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HomeMy WebLinkAbout2017 11 13 Consent 301 Pension UpdateCOMMISSION AGENDA ITEM 301 Informational Consent X Public Hearings Regular November 13, 2017 KS SB Regular Meeting City Manager Department REQUEST: The Finance and Administrative Services Department is requesting the Commission consider adoption of Resolution 2017-10, which clarifies and updates the Winter Springs Defined Pension Plan. SYNOPSIS: This agenda item is needed to seek Commission approval to modify the City of Winter Springs Defined Benefit Pension Plan in order to 1) obtain a current Letter of Determination (compliance) from the IRS, 2) lower the Plan's Assumed Rate of Return, and 3) provide an option for new Police Officers to voluntarily choose to participate in the City's Defined Contribution Plan, and 4) simplify and clarify Plan language and remove obsolete Plan language. These Plan modifications do not negatively affect current or future employees and have no impact on participants that are currently drawing pension benefits (current retirees). CONSIDERATIONS: This agenda item is needed to seek Commission approval to modify the City of Winter Springs Defined Benefit Pension Plan as follows: Letter of Determination/IRS Compliance. A Letter of Determination is a formal opinion issued by the IRS as to a Defined Pension Plan's conformity to Federal minimum requirements, for purposes of the Plan being considered a "Qualified" retirement program that enjoys beneficial tax treatments to the participants. It is recommended that Governments submit their plan documents periodically to the IRS for evaluation. To that end, the City's Plan was reviewed and modified to ensure Consent 301 PAGE 1 OF 3 - November 13, 2017 IRS compliance. • Plan Assumed Rate of Return. The current assumed rate of return for the Winter Springs Defined Benefit Pension Plan is 8.0%. This rate is no longer the standard in the investment field and forces the portfolio manager to increase the portfolio's risk exposure. At the recommendation of the City's Investment Advisor AndCo., and the City's Actuary Gabriel Roeder Smith & Company, the Board of Trustees (BOT) voted unanimously to recommend to the Commission an assumption rate reduction of 0.25% (from 8.0% to 7.75%). This vote took place at the August 10, 2017 BOT Meeting. The BOT may recommend further reductions in the future. This action may increase the required City contributions by approximately $149,101 per year; however, if the portfolio maintains an internal rate of return greater than 8.0% this change will have no effect on City funding. The Florida State Retirement System (FRS) has recently followed suit with this philosophy and lowered its rate to 7.50%. • Opt Out Option. An Opt Out Option has been added to allow a voluntary, one- time, irrevocable, selection by police officers to participate in the City's Defined Contribution 401a Plan, rather than its Defined Benefit Plan. At hire, a police officer would have the option to participate in the City's 401a retirement plan that includes a shorter vesting period, portability, and (current) 7.5% automatic and matching contribution. • Obsolete Plan Language. This resolution has removed unnecessary private sector language that is obsolete for public plans. The Uniformed Service Employment and Employment Rights Act, "USERRA", is the standard by which public pension plans are judged. The current plan contains several references to ERISA law, which is strictly private sector language and thus non -applicable to the City's Plan. • Credited Service. Clarifying language has been added for Credited Service. The Plan currently allows an employee to earn credited service for years worked (1,000 hours per year), years purchased, and military service (years). The plan description language for several key concepts has been very difficult to interpret and administer over the years due a the lack of clarity. This plan document will allow for better compliance to the original intent of the pension as it relates to employee options. • Rate of Return for a Non -Vested Participant. The rate of return utilized for return of contributions for non -vested participants that separate from the City will be changed to the 3 -year US Treasury benchmark. Currently, if a participant in the Defined Benefit Plan leaves the City before the 7 -year vesting period and their employee contributions total less than $3,500, their contributions are returned to them upon separation, with interest. The current interest rate benchmark is the 30 - year US Treasury. This hurts the pension plan because the money is not retained for a long enough time period to earn a sufficient return that warrants paying the participant who, in this case, would have been here for less than 3 years, on average. FISCAL IMPACT: The change in the Assumed Rate of Return may potentially increase the City's funding requirements by approximately $149,101 per year. All other modifications herein will have no impact on the Pension Plan. COMMUNICATION EFFORTS: Consent 301 PAGE 2 OF 3 - November 13, 2017 This Agenda Item has been electronically forwarded to the Mayor and City Commission, City Manager, City Attorney/Staff, and is available on the City's Website, LaserFiche, and the City's Server. Additionally, portions of this Agenda Item are typed verbatim on the respective Meeting Agenda which has also been electronically forwarded to the individuals noted above, and which is also available on the City's Website, LaserFiche, and the City's Server; has been sent to applicable City Staff, Media/Press Representatives who have requested Agendas/Agenda Item information, Homeowner's Associations/Representatives on file with the City, and all individuals who have requested such information. This information has also been posted outside City Hall, posted inside City Hall with additional copies available for the General Public, and posted at six (6) different locations around the City. Furthermore, this information is also available to any individual requestors. City Staff is always willing to discuss this Agenda Item or any Agenda Item with any interested individuals. RECOMMENDATION: Staff recommends the Commission adopt Resolution 2017-10 and authorize the City Manager and City Attorney to prepare and execute any and all applicable documents necessary to execute the pension plan modifications. ATTACHMENTS: 1) Resolution 2017-10 2) Actuarial Impact Study 3) Pension Policy Draft (Drop Box) Consent 301 PAGE 3 OF 3 - November 13, 2017 Gabriel Roeder Smith & Company {Inc Fast kir❑ward Blvd. 9.54.527.'16'16 phonc GRS C nnsultants & Actuarics SLiltc 505 9.54.525.i1U83 Fax Ft. Lauderdale, FL 3.3301-1904 vvwv•.gabrielroedcr.com August 26, 2016 Mr. Shawn Boyle Finance and Administrative Services Director City of Winter Springs 1126 East State Road 434 Winter Springs, Florida 32708 Re: City of Winter Springs Defined Benefit Plan Actuarial Study as of October 1, 2015 Dear Shawn: As requested, we have performed an Actuarial Study as of October 1, 2015 to determine the financial effect of a proposed assumption change under the City of Winter Springs Defined Benefit Plan (Plan). Back -round — The current investment return assumption is 8.00% (net of investment expenses), compounded annually. Proposed Chane — We understand the Board wishes to determine the financial effect of reducing the investment return assumption to 7.75% or 7.50% (net of investment expenses), compounded annually. Results — The attached Exhibit sets out the key financial results of our Study. The following sets out the increase in minimum annual required County and City contribution for the Plan year beginning October 1, 2016. The figure in parentheses is the Plan cost expressed as a percentage of projected covered annual payroll for fiscal year beginning October 1, 2016 ($6,868,214). Other Considerations — We recommend the Board consider analysis of expected returns using our Capital Asset Assumption Modeler. Our analysis would be based upon the current target asset allocation. We would recommend our analysis include input from the Investment Consultant. Mr. Shawn Boyle August 26, 2016 Page Two In addition, we note some of our clients are reducing investment return on a ratable basis over a five-year period. For example, if the Board wishes to move to a 7.50% investment return assumption, this could be accomplished by reducing the current investment return assumption from the current 8.00% by 0.10% per year over the next five years. Actuarial Assumptions and Methods, Plan Provisions, Financial Data and Member Census Data — The actuarial assumptions and methods, Plan provisions, financial data and member census data used for purposes of our Actuarial Study are the same actuarial assumptions and methods, Plan provisions, financial data and member census data used and outlined in the Plan's October 1, 2015 Actuarial Valuation Report dated August 23, 2016 with the exception listed above. This Actuarial Study is intended to describe the estimated future financial effects of the proposed assumption change on the Plan, and is not intended as a recommendation in favor of the assumption changes or in opposition of the assumption changes. If all actuarial assumptions are met and if all future minimum required contributions are paid, Plan assets will be sufficient to pay all Plan benefits. Plan minimum required contributions are determined in compliance with the requirements of the Florida Protection of Public Employee Retirement Benefits Act with normal cost determined as a level percent of covered payroll and a level dollar amortization payment using an initial closed amortization period of 30 years. The Unfunded Actuarial Accrued Liability (UAAL) may not be appropriate for assessing the sufficiency of Plan assets to meet the estimated cost of settling benefit obligations but may be appropriate for assessing the need for or the amount of future contributions. The UAAL would be different if it reflected the market value of assets rather than the smoothed actuarial value of assets. The Funded Ratio shown in Item J of the attached Exhibit is for informational purposes and may not be appropriate for assessing the sufficiency of Plan assets to meet the estimated cost of settling benefit obligations but may be appropriate for assessing the need for or the amount of future contributions. These calculations are based upon assumptions regarding future events. However, the Plan's long term costs will be determined by actual future events, which may differ materially from the assumptions made. These calculations are also based upon present Plan provisions that are referenced in the Actuarial study. If you have reason to believe the assumptions used are unreasonable, the Plan provisions are incorrectly described or referenced, important Plan provisions relevant to this Actuarial Study are not described or that conditions have changed since the calculations were made, you should contact the undersigned prior to relying on information in this Actuarial Study. Gabriel Roeder Smith & Company Mr. Shawn Boyle August 26, 2016 Page Three Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: Plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions; increases or decreases expected as part of the natural operation of the methodology used for these measurements and changes in Plan provisions or applicable law. Due to the limited scope of the actuary's assignment, the actuary did not perform an analysis of the potential range of such future measurements. This Actuarial Study should not be relied on for any purpose other than the purpose described in the primary communication. Determinations of the financial results associated with the benefits described in this report in a manner other than the intended purpose may produce significantly different results. This Actuarial Study has been prepared by actuaries who have substantial experience valuing public employee retirement plans. To the best of our knowledge the information contained in this report is accurate and fairly presents the actuarial position of the Plan as of the valuation date. All calculations have been made in conformity with generally accepted actuarial principles and practices, with the Actuarial Standards of Practice issued by the Actuarial Standards Board and with applicable statutes. This Actuarial Study may be provided to parties other than the City only in its entirety and only with the permission of an approved representative of the City. The signing actuaries are independent of the Plan and Plan sponsor. If you have reason to believe that the information provided in this Actuarial Study is inaccurate, or is in any way incomplete, or if you need further information in order to make an informed decision on the subject matter of this report, please contact the undersigned prior to making such decision. The undersigned are Members of the American Academy of Actuaries and meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinion contained herein. If you should have any question concerning the above or if we may be of further assistance with this matter, please do not hesitate to contact us. Sincerest regards, ��. 7�3- L,,-� 4-t,�da,� Lawrence F. Wilson, A.S.A., E.A. Jennifer M. Borregard, E.A. Senior Consultant and Actuary Consultant and Actuary Enclosure Gabriel Roeder Smith & Company RESOLUTION NO. 2017 - 10 A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF WINTER SPRINGS, FLORIDA, AMENDING AND RESTATING THE DEFINED BENEFIT PLAN AND TRUST FOR EMPLOYEES OF THE CITY OF WINTER SPRINGS; PROVIDING FOR CONFLICTS; PROVIDING FOR SEVERABILITY; PROVIDING AN EFFECTIVE DATE. WHEREAS, the City Commission of the City of Winter Springs has determined that certain changes to the City's Defined Benefit Plan and Trust are in the best interest of the City, its employees and taxpayers; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COMMISSION OF THE CITY OF WINTER SPRINGS, FLORIDA: Section 1. That the City of Winter Springs hereby amends and restates the City of Winter Springs Retirement Plan (attached hereto as Exhibit "A"). This Retirement Plan restates and supersedes the Defined Benefit Plan and Trust for Employees of the City of Winter Springs, as adopted on March 23, 1998, restated on November 10, 2003, as amended. Section 2. That this resolution shall supersede any and all conflicting provisions of any previously adopted resolutions. Section 3. That should any section or provision of this resolution or any portion thereof, any paragraph, sentence, or word be declared by a court of competent jurisdiction to be invalid, such decision shall not affect the validity of the remainder hereof as a whole or part thereof other than the part declared to be invalid. Section 4. 00889658-1 1 That this resolution shall take effect upon adoption. PASSED and ADOPTED this day of , 2017. MAYOR ATTEST: CITY CLERK 00889658-1