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HomeMy WebLinkAbout2006 11 20 Handout For Agenda Item 301 Date: November 20, 2006 The attached was distributed to the City Commission by Manager McLemore at the November 20, 2006 City Commission Special Meeting, during the discussion of Regular Agenda Item "301." NOVEMBER 20, 2006 ADDENDUM REPORT TO A STUDY TO DETERMINE THE FEASIBILITY AND DESIRABILITY OF APPROVING CHANGES TO THE CITY'S CURRENT UNIFIED CITYWIDE DEFINED BENEFIT PENSION PLAN PHASE B PRELIMINARY FEASIBILITY AND DESIRABILITY STUDY November 16, 2006 BACKGROUND At the November 16, 2006 Special Commission Meeting regarding pension matters, staff presented its Feasibility and Desirability Report relative to the adoption of Chapter 175/185 pension plans. This addendum to the November 16,2006 Phase B Preliminary Feasibility and Desirability Study is being provided in response to Commission direction provided at the conclusion of that meeting. In its report, staff made the following findings: 1. In answer to the question "How much is enough?" staff found that the current pension plan provides sufficient benefits to recruit and retain employees, and greater benefits than those that would be required to provide employees with 30 years of service 1 00% of their salary at retirement. 2. In answer to the question "In consideration of the environmental scan, is now a good time to be asking taxpayers to support the addition of benefits to a plan that already far exceeds pensions most taxpayers have?" staff found that this was not a good time to address taxpayers with such a question. 3. In answer to the question, "Are Chapter 175/185 plans legally feasible?" staff found that these plans could be enacted with modification to the City Code. Staff also found that the current conflict between the cost of implementation of Chapter 175/185 plans under the Florida Division of Retirement interpretation of the Statute and the Statute itself should have local policy makers use the more expensive Statute approach in case litigation on the question would cause all entities with Chapter 175/185 plans to be administrated according to a strict interpretation of the Statute. 4. In answer to the question "Are Chapter 175/185 plans economically feasible, "the staff found that Chapter 175/185 plans were not feasible unless policy makers were willing to increase current payroll contributions to fund the plans since insurance premium taxes were not sufficient to offset the cost of additional benefits. 5. In answer to the question "Is it desirable to implement Chapter 175/185 plans in light of two criteria: (1) The commission being held accountable for the performance of a pension plan over which it exercised little control, and (2) the tax payers willingness to support the adoption of Chapter 175/185 plans whenfully informed of the impacts" the staff concluded that it would not be in the best interest of the Commission or the public to support the adoption of Chapter 175/185 plans. Based upon their findings, staff recommended that the Commission terminate further consideration of the adoption of any plans which removed the Commission from the full responsibility for enacting pension plan policy and oversight of the implementation of the policy through the administrative branch of the City government which is 100% accountable to the City Commission for administration and recommended that enhanced benefits be provided within the context and framework of the existing pension plan. Subsequent input from two members of the pension board and two employees addressed the following issues: 1. Employee representation on the pension board. 2. Employee options to purchase additional benefits with particular interest in lowering the retirement age. 3. One pension board member addressed the structure and composition of the pension board if Chapter 175/185 plans are not enacted. 4. One pension board member commented on the one-sided nature of the staff report and requested the study to be expanded to hear from cities where Chapter 175/185 plans are working well. Following public input, the Commission directed the following: 1. That the study of pension plan enhancements be placed on the agenda for the November 20, 2006 meeting for Commission action. 2. That staff provide cost projections as of October 1, 2008, at which time the full 3% benefit multiplier comes into effect. 3. That staff provide information on cities that adopted Chapter 175/185 plans after the 1999 revisions in the law. 4. Examples of how the current plan could be amended. 5. To provide comment from other cities who have Chapter 175/185 plans. RESPONSE TO COMMISSION DIRECTIVES 1. November 20, 2006 Meeting As directed, staffhas placed this addendum report on the agenda for consideration and action of the November 20,2006 Commission meeting. 2. Cost at the 3% annual benefit As directed, the cost at the full 3% annual benefit is as follows: Maintaining Parity among All City Employees Division of Statutory Retirement Definition Shortfall in Dollars $670,164 $990,373 Shortfall in Payroll Contributions 6.3% 9.3% Shortfall in Equivalent Ad Valorem Taxes 0.33 mills 0.49 mills Enhanced Benefits for Police and Fire Only Division of Statutory Retirement Definition Shortfall in Dollars $386,106 $706,313 Shortfall in Payroll Contributions 3.6% 6.7% Shortfall in Equivalent Ad Valorem Taxes 0.19 mills 0.35 mills 3. Cities adopting after 1999 Of the 361 175/185 plans currently in effect, 16 were adopted after the Statute's revision in 1999. 4. Example of how the current plan could be amended This question must be answered in light of the Commission's current policy that provides the following: 1. Employees shall pay for increases in benefits. 2. The City would pay for additional measures needed to enhance the fiscal soundness of the plan. Assuming that the Commission maintains its current policy, the advisory board should be tasked with the responsibility of providing the Commission with recommendations for enhancing the current plan benefits through increased employee participation rates. There are two obvious benefits to this approach: 1. This approach forces employees to determine if the enhancements are important enough to pay for. This is a far different question from using someone else's money to acquire a benefit. 2. This neutralizes the fallout for taxpayer's objections to additional benefits. If the Commission should change the policy, which staff does not recommend due to the levels of benefits already being provided, the door is wide open. However, it is important to note that the benefit most discussed has been the lowering of the retirement age. 5. Structure and composition of the Advisory Board Comments have been made regarding the structure and composition of the advisory board. Structure The City Charter provides for a council-manager form of government in which the Commission appoints advisory boards of taxpayers to address advisory recommendations for policy options, and employs a city manager who is 100% accountable to the City Commission for carrying out its policy. This structure articulates a set of checks and balances in which the Commission maintains full responsibility and full accountability for the performance of the City. It is important to note that this structure places all policy making and oversight in the Commission as a collective body and makes it all but impossible for a mayor, any individual Commission member, or board from centralizing authority in the City. Abandonment of this structure through creation of boards with independent policy making or administrative function represents a radical change in that structure that in the end will serve to reduce the collective authority and power of the Commission. Composition Although all employees are invited and encouraged to attend pension board meetings, comments have suggested that there would be greater attendance if employees were formally appointed as members. If the Commission desires to move in this direction, it is recommended that the Commission consider the following: 1. The addition of one additional taxpayer bringing the total number of taxpayers to six. 2. The appointment of three non-voting ex-officio pension plan members from management to include the City Manager, the General Services Director, and the Finance Director. These are members of the pension plan who must attend the pension board meeting anyhow. 3. The appointment of three non-voting, non-management members; one from police, one from fire, and one from general employees. The advantages of this recommendation are as follows: 1. There are a balanced number of pension plan members and taxpayers. 2. There are a balanced number of management and non-management members. 3. Commission accountability is fully preserved. 6. Input from other Chapter 175/185 Cities As stated, it is going to be all but impossible to get current city officials to make negative comments regarding their city's pension plans in the public, and certainly not in this framework. RECOMMENDATIONS 1. It is recommended that the Commission terminate further study of Chapter 175/185 and other state controlled, independent pension plans. 2. It is recommended that the City Pension Attorney complete the update of the current pension plan documents to be consistent with current practice and any changes the Commission desires to make to the composition of the Pension Advisory Board. 3. It is recommended that the Commission consider the suggested amendment to the composition of the Pension Advisory Board. 4. It is recommended that the Commission consider tasking the Pension Advisory Board with the responsibility of exploring benefit options that City employees may wish to purchase and the cost and manner in which the new purchased benefits would be enacted.