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HomeMy WebLinkAbout2000 05 15 Consent CITY OF WINTER SPRINGS MINUTES BOARD OF TRUSTEES - PENSION PLAN SPECIAL MEETING MAY 2, 2000 I. CALL TO ORDER The Board of Trustees - Pension Plan Special Meeting was called to order by Vice Chairman Robert Nippes Tuesday, May 2, 2000 at 7:35 p.m. in the West Conference Room of the Municipal Building (City Hall, 1126 East State Road 434, Winter Springs, Florida 32708). Roll Call Vice Chairman, Robert Nippes, present Board Member Mark Queen, present Board Member Vincent Giannoni, arrived at 7:37 p.m. Board Member Vemon Rozelle, present Board Member Mark Sardo, present Also Present Mr. Ronald W. McLemore, City Manager Mr. Gene DeMarie, General Services Director .:. .:. AGENDA NOTE: THE FOLLOWING ITEMS WERE DISCUSSED, AS DOCUMENTED. .:. .:. II. ELECTION OF OFFICERS A. Election of Chairperson "I WOULD NOMINATE MR. NIPPES TO BE CHAIRMAN." MOTION BY BOARD MEMBER ROZELLE. SECONDED BY BOARD MEMBER SARDO. DISCUSSION. VOTE: THE BOARD AGREED BY CONSENSUS. MOTION CARRIED. CITY OF WINTER SPRINGS MINUTES BOARD OF TRUSTEES - PENSION PLAN SPECIAL MEETING - MA Y 2. 2000 PAGE2of5 B. Election of Vice-Chairperson "I WOULD LIKE TO MAKE A MOTION FOR VERNON ROZELLE TO BE VICE-CHAIRMAN." MOTION BY CHAIRMAN NIPPES. SECONDED BY BOARD MEMBER SARDO. DISCUSSION VOTE: THE BOARD AGREED BY CONSENSUS. MOTION CARRIED. III. REGULAR AGENDA A. Consideration of Changes To Employee Pension Benefits Mr. Ronald W. McLemore, City Manager thanked the Board Members for meeting tonight. Manager McLemore began with a "background" of the City's Pension Plan, and how the City has progressed from having no retirement plan to the Defined Contribution Plan which started at a 2% contribution and grew to 4%, then to 6%. Manager McLemore further informed the Board of his goals to review the entire pension system; to try to improve it and bring it up to par with other communities; his concern with retaining employees, (including Police and Fire); a 60% - 70% turnover rate in the Police Department; which was a real issue; laws pertaining to Police and Fire; the State Retirement System; that many Police and Fire organizations having "very rich retirement plans anywhere from 18-26% of salary going in"; older employees and retirement plans; annuities; recruiting and retaining Police and Fire employees; enriching the Defined Contribution Plan; and surveying other plans. Discussion continued regarding the "Floor Offset Plan"; annuities; accumulating dollars; the Floor Offset Plan solving the problem of "stranded employees"; Unions; Firefighter Associations; the market being "volatile"; quarterly reports; yearly actuarial analysis; studies that increase contribution; competition in the marketplace; the Defined Benefit Plan being phased out; and possibly being a "Pure Defined Contribution Plan ten to fifteen years from now." Manager McLemore further spoke on what he had been asked to look at, regarding a 3% annuity of benefit; options of "funding today forward"; and "past service. " Manager McLemore then discussed a May 1, 2000 Memorandum which he distributed to Board Members. Specifically discussed was a spreadsheet entitled "City of Winter Springs Defined Benefit Pension Plan Cost of Benefit Increase." CITY OF WINTER SPRINGS MINUTES BOARD OF TRUSTEES - PENSION PLAN SPECIAL MEETING - MA Y 2, 2000 PAGE3of5 Further discussion ensued regarding the current plan as identified on the spreadsheet; unfunded liability; percent of current payroll to the Defined Benefit Plan; percent of payroll to the Money Purchase Plan; 10% total contribution; 8% paid by the City and 2% paid by the employee; Items "B" and "C"; the current plan taking 3% "going forward"; increasing contributions; Floor Offset Plan; providing options; and "zero unfunded liability." Manager McLemore stated "Of all the options that are out there, the one that takes the least amount from the employee obviously would be 2% to date and 3% forward on a Defined Benefit Plan scenario only."Further discussion ensued regarding the Defined Benefit Plan; options; costs; the impact to the City; other plans; and previous service "buy-back". Manager McLemore presented to the Board the following concerns: "Which one do we want to choose"; "Who pays the differential"; and "How do we get to that decision." Further items discussed were meetings with employees; vote of employees; recommendation by the Pension Board; Public Hearings; feedback from employees; the City Commission; the 8% City contribution; fiduciary responsibility; and "What is the best plan from a pure economic point of view." Mr. Gene DeMarie, General Services Director informed the Board of the May 15, 2000 City Commission Workshop related to the Pension Issues and the Salary Compensation Package. There was continued discussion on salaries; salary compression issues; going beyond an annuity of 80%; social security; retirement systems; 3% annuity; income after thirty years; doing more than we are doing; private sector; unions; the State Legislature; retaining employees; funding the plan; participatory issues; fund floor asset; salary adjustments and equity; merit system; performance reviews; Pension Board recommendation; the decision being employee driven; contributing 2%; the meeting of the 15th as being critical; being competitive in the marketplace; demand for labor; providing a decent annuity; viable options; projected potentials; the current plan administrator; falling below indexes; investing in equities; ICMA and accessing information; and proprietary funds. Tape IISide 8 The Board discussed whether they were prepared to make a recommendation to the City Commissiqn at this time. After further discussion regarding growth of the City; employee base;. and expanding Police and Fire issues, the Board was prepared to make the following recommendation: A MOTION WAS MADE TO "ACCEPT OPTION 'D' AS A RECOMMENDATION, WITH A 1 % CONTRIBUTION BY THE EMPLOYEE, AND IF THEY WANTED TO GO FURTHER, THEN THAT CITY OF WINTER SPRINGS MINUTES BOARD OF TRUSTEES - PENSION PLAN SPECIAL MEETING - MAY 2. 2000 PAGE4of5 IS UP TO THEM." MOTION BY BOARD MEMBER GIANNONI. SECONDED BY BOARD MEMBER QUEEN. DISCUSSION. VOTE: THE BOARD AGREED BY CONSENSUS. MOTION CARRIED. Discussion ensued regarding Purchased Money Plans; "457" plans; what the employer is reasonably supposed to do; employers not going backwards, only going forward; collective bargaining sessions; and Public Hearings. Chairman Nippes inquired whether any Board Member would like to make a procedural Motion, regarding the distribution of information and public contact with Pension Board Members. "I WILL MAKE A MOTION THAT IF INDIVIDUALS WISH TO MAKE COMMENTS TO INDIVIDUAL BOARD MEMBERS, THEY SHOULD MAKE THOSE COMMENTS DURING ONE OF OUR QUARTERLY MEETINGS. ALL BOARD MEMBERS SHOULD HAVE THE OPPORTUNITY TO HEAR THAT INFORMATION." MOTION BY BOARD MEMBER SARDO. SECONDED BY VICE CHAIRMAN ROZELLE. DISCUSSION. VOTE: THE BOARD AGREED BY CONSENSUS. MOTION CARRIED. There was a brief discussion as to when the next Board of Trustees Pension Board meeting would be scheduled; and when would the SunTrust representative be available to meet with the Board. .:..:. AGENDA NOTE: THE FOLLOWING ITEMS WERE DISCUSSED AS DOCUMENTED. ~~ Approval of the. January 25, 2000 Regular Meeting Minutes "I MAKE A MOTION TO APPROVE THE JANUARY 25, 2000 REGULAR MEETING MINUTES". MOTION BY VICE CHAIRMAN ROZELLE. SECONDED BY BOARD MEMBER GIANNONI. DISCUSSION VOTE: THE BOARD AGREED BY CONSENSUS. MOTION CARRIED. '. CITY OF WINTER SPRINGS MINUTES BOARD OF TRUSTEES - PENSION PLAN SPECIAL MEETING - MA Y 2,2000 PAGE 5 of5 Manager McLemore then discussed with the Board a letter from Sandra R. Turner, from the firm "Retirement Plan Specialists, Incorporated" dated April 20, 2000. Specifically discussed were Items "D", and Options 1, 2, and 3; differentiating between Options 2 and 3; the perception of not losing the contribution; the 2% not being .differentiated; converting annuity; needing more information on Options 2 and 3; and the Board's re~ommendation being half complete. After a brief discussion the Board agreed to a Meeting on Monday, May 15,2000 at 4:30 p.m., prior to the City Commission Workshop which begins at 6:30 p.m. Chairman Nippes stated the meeting "Would be our normal quarterly meeting, plus dealing with Item "D" (from the April 20, 2000 letter received from the firm "Retirement Plan Specialist, Incorporated). IV. OTHER DISCUSSION ITEMS The Board did not discuss any other topics tonight. V. ADJOURNMENT "I MAKE A MOTION TO ADJOURN." MOTION BY BOARD MEMBER SARDO. SECONDED BY BOARD MEMBER QUEEN. DISCUSSION With consensus, Chairman Nippes adjourned the meeting at 9:25 p.m. Minutes Respectfully Submitted by: Tania Haas, Deputy City Clerk City of Winter Springs, Florida DOCSlboa rds/trus lees/alll/min u leslO 50200 .doc MEMORANDUM DA TE: May 1, 2000 TO: Board of Trustees FROM: Ronald McLemore, City Manager \\i\ SUBJECT: Possible Changes to Employee Pension Plan Please consider the following during your meeting of May 2, 2000: BACKGROUND During the past two years, city employees - particularly employees of the Police and Fire Departments - have expressed dissatisfaction with benefit levels of the current pension plan. They have surveyed benefit levels in other jurisdictions and have found that cities and counties in the surrounding area generally provide higher benefit levels, with the costs usually paid totally by the employee. CURRENT PLAN The city's current plan p.rovides that employees contribute 20/0 of their compensation, with the city contributing 80/0, to a combined defined benefit/defined contribution plan. The city's contribution is split evenly, with 4010 going to each side of the plan. When an employee becomes eligible for retirement, an average of the three highest years of earnings is calculated, and the employees pension is then determined by multiplying 2010 times the number of years of service times the average compensation. The result is the employees annual benefit entitlement, paid on a monthly basis. As a rough example, if an employee worked for the city for 20 years and retired with an average compensation of $30,000, his/her yearly entitlement would be 2010 times 20 years (40010) times $30,000, or $12,000 per year ($1,000 per month). The defined contribution funds are used as an "offset" whereby the employee may elect to increase the monthly benefit by using those funds, or he/she may take those funds in cash. CONSIDERATIONS The attached spreadsheet was prepared by our plan actuary, and explains the available options to increase the 2 % per year of service credit to 30/0, and the cost impact of each. Current Plan A. The current plan requires the satisfaction of an initial unfunded liability, which is a cost of plan administration. The next three percentage columns explain the breakdown of employee and employer contributions as explained above. Options Under the Current Plan B. Raising the benefit to 30/0 beginning on 101/01/2000 and going forward would continue the unfunded liability, and require an increase of 2.3%) of compensation contribution to the defined benefit plan. C. A 30/0 benefit applied to an employee's total years of service would require an increase of 6.10/0. Proposed Plan Design (Note: Under the following two options, the defined contribution plan would be discontinued, and the account balances would be rolled into the defined benefit plan pool of funds, satisfying the unfunded liability.) , D. Under this option - and considering the contents of the above note - employees would get a 3% benefit starting 10/01/2000 and going forward. The increase in payroll costs would be 10/0. E. A 30/0 benefit for all years of service would require a 4.90/0 increase in payroll costs. Other considerations are contained in a supplemental piece of correspondence from our actuary, which is attached. RECOMMENDATION It appears that the best option to recommend to ~he City Commission would be Option "D" which satisfies requests for an increased benefit level at the least amount of cost. cc: Gene DeMarie, Dir. of General Services CITY OF WINTER SPRINGS DEFINED BENEFIT PENSION PLAN COSTS OF BENEFIT INCREASE Initial Unfunded A Current Plan $ Proposed Plans B 2% per year of service to 10/01/00 plus 3% up to 30 years total C 3% up to 30 years total Proposed Plan Design- DB Only No Money Purchase Plan D 2% per year of service to 10/01/00 plus 3% up to 30 years total E 3% up to 30 years total 1,343,893.46 $1,343,893.46 $1,343,893.46 $0.00 $0.00 % of Current Payroll to DB Plan 4.0% 6.3% 10.1% 10.7% 14.9% % of Payroll to Money Purchase 6.0% 6.0% 6.0% 0.0% 0.0% % of Payroll for Both Plans 10.0% 12.3% 16.1% 10.7% 14.9% *Increase in % of Payroll 0.0% 2.3% 6.1% 1.0% 4.9% · This percentage could be contributed by the City of Winter Springs or the employee or a combination of both. Under the current plan design, the City of Winter Springs is contributing 4% to the Money Purchase Plan and 4% to the Defined Benefit Plan: the Employee is contributing a mandatory 2% of compensation to the Money Purchase Plan If the employer chooses items 0 or E, it is possible to design the plan to allow the employee contribution to buy an employee accrued benefit which is 100% vested. This will enhance the program for employees who are concerned about losing their contributions to the money purchase pension plan. '-- ~ Retirmnent Pla.n Specia.listsl Inc. Employee Benefits Administrators & Consultants 2 Lawn Street P.O. Box 621582 Oviedo, Florida 32762-1582 407~365-3490 (office) 407-366-5154 (fax) 1-800-618-1813 (toll/Tee) Visit us at www.srturner.com April 20, 2000 Gene DeMarie City of Winter Springs 1126 East State Road 434 Winter Springs, FL 32708 RE: Winter Springs Plan Proformas Dear Gene: Attached is the revised schedule, per our meeting with Ron McLemore. As we discussed at the meeting, I have provided some issues to consider between the various plans: A. One plan costs less to maintain than two plans: 1. One set of plan documents 2. One set of administrative forms, for example, terminees/retirees will only need to execute one set of distribution forms (when applicable), one set of participation forms, beneficiary forms, etc. 3. Assets combined into one trust (creating a larger pool of money) should reduce or eliminate trust asset and asset manager costs. (As you know, the larger amount of money under investment, the higher level of respect and services you can expect.) 3. Administration fees would be substantially reduced. 4. One plan is easier to explain to the employees. Currently, the offset plan is difficult to communicate; though your employee group has done a good job at studying the two plan arrangement. B. Two plan design offers more options: 1. Under the floor offset design, the participant can: a. Take the money purchase plan account balance in a lump sum distribution and elect to receive a reduced monthly benefit at retirement, or b. Transfer the money purchase plan to the defined benefit plan and receive the full monthly benefit at retirement. 2. Participant gets the greater benefit. If the market performs well over a long period of time, the participant's retirement benefit could be greater than the floor benefit under the defined benefit plan. (This effect is reduced if the floor benefit is increased from 2% per year to 3% per year). (see C (2) below.) Page 2 C. Effect of increasing the benefit from 2% to 3% per year (either retro or just going forward) 1. Enhances program for employees, especially fire and police. 2. Reduces the reasons for having two plans. The money purchase plan account balance was projected to surpass 60% of compensation floor benefit under the defined benefit plan for the younger employees (at some point in their future), but it is not as effective in surpassing 90% of compensation. This means the defined benefit plan will be "picking up" more of the responsibility in funding employees' future benefits. Under the current plan design, it was anticipated the defined benefit plan would eventually be unneeded. This would not be the case with a 3% per year formula (retro or going forward). Consequently, using just the defined benefit plan would probably meet the needs of the employees and employer more effectively. ,:' !~~ D. Handling of employee contributions and 100% vested employee account balance. Options are: ~ L~~ II! 1. Employee accounts and contributions "forfeited" upon conversion and placed on the same vesting schedule as employer contributions. No payouts until retirement permitted. 2. Convert the current 100% vested employee account balance to a "paid up benefit" (Le. employee accrued benefit) due at retirement. This will always be theirs. If you are feeling really generous, you can allow for distribution of this account if under $5,000.00. 3. Convert current 100% vested employee account balance to paid up benefit at retirement and add to it the amount purchased with employee contributions (only) each year. This would eliminate the fear of them "losing" their 2% contribution to the plan. Payouts of amounts under $5,000.00 also can be added here. " 1 I hope this helps with this part of the discussion. If you need assistance or have any questions, please give me a call. WWNkc2~ Sandra R. Turner, epe QPA cc: Ron McLemore, eity Manager Enclosures