the present and future career employees of the City of Winter Springs, I feel that their are many areas that this present commission should consider before making any changes with the current plan. The following issues need to be answered. 1. "MONEY PURCHASE PLAN", as opposed to, "DEFINED CONTRIBUTION PLAN." HOW ARE THEY ARE BEING APPLIED ON A STATE & LOCAL LEVEL, AND THE NATIONAL LEVEL? ONE ARGUMENT FOR THE "MONEY PURCHASE PLAN" IS THAT IT HAS LESS RESTRICTIONS AND NOT MUCH NEEDS TO BE CHANGED. BUT, ANY OVERTIME WORKED ON THE "MONEY PURCHASE PLAN", CAN SPIRAL THE CITY'S COST EVEN HIGHER. CONVERSELY, THE ARGUMENT FOR THE "DEFINED PLAN" IS THAT IT IS MORE EaUITABLE FOR THE LOWER SALARIED EMPLOYEES.VIZ: THE LOWER SALARIED EMPLOYEES PAY A FIXED PERCENTAGE EQUAL TO THEIR SALARIES. THUS, THE HIGHER SALARIED EMPLOYEES WILL HAVE TO CONTRIBUTE MORE TO THEIR OWN ACCOUNTS. IT IS REALLY THE FAIR WAY TO GO.(note pension work-up example.) 2.AN ARGUMENT CAN BE MADE THAT THE LOWER SALARIED EMPLOYEES WOULD BE HARD PRESSED TO CONTRIBUTE TO THIS FORCED SAVINGS PLAN! PAYROLL RECORDS SHOULD SHOW, (WE NEED TO REVIEW THEM) THAT MANY EMPLOYEES OF THIS CITY HAVE BEEN RECEIVING ANNUAL INCREMENTS OF BETWEEN 5% TO 10% FOR THE LAST 3 YEARS. WELL ABOVE THE NATIONAL AVERAGE! SO A SMALL 2% PERCENT CONTRIBUTED TO THEIR OWN PERSONAL ACCOUNT IS QUITE DO-ABLE. IT ALSO GIVES EMPLOYEES AN EXTRA ADDED INCENTIVE, BECAUSE IT REDUCES THE TIME THEY HAVE TO WAIT TO BE FUllY VESTED AND IN THE EVENT THEY DECIDE TO LEAVE THE CITY BEFORE THAT TIME,THEIR TOTAL CONTRIBUTIONS PLUS ANY ACCUMULATED INTEREST IS RETURNED TO THEM. WE NEED TO LOOK AT THE PAYROLL RECORDS FOR THE LAST 3 YEARS AND ANY OTHER PERTINENT DOCUMENTS THAT WILL HELP US MAKE THE EXTREMELY IMPORTANT DECISION THAT'S BEFORE US. THE CAREER PATH OF ALL OUR EMPLOYEES IS AT STAKE, NOW AND IN THE FUTURE. ONE LAST THING, WHEN WE OVERHAULED THIS SYSTEM IN 1993, WE ALSO RAISED THE RATE FROM 4% TO 6%!! JOHN FERRING,COMMISSIONER ... '!" " ~. .""" -~ ' ..,. 10% COMPOUNDED FUND EARNINGS BASED ON $20,000 SALARY +10% ANNUAL CONTRIBUTIONS YEAR END. 1.$ 2200 2. $4620 3.$7282 4.$10.210.20 5.$13,431,22 6. $16,974.34 7. $20,871.77 FULLY VESTED END YEAR- 7. 8. $25,158.95 9. $29,874.85 10. $35,062.33 NOTE: AFTER YEAR 10, A $20,000 EMPLOYEE, NOT GETTING ANY SALARY INCREASES, STILL HAS A SIZABLE EQUITY. . '- NOW IF YOU THROW IN RAISES, AND HE STAYS 20 YEARS??????????? NOW APPLY THE SAME RATIOS TO UPP~R MANAGEMENT,AND YOU HAVE SOME PRETTY LOFTY FIGURES!!!!!!!!!!! ... ~ ,...