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HomeMy WebLinkAbout1998 01 13 Board of Trustees Regular Minutes MINUTES BOARD OF TRUSTEES - PENSION PLAN JANUARY 13, 1998 - SPECIAL MEETING 1. CALL TO ORDER The Board of Trustees - Pension Plan Special Meeting was called to order Tuesday, January 13, 1998 at 7:40 p.m. in the Municipal Building (City Hall, 1126 East State Road 434, Winter Springs, Florida 32708). 2. ROLL CALL Jim Ryan, Vice Chairman, arrived at 7:51 p.m. Larry Nadrowski, present Robert Nippes, present Vernon Rozelle, present Ron Warble, absent ALSO PRESENT Ronald W. McLemore, City Manager John Drago, Administrative Assistant Rick Burke, Attorney Tom Lang, Attorney 3. REVIEW OF THE NEW CITY PENSION PLAN The meeting was called to order by Robert Nippes. John Drago explained that Attorney Rick Burke (the Attorney that prepared the documents) was in attendance tonight to assist in reviewing the documents. Mr. Drago also stated that tonight's meeting was to assess the changes (red-lines) recently made to the documents. Also, a summary of the proposed pension plan design features and a comparison between the current plan and the proposed plan was provided to those in attendance. Board Member Larry Nadrowski asked to speak on the record with some comments. He stated "I've been talking to you (John Drago) on and off and you know...I asked you a number of questions last time. The last time really was a...a disability meeting, but still I tried to get some information. And, you know I'm kind of a Johnny-corne-lately, but, I've talked to at least one other person on this Board, and my impression is that... they didn't understand... the real difference between a defined benefit and a defined contribution plan, and so I guess I'd just like to get some... things out on the table. You know, you'all still do what you're going to do, and...at the risk of incurring your ire, and...I'd wish that you'd just bear with me for like fifteen minutes, ok.. . allow me to say what I think I see here, ok". MINUTES BOARD OF TRUSTEES - PENSION PLAN JANUARY 13, 1998 - SPECIAL MEETING PAGE 2 OF 6 Mr. Nadrowski continued..."As I said last week, the private sector is running away from defined benefit plans...as fast as they can run. They've gone from defined benefit plans to defined contributions plans to 401K Plans to you don't get any money unless you put some money in yourself Here, I see a city, that is trying to do both, and offering the employee...we'll give you both, and you pick whichever one you want. I think that leaves a lot ofnumbers...you know, up in the air. Kind of like what you said a minute ago...you know, there's a lot of uncertainty, in a defined benefit plan, and that's why private industry is running away from it...one of the reasons why. I asked why is the City doing this? And the answers I got was... the City is doing this because, they want to be competitive, with other cities. But, I'm not sure I heard from anybody...what other plans, other cities have. Specifically, but do they have the defined benefit plans, and how many have them, and how is that hurting our ability to employ people. I understand.. .my concern is with the defined benefit portion...ok...so, for example, as you said earlier, it's all based on a bunch of assumptions by the Actuary. So, if the Actuary, makes a mistake of any sort, in the wrong direction, the City is on the hook for more money". Mr. Drago commented "No, they make a mistake in the...they make more money than the Actuary assumes... ". Mr. Nadrowski elaborated "In the negative...if they make a mistake on the negative side, in anyone of many, many, many assumptions, the City has to come up with the money. If the investments under perform, the City has to come up with the money. If the City hires more old people, the City has to come up with the money. There's two plans, there's two documents, there's two administrative things you have to keep paying for, there's an Actuary you have to keep paying for, there's reports that you have to file for two different plans, and I think somebody told me that, down the road, it's anticipated that one of these plans is going to go away. Now, I don't know how you do that... when you've given it to the people for such a long period of time...I don't know if you can ever take it away. That's a discussion all in itself Then, I asked some questions about costs...I said how much extra is this going to cost the City. Now, rightly or wrongly, maybe I misunderstood...but, I've gotten answers from $50,000 a year, with a one-time $135,000 one-time shot. Two, what we were just looking at, before this meeting, $96,000 a year for fifteen years; $180,000 a year for fifteen years, and so... I guess that at a minimum, of saying...can't anybody say what this is based on...the assumptions an Actuary makes. And, by the way, what were those assumptions? I've seen nothing for the limited time I've been around, that really relates to...other than a lot of numbers that cause confusion. You know, how much extra is this going to cost, and what's it based on? So, that's my concern...my concern is about the defined benefit portion of it, and I have yet...I haven't seen what these assumptions were. There are a few things that I saw in this... proposed pension design, and since I'm talking...I may as well get them out right now...and that is, under the new plan, an employee can retire at age 55 with completion of ten years service with no Actuarial reduction. That means that person gets full benefits for working here ten years, and can leave at 55. Is that true"? (He was told MINUTES BOARD OF TRUSTEES - PENSION PLAN JANUARY 13, 1998 - SPECIAL MEETING PAGE 3 OF6 "Yes"). Mr. Nadrowski continued..."I don't know where else you can do that. Does anybody at this table know where else you can do that"? Mr. Drago answered "Any.. . any number of cities that have defined benefit pension plans, specifically for Fire and Police, will have to have that benefit". Mr. Nadrowski added, "The one comment I forget to mention...I am not familiar with municipalities, ok...and...that's...Ijust am not. Now on the other hand, you know, if that's what you've got to do to compete in the municipal area, then, that's fine". Mr. Drago explained that external pressures required municipalities to provide competitive benefits for Police and Fire services, as others provided competitive packages. He then spoke about extraordinary lobbying efforts by Police and Fire agencies; Florida Statute 185/175 (which addresses Police and Fire pension plans); networking; and other Actuarial assumptions that address Florida Statute 185/175. Mr. Drago then commented that it was up to Sandy Turner (Actuary) to design a plan that could address the Police and Fire employees, as well as the rest of the City's work force. Vice-Chairman Jim Ryan arrived at 7:51 p.m. There was continued discussion as to the percentage of Police and Fire employees on the payroll, and how those numbers affected the design of this plan. John Drago added, "It was the City's concern not to have three separate pension boards...ok...and under State Statutes...and...and if..and if the Fire and the Police wanted their own 185/175 plan, they're entitled to their own pension board. That would have been three sets of pension boards, three sets of Attorneys, three sets of Actuarials, three sets of everything. So, the City said... the City's concern was, they didn't want to have to deal with three pension boards... they were comfortable with this pension board. So, again... what kind of a plan can you design, Sandy Turner, to allow this pension board to function in the best interest of the City, but, again...addressing the employees needs". There was continued discussion on Police and Fire department employees need to be coverage by Florida Statutes 185/175 or the State Retirement System; what other neighboring city and county organizations offer their employees; and unions. Mr. Nadrowski then asked for clarification as to when one can enter the plan, and if it was a mandatory participation plan. Attorney Burke addressed many of tonight's comments. He elaborated on 401K plans, floor offset/defined benefit plans, and defined contribution plans. There was further discussion on these issues, including the funding of plans, and disability/death benefits. MINUTES BOARD OF TRUSTEES - PENSION PLAN JANUARY 13, 1998 - SPECIAL MEETING PAGE40F6 Mr. Nadrowski said he would like to know what this will cost the City, based on the Actuarial assumptions, over the next fifteen or twenty years. There was further discussion regarding "buy-in's", "buy-back" provisions, and "double- dipping" as per Florida Statutes. Mr. Nadrowski commented that "When the guy from Sun Bank was here, I saw that, in that information, Sun Bank was charging not only a percentage of the assets, but they were charging an additional fee for their reports, I don't know if you remember that or not, but that was the basis. I called them three days after that meeting, and I said why are you charging a percentage of the assets, and that... the guy who was here at this meeting, said that should not be happening. He said, some lady was going to call me back. She never called me back". He asked that the City check on this matter. Vice-Chairman Jim Ryan asked "Are the contributions...the 8% and the 2%...are they fixed forever? Or is there a provision to change those". There was further discussion regarding the projected budgeted amounts; increasing the benefits in the defined benefits plan; Police and Fire contributions; city employees contributions; disability benefits; and the merits of a floor offset/defined benefits plan, especially from the employees standpoint. Board Member Vernon Rozelle asked if everything was defined in the plan, and Attorney Burke said that the way the direct transfer provisions were set up, it wasn't necessary. There was continued discussion on money purchase plans, life annuities, and the complexity and uniqueness of this plan. There was more discussion regarding the proposed plan. Attorney Lang stated "I don't want to over-simplify it...but, just to make sure that everybody fully understands what it is you are approving...by doing this, it...it's a plan that is much fairer for all the employees, but, you have moved some of the econOlnic risk of the plan to the City. Whereas, with the defined contribution plan, there's virtually no econOlnic risk to pass to the City, and then you're miniInizing that econoInic risk, that you're passing to the City, by keeping the defined contribution plan in place, in hopes that the employees will fund their own plan". Mr. Drago then spoke about drawing valuable workers to the City with the appropriate plan. Attorney Burke mentioned that the Board should be aware that there is one caveat to acknowledge if this proposed plan is accepted by the Board. "They want an additional sentence...since they are the investment managers...that they can vote as proxies...in the...for the...the different investments that they...you know...gotten...". MINUTES BOARD OF TRUSTEES - PENSION PLAN JANUARY 13, 1998 - SPECIAL MEETING PAGE 5 OF 6 Mr. Nadrowski stated "Well, you know, I'd be willing to...to send this to the Commission, but can we do it with the comment that I made earlier..J mean can somebody see those comments, and see the additional costs"? Mr. Drago commented, "I can say this, before I got here, there was a lot of dialogue and numbers being crunched between.. .Ron and Sandy, and the other people, and.. J think I feel very confident to tell this Board that... that.. .Ron McLemore would not represent to the Commission anything less than full disclosure". Mr. Nadrowski added "It certainly wouldn't hurt...to say, here's what it is, that's coming over, and here's the additional cost, that we estimate it's going to be, based on the Actuarial's assumptions, for the next fifteen years". Attorney Lang suggested to the Board "What we would do, is approve this, and recommend that it go to the City CounciL.. to the City Commission for their approval, if they find the Actuarial impact statement to be acceptable to them, and that there should be an Actuarial impact statement that accompanies it, that shows what the cost is going to be. And if that's what you would like to do, that's something you can do. I'm not saying you have to, but, if you want them to look at those costs, because you're saying we haven't reviewed the costs; we're merely telling you this plan is consistent with what we think you want to see, and we're comfortable with it. Then, your motion would be to approve the plan as written, subject to the one change - which is allowing Sun Bank to have the right to proxy. And, that your approval is sent to them with the understanding that they need to look at the Actuarial impact of this plan, and their approval should be subject to a review of that Actuarial impact, as well as the plan". He added "It's a fair plan for the employees, but the City is assuming the economic risk of making it fair, and we're minimizing the risk by having the continuation of the purchase plan or defined contribution plan, and that you would like for them to see the actual cost factors, as best they can be projected at this point in time, when they get this plan. So, it should be transmitted to them with the cost factors, to the extent we can project them". Ronald W. McLemore, City Manager joined the meeting at 8:44 p.m. There was discussion about the cost projections as a percentage of payroll; amortization schedules; percentage contributions; and assumptions to consider future mortality rates. Mr. Nadrowski mentioned his concern of putting some of the liability on the City, and to make sure that the Commission was aware of that. MINUTES BOARD OF TRUSTEES - PENSION PLAN JANUARY 13, 1998 - SPECIAL MEETING PAGE60F6 There was more discussion on what the annual costs were~ fifteen year amortization~ and how much the City contributed. Ronald W. McLemore, City Manager elaborated on many of the factors that they have considered and added, "One thing of course you should recognize in all that is, if we provide for an annual every two years, that shows me... that we nailed that". There was further discussion on the annual review of liabilities, investments, and assets~ and the costs of this plan. Attorney Lang read a suggested motion for the Board to consider: "With the understanding that these two plans (1) provide a fair retirement program for all employees (2) create certain economic risks for the City related to the defined benefits plan (3) attempt to minimize such risk by continuing a defined contribution plan to offset certain of the costs of funding the defined benefits. We approve these two plans and transmit them to the Commission for its consideration. We further recommend that the plans should be transmitted with the assumptions utilized in designing the plans and with the projected increased costs to the City associated with these plans and their associated benefits (on a per year basis)". Discussion. Motion by Ryan. Second by Nippes. Discussion. Nadrowski, Aye. Warble, (absent). Rozelle, Aye. Nippes, Aye. Ryan, Aye. Motion passed There was further discussion on the competitiveness factor associated with the Police Force, and previous turnover rates in that department. 4. ADJOURNMENT The meeting was adjourned at 9:11 p.m. with consensus of the Board. Minutes respectfully submitted by: Andrea Lorenzo-Luaces, Deputy City Clerk City of Winter Springs, Florida BOARDS/trusteeslfY9798/minuteslO 11398.doc