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HomeMy WebLinkAbout2006 01 31 Document Referenced Regarding Regular 300Date: January 31, 2006 DOCUMENT REFERENCED AT THE JANUARY 31, 2006 REGULAR BOARD OF TRUSTEES MEETING REGARDING AGENDA ITEM REGULAR 3 00. Retirement Plan Specialists. Inc. Employee Benefits Administrators, Actuaries 8c Consultants 81 S Eyrie Drive, Suite 4 407-365-3490 (office) P.O. Box 622857 407-366-5154 (fax) Oviedo, Florida 32762-2857 1-888-376-7222 (tollfree) Visit us at www.webpensionplaus.com November 3, 2005 Eldon McDirmit McDirmit Davis Puckett & Company 605 E Robinson Street, Suite 635 Orlando, FL 32801 RE: City of Winter Springs -Defined Benefit Plan Dear Mr. McDirmit: Per the request of Ronald W. McLemore, City Manager of the City of Winter Springs, we are providing you with the October 1, 2004 through September 30, 2005 Actuarial Valuation and Annual Report containing the GASB Statements Number 27 and 25. If you need assistance or have any questions, please call. ' cerel Sandra R. Turner, CPC, QPA enclosures cc: w/o encl. Ronald W. McLemore `,~ Retirement Plan Specialists, Inc. Employee Benefits Administrators and Consultants P.O. Box 622857 Oviedo, Florida 32762-2857 November 2, 2005 Commissioners City of Winter Springs 1126 East State Road 434 Winter Springs, FL 32708 Re: City of Winter Springs Defined Benefit Pension Plan Dear Commissioners: We are pleased to present the October 1, 2004 Actuarial Valuation Report for the Plan Year ending September 30, 2005. The report presents the funding status of the Pension Plan as of October 1, 2004 and provides the disclosure information required by your auditors for Governmental Accounting Standards Board in Statement No. 25 and 27. The total contribution required for the 2004/2005 Plan Year to continue the funding on a 30 year amortization basis is $1,318,612. The total employer/employee contributions reported by SunTrust for the Plan Year ending September 30, 2005 was $1,260,627. The required contribution as a percentage of covered payroll was 12.9%, .4% over the projected 12.5% effective October 1, 2004. The increase is attributable, in part, to the differential between expected and actual investment experience as using of the long range yield asset valuation method for smoothing out fluctuations in plan assets. This method spreads the gains and losses over a five year period. Although the investment experience has been favorable over the past two years, we are still feeling the impact of losses from the previous two years. Future impact of this method and other actuarial assumption factors are to be evaluated during the October 1, 2005 actuarial study requested by the City and present to the Commissioners at that time. We welcome any questions or comments you may have concerning the information provided in the reports. Sincerely, Donald D. Chapman E.A., M. .A., M.S.P.A. Consulting Actuary Cc: City Manager ~2~tiGr%/ZLt~ Sandra R. Turner, CPC, QPA President Enclosures 407-365-3490 (office) 407-366-5154 (fax) CITY OF WINTER SPRINGS DEFINED BENEFIT PENSION PLAN ACTUARIAL VALUATION AND ANNUAL REPORT for the Plan Year Ended September 30, 2005 ~1 November 2, 2005 Prepared By Retirement Plan Specialists, Inc. Employee Benefits Administrators, Actuaries 8 Consultants CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN TABLE OF CONTENTS Part I Introduction Part II Summary of Plan Provisions Part III Trust Fund Transactions Part IV Unfunded Actuarial Liability Part V Determination of Normal Cost Part VI Contribution for the Plan Year Commencing October 1, 2004 Part VII Present Value of Accrued Benefits Part VIII Actuarial Method and Assumptions APPENDIX A GASB Statement No. 27 &GASB Statement No. 25 Paae 2 4 7 9 9 10 11 12 14 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART I INTRODUCTION The actuarial valuation presented in this report covers the employees of the City of Winter Springs, Florida that are participants in the City of Winter Springs Defined Benefit Plan. The pension plan is being maintained and administered as a government plan since it covers municipal employees and is sponsored by the City of Winter Springs. The report analyzes the current funding status of the Pension Plan as of October 1, 2004. It also includes the calculation of the annual contribution requirement for the Plan Year beginning October 1, 2004 and ending September 30, 2005. The contributions together with the corresponding items from the immediately preceding valuation, are as follows: October 1 Valuation Date for Plan Year Ending: Change Between September 30, 2004 September 30, 2005 Years Contribution $1,071,225 $1,318,612 $247,387 Percentage of 11.4% 12.9% 1.5% Payroll The employee census data as of October 1, 2004 was submitted by the City. This data was not audited by us but appears to be sufficient and reliable for purposes of the report. The total participant count is as follows: October 1, 2003 October 1, 2004 Active participants 237 239 Retired participants 13 12 Terminated participants with vesting 56 71 Total 306 322 The actuarial assumptions and cost method remain unchanged from the preceding year. A review of the actuarial assumptions is performed each year with changes recommended when actual experience under the plan deems it appropriate. Actuarial computations have been made by the Aggregate Entry Age Normal with Frozen Initial Liability Method of calculation, which is designed to keep prior service costs unaffected by any difference that may develop between the actual experiences as it unfolds and the assumptions used for calculations. The effects of any differences that do develop are reflected in current and future normal costs. If additional assumptions are changed or benefits and other plan features are updated at any time, current thinking supposes adjustment of the frozen initial liability to allocate costs between prior and future service once again. It is believed that the actuarial methods and assumptions are individually reasonable, and in combination, they offer the actuary's best estimate of anticipated experience under the Plan. 2 The Plan was amended effective October 1, 2004 to increase the benefit formula percentage for service prior to October 1, 2000 by .25% increments each year beginning October 1, 2005 until a full 3% is reached effective with the plan year beginning October 1, 2008. In addition, the employer contribution rate was increased effective October 1, 2004. This report does not reflect the impact of the past service amendment since the first incremental increase is it not effective until October 1, 2005. The October 1, 2005 Actuarial Valuation Report will reflect this change in benefit formula. The actuarial valuation report was prepared and completed by me or under my direct supervision, and I acknowledge responsibility for the result. To the best of my knowledge, the results are complete and accurate, and in my opinion, the techniques and assumptions used are reasonable and meet the requirements and intent of Part VII, Chapter 122, Florida Statutes. There is no benefit or expense to be provided by the plan and/or paid from the plan's assets for which liabilities or current costs have not been established or otherwise taken into account in the valuation. All known events or trends that may require a material increase in the plan costs or required contribution rates have been taken into account in the valuation. We would be pleased to provide further information or answer any questions with respect to the results of our actuarial valuation. Respectfully submitted, RETIRE NT PLAN SPECIA S, INC. Actu r' s for the Pla ~ .S' D e Donald D. apma E ., .A.A.A., M.S.P.A. Enrolled Actuary No. 0 234 Sandra R. Turner C.P.C., Q.P.A. President 3 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART II SUMMARY OF PLAN PROVISIONS 1. History The Plan was adopted as a Money Purchase Floor Offset plan on October 1, 1997. The Plan was amended and restated as a Defined Benefit Plan effective October 1, 2000. SunTrust Trust and Investment Services is the investment medium. Valuations are made annually, as of October 1 each year. The latest amendment to the Plan was effective October 1, 2004. 2. Eligibility: Continuous Service and Participation Service Each employee working more than 29 hours per week is eligible to join the Plan on the first day of the month following completion of 6 months of service. 3. Normal Retirement The first day of the calendar month following the 651h birthday 4. Normal Form of Pension The normal form of pension is a life annuity with monthly payments commencing on the participant's retirement date 5. Retirement Benefit The yearly amount of pension a participant will receive is equal to the sum of (a) and (b), but for years not greater than (c) below: (a) An amount equal to 2 % of Average Compensation multiplied by years of service completed prior to October 1, 2000; (b) For each year of service on and after October 1, 2000, 3 % of Average Compensation multiplied by years of service after October 1, 2000. (c) The maximum number of years of service for determining benefits is the first 30 years. Average Compensation is the 3 highest consecutive compensation periods during employment with the City. 4 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN SUMMARY OF PLAN PROVISIONS (continued) 6. Late Retirement A Participant may elect a late retirement date any time after normal retirement date. The pension will be the greater of the accrued benefit earned on the Late Retirement Date or the benefit earned at the Normal Retirement Date actuarially increased to the Late Retirement Date. 7. Early Retirement After age 55 and 10 years of service, a Participant is eligible for early retirement. The pension starting immediately is the accrued benefit as of the early retirement date. The benefit will be paid monthly for life. If a participant has 25 years of service, the accrued benefit is not actuarially reduced. A participant with 25 years of service may retire earlier than 55 with the benefit payable as the actuarial equivalent of the benefit at age 55. 8. Death Benefit The beneficiary is entitled to a death benefit equal to the present value of the non- forfeitable accrued benefit at the time of the participant's death. If death occurs after actual retirement, the beneficiary receives whatever is payable under the form of benefit option elected. 9. Disability Benefit The plan does not provide for disability benefits. Disability benefits are provided under the City's long-term disability program 10. Termination Benefit A participant is 100% vested in the required participant contributions made under the plan. Required participant contributions made after October 1, 2000 shall be included in the deferred vested benefit payable at normal retirement date. All other non-forfeitable accrued benefits shall be determined by the following vesting schedule upon termination. Years of Service Percentaae Less than 3 years none 3 20% 4 40% 5 60% 6 80% 7 100% 5 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN SUMMARY OF PLAN PROVISIONS (continued) 11. Contributions All participants are required to contribute 3 % of compensation The City contributed at the rate of 9.5% of compensation during the Plan Year. 12. Optional Forms of Payment A participant may elect, in writing, to have the normal form of pension converted to an actuarially equivalent optional form. These are (a) the joint and survivor annuity form in which the participant receives a smaller amount monthly in return for the continuing payments to the named beneficiary in the same amount, 2/3rds of the amount, or '/~ of the amount as designated as long as the beneficiary may live after the death of the participant; (b) the life annuity form in which the participant receives a lesser amount monthly in return for the guarantee of continuing payments for a certain year period, 6 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART III TRUST FUND TRANSACTIONS Plan Assets, October 1, Contributions during the year Participant service buy back deposit Net Investment experience Participant Payments Administration Expenses Plan Assets, September 30, 2002-2003 $5,538,670 903, 749 0 783,406 (138,353) (47,477) $7,039,995 2003-2004 $7,039,995 1,013,379 147,594 944,208 (140,509) (62,225) $8,942,442 Approximate rate of return: COMPOSITION OF TRUST FUND Cash Short term Investments Bonds Common Stocks Total Assets 13.2% 12.6% 0 0 54,270 484,057 2,004,140 1,884,433 4,981,585 6,573,952 $7,039,995 $8,942,442 7 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN ACTUARIAL VALUE OF ASSETS The Long Range Yield Method of asset valuation is described in the actuarial assumptions and is determined as follows: 1. Actuarial value of assets, October 1, 2003 $7,279,048 2. Contributions during year 1,013,379 3. Disbursements during year (202,734) 4. Interest to September 30, 2004 at 8% 614,750 5. Tentative value, as of September 30, 2004 _ (1) + (2) - (3) + (4) $8,704,443 b. Market value of assets, September 30, 2004 $8,942,442 7. Excess of market value over tentative value as of September 30, 2004 = (b) - (5) 237,999 8. Deferred investment gain (loss) not yet recognized as of September 30, 2004 A. 2000: 0 x .20 = 0 B. 2001:* ($703,034)x .40 = ($281,214) C. 2002: ($1,527,731)x .60 = ($916,638) D. 2003: ($856,508)x .80 = ($685,206) E. Total ($1,883,058) 9. Deferred investment gain (loss) recognized for 2004: 20% x [(7)] 47,600 10. Deferred investment gain (loss) recognized during A. 2000: 0 B. 2001:* ($140,607) C. 2002: ($305,546) D. 2003: ($171,302) E. Total ($617,455) 11. Actuarial Value of Assets as of September 30, 2004 = (5) + (9) + (10) $8,134,588 * First year the Long Range Yield Method was used, therefore, there are no gains or (losses) recognized for prior years. Approximate rate of return on Actuarial Value of Assets for period ending September 30, 2004 is .006%. 8 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART IV UNFUNDED ACTUARIAL LIABILITY 1. Unfunded Actuarial Liability, October 1 2. Normal Cost for Plan Year 3. Interest at 8 % (2002) on (1) and (2) 4. Contributions for Plan Year 5. Interest on contributions 6. Unfunded Actuarial Liability, September 30, (l .+ 2.+3.-4.-5.) 7. Adjustment due to Actuarial Assumption/Amendment changes 8. Adjusted Unfunded Actuarial Liability, September 30 PART V DETERMINATION OF NORMAL COST 1. Present value of benefits at October 1 2. Actuarial Assets Value 3. Unfunded Actuarial Liability 4. Present value of future normal cost payments, (1.-2.-3.) 5. Present value of future compensation 6. Cost as a percentage of compensation, (4 / 5) 7. Total current covered participant compensation 8. Current plan year's normal cost at October 1 2002-2003 2003-2004 $2,508,274 $2,492,546 480,030 829,502 239,064 265,763 903,749 1,013,379 36,249 81,076 $2,287,370 $2,493,357 $205,176 303,829 $2,492,546 $2,797,186 2003-2004 2004-2005 $15,660,980 $18,077,134 7,426,642 $8,134,588 2,492,546 2,797,186 5,741,792 7,145,360 56,032,195 61,014,389 10.247% 11.711% 8,094,829 8,982,189 $829,502 $1,051,900 9 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART VI CONTRIBUTION FOR THE YEAR COMMENCING OCTOBER 1, 2004 1. Normal Cost 2. 30-Year amortization of the Unfunded Frozen Initial Liability established October 1, 2000, and adjusted for change in actuarial assumptions October 1, 2002, October 1, 2003 and amendment October 1, 2004. 3. Total, October 1, 2004 (l .+ 2.) 4. Interest at 8 % to end of Plan Year 5. Total contribution, September 30, 2005, (3.+4.) 6. Total contribution (3) as a percentage of 2004- 2005 payroll ($10,222,049) 7. Total contribution (5) as a percentage of 2004- 2005 payroll ($10,222,049) REQUIRED ANNUAL CONTRIBUTION $1,051,900 266,712 $1,318,612 105,489 $1,424,1 O l 12.9% 13.9% 10 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART VII PRESENT VALUE OF ACCRUED BENEFITS OCTOBER 1,2003 OCTOBER 1, 2004 1. Present Value of Accrued Benefits Active Members $6,560,308 $7,770,794 Retired Members 966,692 933,045 Terminated Members with Vesting 490,593 658,442 Total $8,017,593 $9,362,281 2. Present Value of Vested Accrued Benefits Active Members $6,102,637 $7,234,016 Retired Members 966,692 933,045 Terminated Members with Vesting 444,303 658.442 Total $7,513,632 $8,825,503 3. Total Number of Members Active Members 237 239 Retired Members 13 12 Terminated Members with Vesting 56 71 Total 306 322 4. Market Value of Assets $7,039,995 $8,942,442 5 Actuarial Value of Assets $7,279,048 $8,134,588 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN PART VIII ACTUARIAL METHOD AND ASSUMPTIONS We have calculated the costs and liabilities for the actuarial valuation of the City of Winter Springs Defined Benefit Plan as of October 1, 2004 using the Aggregate Entry Age Normal Frozen Initial Liability Cost Method, and have analyzed the results. The employee data and the financial information relied on for the report were provided by the Employer and the SunTrust Trust and Investment Services. To the best of our knowledge, the information provided is complete and accurate. The actuarial assumptions used are as follows: a. Long Term Net Investment Return b. Mortality 8 %, compounded annually. 1983 Group Annuity male rate table, with ages of women set back two years. c. Retirement Age d. Normal Form e. Benefit Level f. Salary Projections g. Termination Forfeitures h. Expenses i. Asset Basis Later of age 60 with 10 years of service or age on the valuation date. Life Annuity with payments for the life of the participant. Effective October 1, 2000, 2% of average earnings for years pre October 1, 2000 and 3% of average earnings for each year of service after October 1, 2000. Current salaries are assumed to increase 3% per year.' Assumed to occur at rates approximating 11.62% at age 25 graded down to .l b% at age 60 and over. (T-8 withdrawal table) Assumed that the City will reimburse the Fund for actual expenses paid. Long Range Yield Method of asset valuation as explained on the following page. 12 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN Long Range Yield Asset Valuation Method The actuarial value of assets is determined as follows: (A) A tentative asset value is determined. This value is equal to the actuarial value of assets on the preceding valuation date multiplied by the valuation rate of interest plus the excess of contributions over disbursements during the preceding Plan Year with interest at the valuation rate from date of payment to end of year. (B) The excess of market value over tentative value is determined. (C) For the first actuarial valuation in which the long range yield method is applied, the actuarial value of assets is (A) plus awrite-up equal to 20% of (B). An identical write-up is made in determining the actuarial value of assets in each of the next four years, thus fully recognizing (B) with five write-ups of equal amount. (D) On the next actuarial valuation, the actuarial value of assets is (A) plus the write-up of the previous year, plus an additional write-up equal to 20% of the excess of (B) on the valuation date over 80% of (B) on the preceding valuation date. A write-up identical to this additional write-up is also made in each of the next four years. (E) Each subsequent valuation includes (A), plus applicable write ups for previous years, plus an additional write up equal to 20% of the excess of (B) on the valuation date over the sum of portions of (B) for the previous years not yet fully recognized by prior write-ups. 13 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN APPENDIX A ANNUAL PENSION COST AND NET PENSION OBLIGATION (GASB Statement No. 27) Employer Fiscal Year End September 30: 2005 2004 2003 A. Annual Required Contribution (ARC) $1,424,1 O1 $1,156,923 $761,269 B. Interest on Net Pension Obligation (NPO) (14,020) (23,614) (1 1,310) C. Adjustment to ARC 0 0 0 D. Annual Pension Cost (A + B - C) $1,410,081 $1,133,309 $749,959 E. Actual Contributions $1,260,626 $1,013,379 $903,748 F. NPO at beginning of year ($175,246) (295,176) (141,387) G. Increase (decrease) in NPO (D-E) 149,455 1 19,930 (153,789) H. NPO at end of year (F + G) ($25,791) ($175,246) ($295,176) THREE YEAR TREND INFORMATION Fiscal Year Endin Annual Pension Cost APC Actual Contribution Percentage of APC Contributed Net Pension Obli ation 9/30/03 749,959 903,748 120.5% (295,176) 9/30/04 1,133,309 1,013,379 89.4% (175,246) 9/30/05 1,410,081 1,260,626 89.4% (25,791) 14 CITY OF WINTER SPRINGS DEFINED BENEFIT PLAN DISCLOSURE INFORMATION PER STATEMENT NO. 25 OF THE GOVERNMENTAL ACCOUNTING STANDARDS BOARDS SCHEDULE OF FUNDING PROGRESS (GASB Statement No. 25) Actuarial Accrued Actuarial liability (AAL) Unfunded UAAL as % Actuarial Value of -Entry Age AAL Funded Covered of Covered Valuation A(ae ts (b) (UAAL) Ratio(a/b) Payroll (c) Pa roll b- Date ) (b-a) a c 10/1/02 $6,620,248 $9,128,522 $2,508,274 72.5% $6,586,077 38.1% 10/1 /03 $7,279,048 $9,771,594 $2,492,546 74.5% $8,094,829 30.8% 10/1 /04 $8,134,588 10,931,774 $2,797,186 74.4% $8,982,189 31.1 The schedule provided above has been prepared in accordance with the requirements of Paragraph 37 of Statement No. 25 of the Governmental Accounting Standards Board SCHEDULE OF EMPLOYER CONTRIBUTIONS (GASB Statement No. 25) Year Ended September 30 Annual Required Contribution Actual Contribution Percentage Contributed 2003 $761,269 $903, 748 1 18% 2004 $1,156,923 $1,013,379 88% 2005 $1,424,1 O l $1,260,627 89% The schedule provided above has been prepared in accordance with the requirements of Paragraph 38 of Statement No. 25 of the Governmental Accounting Standards Board. 15