12-6-11 Workshop v MINUTES OF THE WORKSHOP OF ATLANTIC BEACH CITY COMMISSION
HELD IN THE COMMISSION CHAMBER ON DECEMBER 6, 2011 AT 6:00 PM
City Commission Members present:
Mike Borno, Mayor
Mark Beckenbach, Commissioner
Jonathan Daugherty, Commissioner
Maria Mark, Commissioner
Carolyn Woods, Commissioner
Staff present:
Jim Hanson, City Manager
George Foster, Human Resources Manager
Nelson Van Liere, Finance Director
Donna Bartle, City Clerk
Nancy Bailey, Recording Secretary
The meeting, which was held for the purpose of reviewing the current pension plans, past
amendments made, options to reduce City costs and related topics was called to order at 5:57
p.m. by Mayor Borno. Mayor Borno announced he would allow the audience to speak for 3
minutes each at the beginning and end of the meeting, if anyone wished to do so.
Mayor Borno opened the Courtesy of the Floor to Visitors.
Don Ford, 338 6 Street, stated many years ago the City of Atlantic Beach considered their
employees to have a future when they retired and not live in poverty. He stated if they retire
their pensioners at a very low rate they will have pensioners living in poverty, not contributing to
society anymore, not paying taxes anymore in Atlantic Beach because most will have to leave
when they retire. He stated he believes if they consider whether changing the pension is ethical,
moral, fair or legal they will not do anything else tonight. He urged them to specifically look at
the ethical and moral indications if they decide to go to anything other than the defined benefit
plan. He stated the plan they have is a very good plan and there are some other plans out there
that they can mirror to make this plan strong. He stated there is a very good plan right down the
street and they have made some hard decisions and hard monetary commitments over the years
but they are taking care of their employees and staying behind their decisions.
Dale Hatfield, PBA representative for the Police Officers, 850 Seminole Rd., stated they
don't feel they are any different than anyone in the City but the State of Florida treats the Police
Officers differently. He stated a lot has been said about how much they make, their days off, etc.
He stated they are a little bit different than the average employee and explained the difference
between Police Officer and their civilian counterparts. He stated they do not think they are better
than anybody else, it is just that the job they do is different. He stated although our Chief of
Police and Police Department have done an outstanding job in reducing crime in Atlantic Beach,
they do still have crime here like rapes, murders, and robberies which they deal with on a daily
basis. He stated their average worker in the Police Department makes less than $50,000 /year
when he has been here 20 years. He stated they would like the City to keep their bargain that
was made with them when they first started working here. He stated they don't retire with a
bunch of money; they pay their bills and try to send their kids to college.
Donna Kaluzniak, 47 Millie Drive, Jacksonville Beach thanked the Commission for listening
to everyone's comments. Stated there has been a lot of hype, misinformation and inaccurate
reports in the media about not just our pension but about public employee pensions in general.
She suggested the Commission obtain information and education from those who are
Minutes — City Commission Workshop December 6, 2011
Page 2
experienced in pension plans for public employees. She stated they could attend some of the
Pension Board meetings. She stated often our actuary and pension attorney attend those
meetings and they can be very informative. She stated they can also contact the Board members
individually. She also stated the Florida Public Pension Trustees Association at www.fppta.org
offers Town Hall meetings for free and will bring experts to present information on public
employee pensions. She further suggested that they could also meet with our own actuaries,
attorneys and financial advisors who would probably be willing to give us a workshop which
could be requested through the City Manager to the Pension Administrator, Nelson Van Liere.
She explained these were just some suggestions to get good solid information as opposed to
some of the things that are in the media.
Bill Mayhew, 1870 N. Sherry Drive, stated he believes for all practical purposes Atlantic Beach
is in the annuity business but to his knowledge no one involved has any insurance background or
understanding of spread of risk, risk retention limits or reinsurance. He stated Atlantic Beach is
too small to insure these annuity risks. He stated the small number of participants in the plan and
the many assumptions that have to be made make these plans just too unpredictable, which is
true even if they cut the benefit levels in the future. He stated if they get real lucky the plans
might work out fine but don't risk the future of the retirees and taxpayers on luck. He stated we
are risking the solvency of Atlantic Beach on this pension plan. He further stated every option
they will be looking at dealing with defined benefits understates the expenses unless they believe
we are going to get an 8% return on our investments over the next 30 years. He stated there
never was a legally binding promise, only a good intention and a big mistake was made and it
needs to be corrected. He stated the most unfair thing would be to saddle current and future
taxpayers of Atlantic Beach with this giant gamble (typed comments are attached and made part
of this Official Record as Attachment A).
Brian Kilby, 1825 N. Sherry Drive, stated he was continuing on Bill Mayhew's points. He
stated regarding police officers, a defined contribution plan could be structured wherein they
receive higher contributions, earlier vesting and retirement to reward them for their sacrifices and
risks. He stated perhaps they could give hazardous pay for those on the line and enroll them in
the State plan. He stated they should get clerical staff off of the police plan. He stated when
they hear some vocal people it is probably because there is the tip of the iceberg there and there
are a lot more people out there who do not have time to come down here and talk. He stated his
concern is taxes and they have a duty to the citizens. He stated they have a couple of new
Commissioners and there is turnover because of votes like today. He stated if they continue
these issues the turnover will continue to happen. He stated they would like to have consistency
in the Commissioners but that requires that the actions they take here tonight will reflect the
general citizens perceptions. He urged them to not be timid and take a stand to do what is
needed to protect the taxpayers and retirees of our City.
Robert Williams, 1885 Sherry Drive N., stated he has a background in group insurance dealing
with reinsurance. He stated if you don't have some plan to look at your high risk situation and
the potential there you are looking for a train wreck one day. He stated you are a small group
and don't have the spread of insureds to cover risk as a large group would have so your nose is
pretty far out.
Minutes — City Commission Workshop December 6, 2011
Page 3
No one else from the audience spoke so Mayor Borno closed the Courtesy of the Floor to
Visitors.
City Manager Jim Hanson stated this workshop was to learn about pension plans and goes well
beyond the numbers presented in the Foster & Foster study (no relation to George Foster). He
stated this is not a time for the Commission to make decisions but is an information meeting. He
further pointed out that he is not covered by the City's pension plan and, therefore, is not
speaking on his own behalf.
Mr. Hanson gave a slide presentation (which is attached and made part of this Official Record as
Attachment B) including the 30 -year Projections of the City Contribution Rates from the study
done by Foster and Foster. He explained pension reform is not a new subject here in Atlantic
Beach, adding that it has been discussed for a long time, including a Pension Committee Report
that was issued in 2002 which resulted in increased employee contributions for both plans,
decreased multiplier for general pension plan, and vesting increased from 5 -10 years for general
plan. He also noted that amendments to the police plan were challenged by the State and
resolved in favor of Atlantic Beach. He stated there is a new public awareness due to the
increasing costs. He stated he believes we need some perspective here, stating the sky is not
falling. He stated a number of people have claimed that cities are going to go bankrupt across
the country but very few cities have defaulted over pensions, even though we are now moving
through the worst of the economic downturn. He stated there was one municipal bankruptcy last
year in Rhode Island, one in 2009 in Alabama, and one in 2008 in California. He stated
Harrisburg, Pennsylvania was not one of those, although they filed for bankruptcy it was due to
revenue bonds dealing with the solid waste incinerator, not because of their pension plan. He
stated we are not alone; other cities have had long and difficult battles with their unions over the
pension issue. Public pensions are more generous in some states than others. He stated this year
we are putting in 31% of salaries for police for pension benefits. He further pointed out that the
average funded level for local pensions nationwide dropped to 78% in 2010. He stated in
Atlantic Beach the Police plan is funded at 65% and the general plan at 70 %. He stated the cost
has increased nationwide from 6% of the payroll for general employees to 13% during this
recession. He stated Atlantic Beach's general employee contribution is 24% of payroll. He
stated most cities across the country still use an 8% rate of return and if they lower it they will
have to put more money into their pension plans which means for most cities across the country
that they will either have to lower city services or raise revenues to make up for it. He stated
right now is probably the worst time to change that assumption, unless it is absolutely warranted
and with most cities still at 8 %, we certainly are not out of line with where they are. He
discussed how we got here, explaining that pension benefits have often been given instead of
salary increases when they couldn't afford the salary increases, and the State - mandated
minimum police /fire benefits. He stated the Police and Fire unions have a tremendous amount of
clout in the State Legislature. He pointed out that pension holidays have never been used in
Atlantic Beach. Atlantic Beach is in good financial shape but he doesn't believe we can afford
any additional costs above what we are paying now without either increasing the revenues or
reducing the service level to the public. He stated he believes some changes are needed but the
main question for the Commission is what pensions are needed and can be afforded in Atlantic
Beach so we can attract and retain good employees to provide services to the citizens.
Minutes — City Commission Workshop December 6, 2011
Page 4
He further explained what people should do for retirement planning. He explained the range of
options as submitted by Foster & Foster pointing out that no city in Florida has done away with
the Defined Benefit plan for Police and Fire because of the State mandates for the minimum
standards and losing the insurance premium taxes. Mr. Hanson recommended that the
Commission keep the big picture in sight and stated he believes the most important criteria is
fairness to our employees.
Human Resource Manager George Foster explained he is not an expert but has been working
with pension plans for many years. He gave a slide presentation (which is attached and made
part of this Official Record as Attachment C) on the City Pension Plans elaborating on each slide
and stating he would take questions on each slide. He pointed out that police officers are
different than general employees which is why we have two different pension plans. He stated
most articles from the newspapers are biased, have incomplete information or use terms
differently, and he tried to keep his bias out of this slide show until he gets to his
recommendations. He stated he uses four considerations when making any decisions, is it ethical,
moral, fair or legal. He stated other considerations are whether it can be implemented, what the
overall impact is, is it affordable and is it sustainable. He expressed other concerns he has, in
addition to the pension plan, were the health insurance, lack of disability insurance, life
insurance of only one times salary with a $50,000 maximum and the need for financial planning
for our employees. He stated the quickest way to reduce the City's contribution is to freeze the
current plan for everybody but the initial cost may increase, especially for the police plan
because they will lose the FS185 funds, which he further explained. He stated at this point in
time he does not believe we can make any changes to the police plan, other than increasing the
police contribution rate, without losing the FS 185 funds. He stated the goals he believes the city
should consider are a pension plan that provides adequate retirement income for long -term
employees, is affordable to the City and encourages or helps with recruitment and retention. He
pointed out that the Employee Retirement Income Security Act (ERISA) and the Pension
Protection Act (PPA) do not generally apply to governmental plans as we are exempt from the
provisions of these two laws. He cautioned the Commission that if they are reading articles that
quote these two laws, it may not apply to governmental entities at all. He stated we are governed
by State laws FS 112 and FS185, certain constitutional rights, labor relations and the IRS.
Mr. Foster presented the history of the Atlantic Beach pension from its inception in 1975 to
present and he, Mr. Hanson and Nelson Van Liere answered several questions from the
Commission regarding actuarial assumptions, funding ratios, etc. Mr. Foster explained we
currently have 84 active employees in the general plan and 27 in the police plan but this count
does not include retirees.
Mr. Foster stated our contribution rates are projected to go up for the next two years and then
they start down and even if they make changes they will still go up for the next couple of years
and then will go down. He stated any changes to the pension plan will need to be bargained with
the unions; it is a mandatory subject of collective bargaining. He stated you cannot reduce a
benefit that has already been earned but you can reduce a benefit going forward, nor can you
reduce the benefit of a retiree. Jim Hanson mentioned there are two resolutions on the next
agenda related to pensions.
Minutes — City Commission Workshop December 6, 2011
Page 5
He explained the options available to the Commission for the pension plan are social security
only, defined benefit plan, defined contribution plan, cash balance or hybrid plan, or Florida
Retirement System (FRS), stating he does not believe the FRS or hybrid plans are viable options.
He further explained each plan. He stated there are currently 47 retirees in the general plan and
18 retirees in the police plan and gave the average pay of the top five in each category.
He explained the process needed to make a change and explained the key terms related to
pension changes. He stated this is an involved process and some of the steps will take months to
complete. He also explained the key factors of the City's Defined Benefit plan (DB) and noted
the costly items that are not included in our plan. He stated the Commission needs to decide
what to change and how to do it and noted the results of the options as shown in the charts from
the Foster and Foster study. He explained the differences of the Defined Benefit (DB) plan from
the Defined Contribution (DC) plans. He also explained annuities.
Mr. Foster strongly recommended the City retain the current DB plan with current benefits for
current employees, stating it is what they promised them and what they hired them under and
that is what their benefit statements say. He also recommended giving a DB plan to all new
employees. He stated they can change the benefits for new employees and design it to be less
costly than our current one. He stated they should implement the State mandated overtime
restrictions for all employees and this needs to be done when they do the next union contract. He
stated they should review all DB pension items and make changes, if needed, for new employees
only. He stated they should require 30 year projections in each actuarial report. He stated he
would do a stop and restart for FS 185 funds, which allows you to go back to that date and
recalculate the cost of all benefits given to the Police Officers and that may help you spend some
of that excess 185 funds. He stated if they have extra 185 money he would use it for a one -time
pay adjustment for Police retirees and if they continue to have excess funds then every year they
could adjust the retirees pay. He stated he would also adjust the retirees by some type of
formula, i.e. an employee with 5 years with us, would not be given as much as a retiree with 25
years. He stated he would provide long -term disability insurance to employees. He would also
change vesting back to 5 years for general employees because we are going to start having a
problem recruiting managers because we require them to stay for 10 years before they are vested.
He stated he would consider a two -tier multiplier for new employees, which would reward the
long -term employees at a greater multiplier than short-term employees. He stated they need to
decide what they want to do and make all the changes at the same time. He stated if they are
going to also change benefits they should do that at the same time as well. He stated they should
review the executive /department head opt out plan and consider an annual pension workshop
when the actuarial report comes in so they can stay on top of the changes. He cautioned the
Commission to go slow because once a decision is made it may be difficult or impossible to
change.
Mr. Foster, Mr. Hanson and Mr. Van Liere answered questions from the Commission.
Commissioner Beckenbach stated when he looks at the population in Atlantic Beach a lot of
individuals he deals with don't have a pension fund, they are self - employed and put into their
own pension fund or they have a defined contribution plan. He stated a fair number of people he
has spoken to are concerned about paying extra in taxes in order to say there is no risk on the
other side. He stated he has to work with those people, who are his constituents, and told them
he would discuss this at the workshop to find out what we can do in order to have the risk so it
Minutes — City Commission Workshop December 6, 2011
Page 6
isn't all on the City and that the increase doesn't have to be in the tax end or that we have to lay
off individuals or cut back on services.
Commissioner Woods stated she totally agrees that we all make our choices of which way we are
going to go and the City employees made the choice to work here so that they have the pension
while others, like people Commissioner Beckenbach is talking about, made the choice to take the
risks and have self - funded retirement plans. She stated you have to keep that in mind, it is all
personal choices that people made and doesn't make one group or the other any worse.
Commissioner Beckenbach stated to take all of the risk off of the City would be to go with a
defined contribution plan but asked what would be a fair defined contribution for an employee.
He stated if it was a large enough defined contribution would it not be reasonable to go that way.
He stated he doesn't know; he is asking the question. Mr. Foster stated, in a down market, he
doesn't care how much money you put in, it is down and you may not be able to afford to retire.
He stated an annuity is not the answer because the amount of annuity you can purchase is based
on how much money you have in your account and the interest rates the insurance company
anticipates they can obtain on what is paid for the annuity. He stated there is no doubt in his
mind that in a defined benefit plan the employer has the risk and in a defined contribution plan
the employee has the risk and the Commissioners have to make a decision on what they want to
change and how they want to change it. He reiterated he feels very strongly that they should not
mess around with current employees. Mayor Borno stated the Commission must decide what
they want to consider based on the information they were given tonight.
Mayor Borno reopened the Courtesy of the Floor to Visitors.
Penny Kamish, 193 Beach Avenue, stated they have had two home invasions over the years
and spoke in support of the Atlantic Beach Police. She stated the City has entered into a contract
with the current employees and believes, with the general employees as well as the police
employees, you cannot take back something that you have already given. She stated, from a
fiduciary responsibility, there might be something that needs to be done for new employees but
she does not believe you can take away something in the plans that people have had for many
years. She urged the Commission to think long and hard about what they are doing and make
sure they take care of the people who have planned on all of this for so long and not make huge
changes that can affect their retirement and livelihood.
Brian Kilby, 1825 Sherry Drive N., stated he has a hard time swallowing the expectation of the
8% forecasted rate of return and doesn't know how often it has been achieved by Atlantic
Beach's investment funds but it seems to be too close to the risky end of probability.
Bill Mayhew, 1870 Sherry Drive N., addressed the City Manager's comments regarding there
were not many bankruptcies. He stated that is true, not a lot have gone bankrupt but there are a
whole lot of cities looking at it and referred them to pensiontsunami.com. He stated our benefits
projected for this year are 54% of the project salary and the national average for cities is 35%
and he believes we are way out of line in our total benefits as a percent of salaries. He referred
to several studies that stated you should use 7% for the rate of return. He stated the State of
Rhode Island lowered their yield assumption from 8.25% to 7.75% and their unfunded liability
went up from $7 billion to $9 billion. He stated as long as we are dealing with these defined
benefit plans we are not ever going to know what we are doing as long as we are having to guess
at what these assumptions are. He stated he would like to know who told the actuary to use 8%
Minutes — City Commission Workshop December 6, 2011
Page 7
and if those other assumptions are realistic or optimistic. He stated we need to get out of these
defined benefit plans and get into something we can predict and know the expense of.
Dale Hatfield, PBA representative, 850 Seminole Road, stated they make over 8% all of the
time and would like to see the Pension Board, Mike O' Shields and the pension attorney here to
explain why they chose the 8 %. He stated no one is making $100,000 a year in retirement. He
stated there is one person making $60,000 who stayed with the City 30 years. He stated over the
last 20 years, through contract negotiations, they have negotiated what they have put into the
pension, etc., in lieu of raises, which needs to be put into play. He stated they would love to sit
down with the Commission and Pension Board because this is something that needs to be
worked on and he believes they can come to something that is equitable for all involved, the
citizens, employees and the City. He thanked the Commission for this workshop and stated he
would like to see more of it.
Patty Drake, Neptune Beach, stated she wanted to touch on a point that the City Manager made
that he is not involved in the pension plan and she believes, if there are any changes going
forward, that should be considered. She stated there are three positions that are not in the
pension plan and when they are looking at our futures, everybody should be involved in that.
She stated what is good for us should be good for everybody. She stated Mr. Hanson stated more
is contributed to us but she believes his position is getting a defined contribution of 10% based
on his salary, which compared to her salary is quite a significant difference. She stated we all
identify with the taxes. She stated people think you don't look at the benefits but that was one of
the reasons she came here, because it was more stable. She stated as the City Manager has a
contract that is binding, she feels that when she was hired and signed those papers that was a
contract too. She stated that is something to consider for all of us.
No one else from the audience spoke so the Mayor closed the Courtesy of Floor to Visitors.
Mayor Borno thanked Dale Hatfield for his comments regarding the Pension Board and stated he
would like all of the Commission to meet with the Pension Board. It was the consensus of the
Commission to schedule a meeting with the Pension Board on December 19 at 6:00 p.m.
Commissioner Mark thanked George Foster for a job well done and for the comments from the
audience, stating some of Mr. Foster's best advice was to go slow. She stated there are no easy
answers, no quick fixes and anything they do will require some type of financial obligation the
City will have to meet and consider. She encouraged the audience to look at some of the options
and tables in the Foster & Foster report. She stated some of their numbers may surprise them
and some may even clarify some of the subject matter that was discussed tonight.
Mayor Borno thanked George Foster and the employees who took the time to come here tonight.
There being no further discussion by the City Commission, Mayor Borno declared the meeting
adjourned at 8:48 pm.
Nancy EjB .iley
Recording Secretary
ATTACHMENT A
Presentation to City of Atlantic Beach -(AB) 12 -6 -2011
1. For all practical purposes AB is in the annuity business. It designs plans, collects premiums, sets up reserves
and pays claims. Yet no one involved to my knowledge has any insurance background and has no real
understanding of spread of risk, risk retention limits or reinsurance. No small insurance company would dare take a
$4 million risk on one individual life, yet AB does ($100,000 annual benefit for life of 40 years). A small insurer
would buy reinsurance otherwise regulators would shut them down. The really big difference is that if the
assumptions don't work out the taxpayers of AB get stuck with the bill and retirees could Lose benefits.
2. The simple fact is that AB is just too small to insure these annuity risks. There are only 27 or so participants in
the police plan and 84 or so in the general plan. These small sizes and the many assumptions made make these
plans just too unpredictable. This is true even if benefit levels are lowered in the future. If we get real Lucky they
might work out, but don't risk the futures of retirees and taxpayers on luck. Rule #1 of risk management (and
common sense) is: Never risk more than you can afford to lose. The solvency of Atlantic Beach is at risk.
3. Every option on the actuarial study dealing with defined benefits understates the expenses because of the 8%
investment return assumption alone. The other assumptions could be just as overly optimistic. EVERY DEFINED
BENEFIT OPTION IS FLAWED. Freeze the plans now, pay whatever it costs, and start over with reasonable, defined
contribution plans. Get us out of the insurance business.
4. What about the fairness of keeping promises to existing plan participants? Well there never was a legally
binding promise, only a good intention. A big mistake was made and it needs to be corrected and unfortunately
that is your job. But let's do talk about unfairness:
A. Whoever bought this "house of cards" to begin with was unfair. There are 65 retirees receiving benefits
now, just wait until the plans mature. Then we will be paying even more retirees plus current funding.
B. It's unfair to employees to let them believe they can get 100% for life + Social Security.
C. What would really be unfair would be to cut benefits on those already retired (Rhode Island).
D. But the most unfair thing would be to saddle current and future taxpayers of AB with this giant gamble.
5. What about police officers who risk their lives? A defined contribution plan could be structured wherein they
receive higher contributions, earlier vesting and retirement to reward them for their sacrifices and risks. Perhaps
pay "hazardous duty pay" for those "on the line ". At the very least enroll them in the state plan. in the meantime
get any clerical staff off of the police plan.
6. You have a duty to all citizens, not just to those who vote or show up at meetings; not just the employees you
have to face at city hall, which has to be very difficult; not just those who write letters to the editor, but also to
older citizens who don't have the energy to fight these battles anymore, to younger citizens who are too busy
working and don't realize the significance of government's actions, and even to the future taxpayers of Atlantic
Beach who have no voice now. Why do you think the public is so frustrated with elected officials at all levels?
Because, it seems that once the bureaucracy gets control that not even elected officials can make meaningful
change. I urge you to not be timid, to take a stand, and to do what's needed to protect the tax payers and retirees
of our city. Events of the past are largely irrelevant. They are simply excuses for management not adequately doing
its job over the last decade. Now is the time for action.
Bill Mayhew, Atlantic Beach, Fl
ATTACHMENT B 1
12/6/2011
City of Atlantic Beach
Workshop on Public Pensions
December 6, 2011
City of Atlande Bead Polim Officers' Retirement System
30.Year Projection of City Contribution Rates
`,N _..
Yee, Arall no. Minart
Pension Reform in Atlantic Beach is Not New
r
2002 Pension Committee Report
Employee contributions increased for both plans
Multiplier decreased for General Pension Plan
Vesting increased from 5 to 10 years for General Plan
Amendments challenged by State/ resolved in favor of Atlantic
Beach
New public awareness from increasing costs
1
12/6/2011
Perspective Needed
Sky is not falling
Other Florida cities negotiating changes
Public Pensions More Generous in Some States Than Others
Crna; "get / a
officer alifo retir costs. to bud .. costs are 50 expect sal ed ries to for rem police ain high for
decades to come"
Atlantic Beach cost equal to 31% of payroll this year
Florida cities offer gr sioefits t
states, but Atlantic Beach reate off low er b benefits than han many most other
other Florida cities
DROP guaranteed interest
Retiree health insurance
Automatic COLA increases
Public Pensions Nationwide
Average funded level for local pensions down to 78% in
2010 with police and fire plans at 77
Atlantic Beach 70% for General Plan and 65% for Police
Plan
Payroll costs nationwide increased from 6% - 13% during
the recession
Atlantic Beach payroll costs are 24% for general
employees
Most still anticipate 8% rate of return
2
12/6/2011
How Did We Get Here?
Pension benefits often given instead of salary
increases
State mandated minimum Police /Fire benefits
"Pension holidays" not used in Atlantic Beach
Atlantic Beach is in Good Financial Shape
Sustainability for future years?
Some changes needed
Main Question; What pensions are needed
and can be afforded in Atlantic Beach?
Attract and retain good employees to provide
services to citizens
How lucrative is city employment?
3
12/6/2011
Retirement Planning
+. s`
Traditional approach; three - legged stool
Income from DB plans, social security, savings (DC plans,
IRAs, etc.)
Plan for employees to retire with 70-80% of pre- retirement
income
AB benefits; police get 80% salary after 27 years from DB
plan alone
General employees get 67.5% after 27 years
Range of Options
No Change - Change DB - Change DB - DC Plan - DC Plan - No Retirement
Plan for new Plan for all For new For all Plans
Employees Employees Employees Employees
'Range of savings in each option
Final Thoughts
Keep Big Picture in sight
Fairness to employees
4
ATTACHMENT C
12/6/2011
PENSION PLAN
George Foster
Human Resource Manager
December 2011
'�'+ v '�� � � a���x k r�,i4 ,:° i �a • ; „ @roe° 1 , a x ;�;..�
CITY PENSION PLANS
ATLANTIC BEACH CODE OF ORDINANCES
- PART II - CODE OF ORDINANCES
- CHAPTER 2 - ADMINISTRATION
- ARTICLE VI - EMPLOYEE BENEFITS
- DIVISION 3 - GENERAL EMPLOYEES &
EXECUTIVE / DEPT HEAD OPT OUT
- DIVISION 4 - POLICE OFFICES
44'7 " s bF '� �n `�. ' 4==;10
ARTICLES / NEWSPAPERS
• BIAS
• INCOMPLETE
• TERMS USED DIFFERENTLY
1
12/6/2011
FOUR CONSIDERATIONS
• ETHICAL
• MORAL
• FAIR
• LEGAL
mM: a`�wc+t� » ..
OTHER CONSIDERATIONS
• CAN IT BE IMPLEMENTED
• WHAT IS OVERALL IMPACT
• AFFORDABILITY
• SUSTAINABILITY
COMPENSATON
• PAY
• BENEFITS
2
12/6/2011
FOU MANDATED BENEFITS
• SOCIAL SECURITY
FICA: 6.2%
MEDICARE: 1.45%
• UNEMPLOYMENT
• WORKERS' COMPENSATION
• VARIOUS LEAVES
NOTE: NOT ALL GOVERNMENTS PARTICIPATE IN SOCIAL
SECURITY
•
BENEFITS
IF - THEN
CONCERNS
• HEALTH INSURANCE
• DISABILITY INSURANCE
• EMPLOYEE LIFE INSURANCE
• FINANCIAL PLANNING
3
12/6/2011
FACT
THE ONLY WAY THAT THE CITY CAN
DEFINITELY DETERMINE THE CITY'S
ANNUAL CONTRIBUTION IS BY
PROVIDING ONLY SOCIAL SECURITY OR BY
ESTABLISHMENT OF A DEFINED
CONTRIBUTION (DC) PLAN
PS: NO GUARANTEES ON SOCIAL SECURITY
FACT
THE OPTION THAT PRODUCES THE QUICKEST
REDUCTION IN THE CITY'S CONTRIBUTION IS
TO FREEZE CURRENT PLAN
INITIAL COST MAY INCREASE, ESPECIALLY
FOR POLICE - LOSS OF FS185 FUNDS
PENSION - GOALS OF CITY ?
• ADEQUATE RETIREMENT INCOME FOR LONG
TERM EMPLOYEES
• COST TO CITY
• RECRUITMENT
• RETENTION
4
12/6/2011
PENSION PLANS
• EMPLOYEE RETIREMENT INCOME SECURITY
ACT (ERISA) OF 1974
• PENSION PROTECTION ACT (PPA) OF 2006
• STATE LAWS (FS112 & FS185)
• CONSTITUTIONAL RIGHTS
• LABOR RELATIONS / UNION NEGOTIATIONS
PENSION HISTORY
• 1975 - PLAN ESTABLISHED
- GENERAL, POLICE AND FIRE
- FUNDED RATIO - 12.4%
- MULTIPLIER - 2%
- EMPLOYEE CONTRIBUTION - 0%
- VESTING - 10 YEARS OF SERVICE
— �_ te
PENSION HISTORY
• 1983 - FUNDED RATIO - 101.1%
• 1986 - FUNDED RATIO - 113.3%
• 1987 - FUNDED RATIO - 99.5%
ONE TIME 12.5% COLA TO RETIREES
MULTIPLIER INCREASED
VESTING REDUCED TO 5 YEARS
EMPLOYEE CONTRIBUTION TO 1%
5
12/6/2011
PENSION HISTORY
• 1993 — FUNDED RATIO — 83.4%
— MULTIPLIER INCREASED
— YOS FOR RETIREMENT REDUCED
— ALL RETIREE BENEFITS
RECALCULATED WITH HIGHER
MULTIPLIER
— EMPLOYEE CONTRIBUTION INCREASED
GENERAL - 1% TO 2.0%
POLICE — 1% TO 4.815%
PENSION HISTORY
• 1994 — FUNDED RATIO — 75.1%
• 1996 — FUNDED RATIO — 78.6%
• 1997 — FUNDED RATIO — 80.2%
— 3% COLA TO RETIREES
— POLICE CONTRIBUTION TO 1.0%
• 1998 - FUNDED RATIO — 81.3%
• 1999 — PLAN SEPARATED INTO 3 PLANS
FUNDED RATIO — GEN — 80.2%
FUNDED RATIO — POL — 83.0%
asp 00.1 `, '" „ 0 "R^w....
PENSION HISTORY
• 2001 - FUNDED RATIO — GEN - 80.0%
FUNDED RATIO — POL - 81.1%
• 2002 — FUNDED RATIO — GEN — 76.8%
FUNDED RATIO — POL — 79.3%
— 5% COLA TO RETIREES
• 2005 — FUNDED RATIO — GEN — 69.3%
FUNDED RATIO — POL - 68.2%
- GENERAL EMPLOYEE CONTRIBUTION
FROM 2% TO 3%
— GENERAL EMPLOYEES (NEW HIRES)
MULTIPLIER FROM 2.85% TO 2.5%
6
12/6/2011
PENSION HISTORY
• 2006 - FUNDED RATIO - GEN - 72.4%
FUNDED RATIO - POL - 73.6%
- GENERAL EMPLOYEE CONTRIBUTION
INCREASED FROM 3% TO 5%
• 2008 - FUNDED RATIO - GEN - 72.9%
FUNDED RATIO - POL - 71.1%
- GENERAL EMPLOYEE (NEW HIRES)
VESTING INCREASED FROM 5 YEARS
TO 10 YEARS
,`;3i= ?,
PENSION HISTORY
• 2009 - FUNDED RATIO - GEN - 71.9%
FUNDED RATIO - POL - 68.2%
- POLICE EMPLOYEE CONTRIBUTION
INCREASED FROM 1.0% TO 4.815%
• 2010 - FUNDED RATIO - GEN - 69.9%
FUNDED RATIO - POL - 65.2%
- MOST PENSION ASSUMPTIONS
CHANGED
_.._ . ,, `�" , „yip ,•n .naf+a;
COLLECTIVE BARGAINING
PUBLIC EMPLOYEE RETIREMENT BENEFITS
ARE TERMS AND CONDITIONS OF
EMPLOYMENT THAT ARE A MANDATORY
SUBJECT OF COLLECTIVE BARGAINING
Ref: 410 So.2d 487 (Fla. 1981) City of Tallahassee v.
PERC
7
12/6/2011
REDUCTION OF BENEFITS
CANNOT REDUCE BENEFITS ALREADY EARNED
OR BENEFITS OF RETIREES
Ref: Florida Sheriff's Association v. State Dept. of
Administration, Division of Retirement, 408 So.2d 1033
(Fla. 1982)
FS185 - POLICE PLAN
ANY CHANGES TO POLICE PENSION PLAN
OTHER THAN TO INCREASE EMPLOYEE
CONTRIBUTIONS MAY RESULT IN A LOSS OF
FS185 FUNDS AND RESULT IN AN INCREASE
TO CITY'S ANNUAL CONTRIBUTIONS OF
$88,806 OR 5.11%.
` � #° A�': ,q,�,t .✓' , ai
PENSION OPTIONS
• SOCIAL SECURITY ONLY
• DEFINED BENEFIT PLAN
• DEFINED CONTRIBUTION PLAN
• CASH BALANCE OR HYBRID PLAN
• FLORIDA RETIREMENT SYSTEM (FRS)
8
12/6/2011
MOST COMMON TYPES
• DEFINED BENEFIT (DB):
- BENEFIT IS DEFINED
- NORMALLY BY FORMULA WHICH IS:
YOS x FAC x MULTIPLIER
• DEFINED CONTRIBUTION (DC):
- CONTRIBUTION IS DEFINED
- MAY BE EMPLOYER AND /OR EMPLOYEE
• CASH BALANCE OR HYBRID:
- SEVERAL DESIGNS WHICH MAY COMBINE
DB AND /OR DC FEATURES
FAIRNESS / STAKEHOLDERS
• TAXPAYERS
• EMPLOYER / CITY
• EMPLOYEES
RETIREMENT FUNDING
• DEFINED BENEFIT PLAN
C +I =B +E
C = CONTRIBUTIONS
I = INVESTMENTS
B = BENEFITS PAID
E = EXPENSES PAID
9
12/6/2011
CONTRIBUTIONS
• NORMAL COST
- COST FOR BENEFITS EARNED IN CURRENT
YEAR - MAY OF MAY NOT BE TOTAL
CONTRIBUTIONS
• PAYMENT FOR UNFUNDED LIABILITIES
- UNDERPERFORMING INVESTMENTS
- RETROACTIVE BENEFIT INCREASES
CURRENT RETIREE COST
• GENERAL (47 RETIREES)
CONTRIBUTIONS: $ 1,202,019
PAID BENEFITS: $ 518,258 (43 %)
• POLICE (18 RETIREES)
CONTRIBUTIONS: $ 712,617
PAID BENEFITS: $ 465,385 (65 %)
NOTE: ABOVE CONTRIBUTIONS ARE TOTAL CONTRIBUTIONS
(CITY, EMPLOYEE AND FS185 FOR POLICE)
PROCESS TO CHANGE
• DECISION MAKING PROCESS
- MAY DESIRE FUNDING IMPACT
• UNION NEGOTIATIONS
• NEW ORDINANCE
• LEGAL REVIEW - PENSION ATTORNEY
• ACTUARIAL FUNDING IMPACT STATEMENT
• ORDINANCE - FIRST READING
• STATE REVIEW AND APPROVAL
• ORDINANCE - FINAL READING
• IMPLEMENTATION
10
12/6/2011
KEY TERMS
• CLOSE - AFFECTS ONLY NEW EMPLOYEES
• FREEZE - ALL EMPLOYEES TO NEW PLAN
• TERMINATE - ALL MEMBERS PAID OUT
THEIR ACCRUED BENEFITS
• DROP
• FS185 - POLICE PLAN FUNDING
• LAWS OF 99 -1 (MARCH 12, 1999)
• NORMAL COST
DB PENSION FACTORS
• FINAL AVERAGE COMPENSATION (FAC)
• MULTIPLIER
• VESTING
• PENSION START DATE (YOS AND AGE)
• MAXIMUM BENEFIT
• EMPLOYEE CONTRIBUTION
• NORMAL FORM OF BENEFIT
• EARLY RETIREMENT
• DROP
o STLY ITEMS
WE DO NOT HAVE
• SICK & VACATION TIME (OUR PERSONAL
LEAVE) ADDED TO FAC
• AUTOMATIC RETIREE COLAS
• RETIREE HEALTH INSURANCE COST
• DROP GUARANTEES
• SPOUSAL BENEFIT INCLUDED IN NORMAL
BENEFIT CALCULATION
11
12/6/2011
CHANGES
• WHAT TO CHANGE
• HOW TO CHANGE
st' ,� , ,::� .
44040. _ WHAT TO CHANGE
• NOTHING
• CURRENT DB PLAN
- PLAN FACTORS
• PLANS
- DB TO DC
- DB TO HYBRID
OPTION - DO NOTHING
• GENERAL EMPLOYEE PENSION PLAN:
BY 2026 THE CITY'S CONTRIBUTION RATE
WILL LEVEL AROUND 8.4%
• POLICE OFFICER PENSION PLAN:
BY 2026 THE CITY'S CONTRIBUTION RATE
WILL LEVEL AROUND 11.59%
12
12/6/2011
l c :0 ti m7^'t i,., :_
Qty of Atlantic leach General Employees' Retirement System
30-Year Projection of City Contribution Rates
useu
am •
,m. +s wr as ' uesw..eem .om ,mv �s
— ww. xnM. m.. m un.wnnrsew«m'.we.imu�mwanw+.m
ue"' '. s y ,.+' al.fhn i .`z '
` s �..� a rc*""
City of Atlantic Beach General Employees' Retirement System
30-Year Projection of City Contribution Rates
uar
—�" -
my mu mu mm ....esrnr..+.m � m, mn Ae
ASSUMPTIONS - 09 / 2010
• ASSUMPTIONS CHANGED
• INVESTMENT RETURN - RETAINED AT 8%
ESTIMATED PER EACH t /2% DECREASE
GENERAL +3.28% +$136,462
POLICE +4.27% +$ 75,926
NOTE: FLORIDA HAS MANDATED THAT ACTUARIAL REPORTS
ALSO INCLUDE DATA USING INVESTMENT RETURN
RATE BEING USED BY FRS WHICH IS 7.75 %.
13
12/6/2011
HOW TO CHANGE
• CLOSE CURRENT PLAN
• FREEZE CURRENT PLAN
CLOSE
• CURRENT EMPLOYEES CONTINUED IN
CURRENT PLAN
• NEW EMPLOYEES INTO NEW PLAN
• LONGER PERIOD TO REALIZE SAVINGS
FREEZE
• ALL EMPLOYEES INTO NEW PLAN
• CURRENT EMPLOYEES BENEFIT FIXED
AND WILL DECREASE DUE TO INFLATION
• CURRENT EMPLOYEES MAY HAVE
INSUFFICIENT TIME FOR DC BENEFIT TO
COMPOUND
• CURRENT EMPLOYEE ANNUAL BENEFIT
STATEMENT
14
12/6/2011
RETIREE MONTHLY BENEFIT
• GENERAL EMPLOYEE - 47 RETIREES
AVERAGE: $ 12,960
YOS
HIGH FIVE: $ 52,092 38
$ 38,560 34
$ 28,296 20
$ 26,244 19
$ 24,960 22
RETIREE MONTHLY BENEFIT
• POLICE - 18 RETIREES
AVERAGE: $ 30,936
YOS
HIGH FIVE: $ 60,984 25
$ 56,616 30
$ 53,016 25
$ 44,160 25
$ 43,440 21
SOCIAL SECURITY
• 3.6% COLA EFFECTIVE 01/01/2012
• AVERAGE : $ 14,124
• MAXIMUM : $ 28,392
GENERAL POLICE
SOCIAL SECURITY $ 14,124 $ 28,392
CITY PENSION $ 12,960 $ 30,939
TOTAL $ 27,084 $ 59,328
15
12/6/2011
DEFINED CONTRIBUTION PLAN
• THREE KEY ITEMS YOU NEED TO KNOW:
HOW LONG WILL YOU LIVE ?
- HOW MUCH WILL YOU EARN ?
- HOW MUCH INCOME WILL YOU NEED ?
-r
ANNUITY AT RETIREMENT
• AN ANNUITY MAY NOT BE ANSWER
- IT CAN PROVIDE LIFETIME GUARANTEED
INCOME - HOWEVER
- FUNDS AVAILABLE AND MARKET
CONDITIONS AT RETIRMENT MAY NOT
PURCHASE A SUFFICIENT ANNUITY
KEY DIFFERENCES
DB DC
EMPLOYER CONTRIBUTION VARIABLE FIXED
EMPLOYEE PORTABILITY NO YES
RECRUIT "YOUNGER" WORKERS NO YES
RECRUIT "OLDER" WORKERS YES NO
RETENTION + -
TURNOVER - +
GUARANTEED RETIREMENT INCOME YES NO
EMPLOYER INVESTMENT RISK YES NO
EMPLOYEE INCOME RISK NO YES
16
12/6/2011
s
PENSION CHANGES
• EXPECT DELAYS IN MAKING CHANGES
• FAR EASIER TO CHANGE FOR NEW HIRES
• POLICE FS185 FUNDS MAY BE LOST
$88,806 OR 5.11% OF REQUIRED
CONTRIBUTION
• IS THERE A POLITICAL WILL FOR CHANGE
• EDUCATE THE PUBLIC AND EMPLOYEES
QUESTIONS ?
THEN
FOSTER'S 3 ( ?) MINUTES
COMMENTS
• RETAIN CURRENT DB PLAN BENEFITS FOR
CURRENT EMPLOYEES
• PROVIDE A DB PLAN FOR ALL NEW
EMPLOYEES
• IMPLEMENT STATE MANDATED OVERTIME
RESTRICTION FOR ALL EMPLOYEES
• REVIEW ALL DB PENSION ITEMS AND MAKE
CHANGES, IF NEEDED, FOR NEW EMPLOYEES
ONLY
17
12/6/2011
_
COMMENTS
• REQUIRE 30 YEAR PROJECTIONS IN EACH J` � ;3497/X-C TUARY :_.•
• DO A "STOP/RESTART" FOR POLICE FS 185
FUNDS
•7 QU I I II, 1 ` " _. RA" FS 185 MONEY
FOR ONE TIME RETIREE PAY ADJUSTMENTS
• PROVIDE LONG TERM DISABILITY INSURANCE
TO EMPLOYEES
COMMENTS
• FOR GENERAL EMPLOYEES - CHANGE
VESTING TO FIVE YEARS
• CONSIDER A "TWO TIER" MULTIPLIER FOR
NEW EMPLOYEES
• MAKE ALL CHANGES AT SAME TIME
• REVIEW EXECUTIVE / DEPARTMENT HEAD
"OPT OUT" PLAN
• CONSIDER ANNUAL PENSION WORKSHOP
COMMENTS
• GO SLOW
ONCE A DECISION IS MADE, IT MAY BE
DIFFICULT OR IMPOSSIBLE TO CHANGE
18
12/6/2011
QUESTIONS ?
19