City Manager Report_,
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City Manager Report
Actuarial Report and Pension Benefits
At the February 22, 1999 City Commission meeting, a question was raised relative to the audit
and its reporting relative to the funding of the pension plan. The first question addressed the
appazent drop in the percentages relative to funding the plan on page 55 of the audit (see
attachment "A"), and the subsequent question was whether or not the City should be concerned
with the pattern of decline represented in this report.
1. A review of the history of the pension fund helps to explain the drops in funding
represented in 1992-93 and 1993-94. When benefits have been increased, the percentage
of the funding has been reduced to pay for the increases. Please see the attachment
prepazed by Human Resource Director George Foster. This information demonstrates
how increased benefits and alterations in actuarial valuations can reduce the funded ratio.
2. The second question relative to the pattern of decline can be best addressed through an
explanation that appears in the Actuarial Report in Section A-6 (Attachment B). This
section explains that the actuaries altered their reporting procedure and defer ed reporting
$637,000 in revenues. This was done without prior approval or consultation with the
~, Pension Boazd or the City. The actuaries explained that this revenue was considerably
larger than projected due to gains in the investments that year. However, to be
conservative, they deferred these large gains in anticipation that there may be an
adjustment in the market. This decision on their part reduced the revenue by $637,000,
which consequently reduced the percentage of funding from 87% to 80%. When the
$637,000 is added to the actuarial value, then the pension vas funded at 87% in 1997.
Additionally, these numbers are only through 1997, and we can anticipate good returns on
investments for 1998 and for the first quarter of 1999.
Considering this information, the pension fund is actually funded at a higher percentage
than is represented in the audit report as a result of the conservative decision making of
the actuary.
When the auditors and actuaries were asked about the state of the Pension Fund, both
expressed that they believed that it was well funded and not a source of concern.
Summary: After considering the information above, it appears that the Pension Fund is doing
well, and it is not in need of any particular alteration or attention at this time.
NOTE: A bill has just been signed into law which will alter the funding sources for the
pension funds. This will be explained in more detail during the budget cycle.
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(~~ PENSION INFORMATION
AND
BACKUP
09/30/93 Funded Ratio from 95.1% to 83.4%.
Benefits were changed, Effective October 25, 1993, as follows:
1) General benefit factor increased from 2.25% to 2.85% for active and retired
members and some vested terminated members (from 2.0% to 2.85% for the
remaining vested terminated members).
2) Police/Fire benefit factors changed from 2.4% to 3.0% for active and retired
members and some vested terminated members (from 2.0% to 3.0% for the
remaining vested terminated members).
3) Voluntary retirement for Police/Fire was changed to any age with 25 or more
'. years of credited service or at age 50 with 20 or more years of credited service.
Previous eligibility was age 55 with 20 or more years of credited service.
Eligibility at age 60 with 5 years of credited service remained unchanged.
4) Police/Fire eligibility requirement for disability in the line of duty changed from
5 years to 0 years.
09/30/94 Funded Ratio from 83.4% to 75.1%.
The Division of Retirement mandated, for future actuarial valuations, use of
mortality rates not less than those of the 1983 Group Annuity Mortality Table.
Implementation of this mandate increased the contribution requirement and
decreased the funded percent as the mortality rates in the 1983 table were lower
than in the table currently being utilized.
09/30/95 Funded Ratio from 75.1% to 77.0%.
The 09/30/95 report adopted an increased member termination assumption.
09/30/96 Funded Ratio from 77.0% to 78.6%
09/30/97 Funded Ratio 78.6% to 80.2%.
If gains not deferred 87.0%.
WP//gafl/hlyFiles//Prnsion~/Change-Summary
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. REQUIRED SUPPLEMENTARY INFORMATION ~ ~ -.
"~ ~ ~ CITY OF ATLANTIC BEACH, FLORIDA
SCHEDULES OF FUNDING PROGRESS
Employees' Retirement Plan
(Dollar Amounts are in Thousands)
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l c2) fa) (4) (~ (~ vAAL as
(1) Actwarial Entry Age Normal Unfunded Actuarial Funded Annual Percentage
Valuation Value o[ Actuarial Accrued Accrued Liabtlity ,Ratio Covered of Payroll
• Date Assets (AVA) Liability (AAL) (UAAL) (3)-(2) (2)!(3) Payroll (4)!(e7
9/30/92 $ 3,647 $ 3,835 $ 188 95.156 $ 2,755 6.8 %
t 9/30/93 4,311 5,172 861 83.4% 2,965 29.0%
'' 9/30/94 4,549 6,061 ~ 1,512 75.1% 3,068 49.3%
9/30/95 5,546 7,200 1,654 77.0% 3,054 54.2%
9/30/96 6,517 8,290 1.773 78.6% 3,107 57.1%
9/30/97 7,435 9,275 1,840 80.2% 3,305 55.7%
* The actuarial value of assets used before plan year September 30, 1997, was at market value; the asset
method used after that date was the funding value.
Analysis of the dollar amounts of actuarial value of assets, actuarial accrued liability, or unfunded
actuarial accrued liability in isolation can be misleading. Expressing the actuarial value of assets as a .
percentage of the actuarial accrued liability provides one indication of the system's funded status on a
going concern basis. Analysis of this percentage over time indicates whether the system is becoming
financially stronger or weaker. Generally, the greater this percentage, the stronger the plan. The
unfunded actuarial accrued liability and annual covered payroll are both affected by inflation. Expressing
the unfunded actuarial accrued liability as a percentage of covered payroll approximately adjusts for the
effects of inflation and aids analysis of the progress being made in accumulating sufficient assets to pay
benefits when due. Generally, the smaller this percentage, the stronger the plan.
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• 55
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Comment A: ~ .
For the fiscal year ended September 30, 1997, the System generated a $615 thousand net
experience gain ($252 General, $249 Police and $113 Fire). Recognized investment gain, before
the change in asset valuation method noted in Comment B, below, was $849 thousand (20.9% net
return on the market value of assets vs. 8.0% expected under the prior method), with actuarial
losses due to other factors of $234 thousand.
Amortization of the gain reduced the City's contribution rate by 1.00%, 2.40% and 1.82% for
General, Police, and Fire groups, respectively. Additional experience information is reported on
pages B-6, B-8, B-9, B-10, C-6, C-7 and C-8.
Comment B:
The cost method for valuing fund assets was changed to spread the recognition, over a four year
~~ period, of any asset return in excess of the assumed rate. This method will produce Iess volatility
over the longer term than the use of market value; the change was made to reflect the investment
of a portion of the fund in equities. The effect of this change tivas to defer recognition of $637
thousand investment gain, and to increase contribution rates by 0.71%, 1.31%, and 0.94% for
General, Police and Fire groups, respectively. (However, the contribution rate for Fire remains at
$0). . ,
Comment C:
This report reflects a change in benefit provisions. Member contributions for Police Bargaining
1rJnit members decreased from 2.315% of salary to 1.00% of salary. This change in benefit
provisions increased the City's contribution rate by 0.94% for the Police group.
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