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HomeMy WebLinkAbout2006 03 13 Consent Item 404 Pension Plan COMMISSION AGENDA March 13,2006 Regular Meeting Consent X MGR. / DEPT Authorization ITEM 404 REQUEST: City Manager requesting the City Commission to authorize the Pension Attorney to revise and update the City of Winter Springs Defined Benefit Pension Plan. PURPOSE: To obtain Commission authorization for the Pension Attorney to reVIse and update the City of Winter Springs Defined Benefit Pension Plan. CONSIDERATIONS: On January 31, 2006 the Board of Trustees voted to recommend the City Commission authorize the Pension Attorney to update the City's Pension Plan document. On February 27,2006, request for approval of this recommendation was brought before the City Commission. The Commission voted to table this item until March 13,2006. Subsequently, staff has contacted other attorneys that perform this type work and inquired as to their fees to perform an update our pension plan. Of the firms contacted (there are relatively few that specialize in Public Pension Plans), fees for this type of plan update were noted to be in the range of$5,000 to $10,000. It was further indicated by the respondents that work on Defined Benefit Plans is generally more time consuming and therefore more expensive in nature (than increasingly predominant Defined Contribution Plans, e.g., 401K). Also, in our Pension Attorney's (Jim Linn) opinion, an "off the shelf' type plan document would not be appropriate in the City's particular case in that our current plan document is customized to meet our specific needs and includes several provisions to address those needs. For example, 1. The City's current plan was amended and restated from the previously adopted Money Purchase Offset plan to a Defined Benefit Plan. However, issues related to the previous plan such as an "individual accounting of previous contributions to the Money Purchase Plan" are still applicable and must be considered in the current plan document. 2. Specific language related to the incremental multiplier change from 2% to 3% must be included. Please see the attached letter from Mr. Linn for further details on this point. Also, the other firms contacted generally supported Mr. Linn's opinion. This revision and update to the plan is necessary in that the City's pension plan document is too long, too complicated and could be written much more concisely. This update would delete previously included language that is excessive and unnecessary, as well as to provided for a document that is easier to apply and use. FUNDING: The update is estimated to cost between $7,500 and $10,000 if performed by the City's current Pension Attorney. ,Funding would come from the Pension Fund. RECOMMENDATION: The City Manager recommends the Commission take the following action: Authorize City Pension Attorney Jim Linn to revise and update the City of Winter Springs Defined Benefit Pension Plan document. ATTACHMENTS: Attachment 1: Letter from City Pension Attorney Jim Linn COMMISSION ACTION: ATTACHMENT 1 (Forthcoming from City Pension Attorney) . . . March 10, 2006 Mayor/Commissioners, Enclosed please find: Attachment 1: Letter from City Pension Attorney Jim Linn, to Consent Item 404, March 13,2006 meeting. Thank You, Kevin LEWIS, LONGMAN & WALKER, EA. ATTORNEYS AT LAW A IT ACHMENT 1 HELPING SHAPE FLORIDA'S FUTURE@ REPLY To: TALLAHASSEE www.llw-Iaw.com March 9, 2006 Kevin Smith City of Winter Springs 1126 East State Road 434 Winter Springs, FL 3270~-2799 Re: City of Winter Springs Defined Benefit Plan and Trust - Need for Comprehensive Review and Revision Dear Kevin: . As you know, I have provided pension-related legal services to the City of Winter Springs since 2001. My first assignment involved assisting the City in implementing the merger of the old money purchase plan into the defined benefit plan, and revising various provisions of the defined benefit plan to accomplish the City's objective of providing a more secure retirement program for its employees. At the last pension board meeting in January I outlined several reasons why I believe the City of Winter Springs Defined Benefit Plan and Trust needs to be comprehensively reviewed, updated and revised. Briefly: · The current plan document (58 pages, single spaced) is extremely long and difficult to work with. In my experience, a typical governmental plan is about 40 pages long, double-spaced. · The current plan is overly complicated. It contains many provisions that are relevant to private sector pension plans established in compliance with the Employee Retirement Income Security Act (ERISA). But most provisions of ERISA are not applicable to governmental plans. For example, the plan definition of "hours of service" (section 1.24) is more than 2 pages long and is not relevant to a governmental defined benefit plan. This and a number of other ERISA compliance provisions in the plan can be eliminated. . Bradenton 1001 3rd Avenue West Suite 670 Bradenton, FL 34205 (941) 708-4040 Fax: (941) 708-4024 Jackson ville 9428 Baymeadows Road Suite 625 Jacksonville, FL 32256 (904) 737-2020 Fax: (904) 737-3221 Tallahassee Post Office Box 10788 (32302) 125 South Gadsden Street, Suite 300 Tallahassee, FL 3230 I (850) 222-5702 Fax: (850) 224-9242 West Palm Beach 1700 Palm Beach Lakes Blvd. Suite 1000 West Palm Beach, FL 3340 I (561) 640-0820 Fax: (561) 640-8202 March 10, 2006 . Page 2 · The current plan needs to be updated to comply with recent changes to the Internal Revenue Code. · The current plan is not an "off the shelf' plan. It contains many specific provisions that address the City's unique objectives. The merger of the old money purchase plan into the defined benefit plan is a good case in point. The rights of employees under the old money purchase plan have to be specifically addressed. Another example is the benefit provisions that were adopted in May 2005 to provide fora gradual increase in the benefit multiplier for service prior to October 1, 2000 over a four year period. It would be impossible to use an "off the shelf' plan to replace the current plan without substantial modification, or significant changes in what the plan now provides. For all the above reasons I have recommended that the current plan document be thoroughly reviewed by an attorney familiar with governmental plans, and then updated and revised. In my judgment this is something that should be done sooner rather than later, whether this project is handled by me or another attorney. Please feel free to call me if you have any questions concerning this matter. Sincerely, . James W. Linn JWL/es .