HomeMy WebLinkAbout2006 09 27 Other Handout Given By Mr. Brad Heinrichs
Date: September 27, 2006
The attached was distributed during the
September 27, 2006 City Commission
Workshop by Mr. Brad Heinrichs.
Introduction to Chapers 175/185
Foster & Foster
September 27, 2006
Introduction
Premium tax dollars paid by citizens of Winter Springs
to insurance companies are collected
by the state, and then a certain amount of this
money is made available to local law plans that
adhere to the requirements of Chaper 175/185
The amount of money collected varies based upon the amount
of money collected on auto
and homeowner's insurance policies
Introduction
While every city's allocation is different, it is not
uncommon to see the state's allocation be an
amount equal to or exceeding 6% of payroll.
State monies received up to a certain amount
may be used to offset the sponsor's
contribution requirement for the year, and the
excess monies are set aside for benefit
improvements
Foster & Foster, Inc.
State Funding Comparison to Cities comparable to Winter Springs
Chapter 99-1 Florida Statutes,
Benefit Improvement Requirements
Minimum benefit provisions of Chapter 175
and 185
-2% Benefit Rate
-Normal Retirement =55/10; 52/25
-Normal Form= Life Annuity with 10 years certain
-Early Retirement =50/10
-Early Retirement Reducation =3% per year
-In Line of Duty Disability = Day one coverage;
Accrued benefit with 42% of AFC minimum
Chapter 99-1 Florida Statutes,
Benefit Improvement Requirements
Minimum benefit provisions of Chapters 175
and 185
-2% Benefit Rate
-Normal Retirement =55/10; 52/25
Early Retirement=50/10
Early Retirement Reducation =3% per year
In Line of Duty Disability=Day one coverage; Accrued benefit with 42% of AFC minimum
Foster & Foster, Inc.
Summary Comparision of Chapters 175 and 185 and the City of Winter Springs, Florida Pension Plan
Foster & Foster, Inc.
Summary Comparision of Chapters 175 and 185 and the City of Winter Springs, Florida Pension Plan
Chapter 99-1 Florida Statutes,
Benefit Improvement Requirements
Minimum benefit provisions of Chapters 175
and 185 (continued)
-Once minimum benefit provisions have been met,
the Board must recommend the implementation of
any additional improve that can be funded with
incremental increases in State Premium Tax monies.
Popular Benefit Improvements in
Addition to Chapter 99-1 Minimums
Benefit Rate
-Provides most uniform improvement to all classes of plan
benefits
-Rule of thumb is that a 1% increase in contributions (as a percentage of payroll)
can fund a 0.1% increase in the benefit rate
Reduction in the Normal Retirement Date
-25 & Out is popular (FRS provision)
-Rule of 75 (age + service=75)
20 & Out
Sounds great, but without a COLA it may not provide adequate
retirement income
-Retirement Age reductions do not necessarily benefit all members equally
Popular Benefit Improvements in Addition to Chapter 99-1 Minimums
Monthly Benefit Supplement
FRS provides $5 per month per year of service, up to a maximum of $150
-May provide a flat dollar supplement ($200, for example)
Popular Benefit Improvements in
Addition to Chapter 99-1 Minimums
Cost of Living Adjustment (COLA)
-Automatic COLAs are typically very expensive (a 3% COLA may increase plan
liabilites by 35% to 40%)
-The most cost effective way to adjust retiree
benefits is an ad hoc "one time" adjustment only for members currently receiving payments
Popular Benefit Improvements in
Addition to Chapter 99-1 Minimums
Reduce Salary Averaging Period
Instead of a five-year averaging period, maybe use
only the best 2 years of the last 10.
Can be expensive if "Salary" includes lump sum sick
and vacation pay or if members can control overtime
May not benefit salaried members who are at the top of the pay scale
.
Popular Benefit Improvements in
Addition to Chapter 99-1 Minimums
Increase Pre-Retirement Death Benefit
Statutory minimum benefit generally does not provide
adequate coverage in the event of line of duty death (10 year eligibility requirement)
Popular alternatives provide day one coverage for service-incurred deaths and some
type of salary continuation to surviving spouse/beneficiary and children
(e.g. 50% of annual base pay payable to spouse for life)
Benefit is typically not too expensive because there tends not to be any
adverse selection
Popular Benefit Improvements in
Addition to Chapter 99-1 Minimums
Lower Vesting Schedule
Popular alternative is 100% vesting after 6 years of credited service (to match FRS)
Changes should be motivated by efforts to recruit and retain members
(make the program more competitive)
Popular Benefit Improvements in
Addition to Chapter 99-1 Minimums
Increase Disability Benefit
Popular alternative is 80% minimum for disability resulting from felonious act
Benefit is relatively inexpensive, but opportunity for large losses exist
if adminstration of the "disability" classification is loose.
Administrative Procedures to
Implement Improvements
Chapter 99-1 Minimums
Task the Board Actuary to review Plan and identify
those benefits, if any, that do not meet statory requirements
If Plan does not meet minimums, ask the Actuary
to determine whether excess State contributions are sufficent
to fund any or all required improvements.
Administrative Procedures to Implement Improvements
Additional Improvements
Determination of alternative improvements to
consider are usually based upon:
Input from the membership (e.g., straw ballot)
Input from the bargaining unit
Schedule of benefit improvement priorities developed by
the Board based upon the two items above
Administrative Procedures to
Implement Improvements
Prepartion of Required Documents
When the Board Actuary has valued the financial impact of the proposed improvement (s),
the Board reviews the results and determines what improvements can be
funded with State contributions and/or other available sources.
If the Board wishes to ahve the sponsor consider the adoption of any
improvement, the Board votes to have a drafy ordinance/resolution prepared
by the Board Attorney which is submitted to the sponsor, along with a formal
Actuarial Impact Statement prepared by the Board Actuary.
Both documents must be mailed to the Bureau of Local Retirement
Systems and the Bureau of Police Officers' and Firefighters Retirement
Trust Funds prior to formal adoption by the sponsor.
Determination of Applicable
"Frozen" State Contribution and Available Incremental Increase
Premium tax monies collected in 1997 calendar year represent initial
"frozen" State contribution
Until benefits are improved, sponsor contribution is determined based upon the lesser
of:
The acutal State contribution received in the plan year, or
The "Frozen" state contribution
Determination of Applicable "Frozen" State Contribution and Available Incremental Increase
Any State contributions received in any year in excess of the applicable "frozen"
State contribution amount are segregated from plan assests to be used exclusively
to fund benefit improvements
Applicable "frozen" amount and accumulated incremental increases are
reported to the Division of Retirement annually on page 6a of the Annual
Report
Exhibit A
Excess State monies Reserve
Advantages of Adopting a Chapter 175/185 Program
Allows plans to be more easily tailored to the desires of the memberships
Provides for larger benefits at no increased cost to the sponsor
Good use of tax money that citizens of Winter Springs are paying to the State
Separately administered plans would allow each plan to benefit from its own experience
Disadvantages of a Adopting a Chapter 175/185 Program
Must adhere to the minimum provisions set forth by the State
Promotes inequities in retirement benefits for city employees
Larger administrative costs associated with operating independent Boards