Item8EAGENDA ITEM # 8E
MAY 27, 2008
CITY OF ATLANTIC BEACH
CITY COMMISSION MEETING
STAFF REPORT
AGENDA ITEM: Pension Review Committee Report and Progress to Date
SUBMITTED BY: Jim Hanso
DATE: May 19, 2008
BACKGROUND: Commissioner Borno requested at the last meeting that staffprovide a
copy of the Pension Review Committee Report along with a status of the
recommendations. This staff report with attachments is intended to
provide that information.
On October 14, 2002, the City Commission established a Pension Review
Committee. T`he Committee's scope was later expanded to include
reviewing all employee benefits, not just pensions. On July 14, 2003 the
Pension Review Committee submitted their report. A copy is attached. A
comparison of the Pension Committee recommendations and their current
status is also attached.
The recommendation of the Pension Review Committee was tazgeted at
maximizing the use of available funding between employee salaries and
benefits. These were evaluated with respect to employee recruiting,
employee retention, workforce behavior and anticipated future trends
affecting benefits. In the years since the Pension Review Committee
Report was distributed, the City has made changes to the employee
pension plans and increased the employee contributions to those plans
while at the same time providing pay raises that were more than those
given by other cities in our azea. A pay plan reclassification study was
also completed in 2005 and implemented over two years which gave
considerable raises, mostly to the lower ranked employees. The City
Commission has considered the salary increases each yeaz at the same
time the changes in benefits have been discussed with the philosophy of
"putting our best foot forwazd" by offering competitive salaries with
benefits that aze more in line with those of other area government
employers. A history of pay changes since June 2002 is also attached for
your information.
BUDGET: No pay or benefit changes are contemplated at this time.
AGENDA ITEM # 8E
MAY 27, 2008
RECOMMENDATION: No recommendation is being made; this is only to respond to a request
from a Commissioner.
ATTACHMENT: 1) Pension Review Committee Report and recommendation dated July 14,
2003.
2) Status of Pension Committee recommendations
3) Pay History 1998-2007
AGENDA ITEM # 8E
MAY 27, 2008
PENSION COMMITTEE REPORT AND RECOMMENDATIONS
JULY 14, 2003
BACKGROUND AND OBJECTIVES:
On October 14, 2002, the City Commission established a Pension Review Committee
consisting of Commissioner Mike Bomo and Pension Boazd Member Ed Lipscomb to
review the benefits provided to City employees, specifically: Should the City add a 30
year, any age, retirement option to the current General Employee retirement eligibility of
Age 60 with at least 5 years of service. The scope of the review was subsequently
expanded to include a broader evaluation of the employee benefit packages as changes in
any one benefit may have a direct, or indirect, affect on other benefits.
The committee was not charged with recommending a means of reducing the current cost
of the existing benefit plans. Therefore, the focus was on identifying opportunities to
reallocate current costs to better achieve the objectives of the benefit plan (listed below).
In evaluating the existing benefit plans, the following criteria were considered. These are
not in priority sequence.
1. Employee Retention -How important are each of the benefit plan components to
employees and what is the current degree of satisfaction of employees with the
existing program.
2. New Employee Recruiting - Do the individual components of the benefits plan
provide an effective tool for management to attract the level of talent needed and
compete effectively against other employers.
3. Workforce Behavior - Do the existing benefit programs contribute toward
aligning the economic interests of the city and its employees in order to encourage
behavior which is in the best interest of both.
4. Current and anticipated changes or trends which will influence the future ability
to deliver a current benefit.
The individual elements of the benefit plans for both general employees and police which
were evaluated by the committee included the following.
1. Pension
2. Employee Supplemental Investment
3. Health and Medical Insurance
4. Flexible Spending Accounts
5. Paid Time Off
6. Holidays
?. Life Insurance
8. Short Term Disability
9. Long Term Disability
10. Overtime Policy
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MAY 27, 2008
The above elements of the benefit package were evaluated with respect to the four criteria
of employee retention, employee recruiting, workforce behavior, and anticipated future
trends affecting the benefit.
Recommendations proposed are based upon six meetings of the committee and after
presentations of representative from Palmer & Cay consulting group and the Pension
Board attorney Bob Sugarman of Sugarman & Susskind. Recommendations bring
Atlantic Beach's benefit package more in line with those of other area employers, to
improve the City's ability to recruit and retain employees and better utilize funding
available for employee benefits. It is not intended for there to be either a significant
increase in the City's cost of benefits or an overall change in the amount of benefits
provided, but rather a shift to reflect the local market. Phasing in these changes is
recommended both to minimize any adverse effects on individual employees and to allow
for identifying funding sources available to the City.
PENSION PLANS:
The general employee pension plan is a generous benefit and is very rich by virtually
every measurement. It is a Defined Benefit plan which guarantees a certain payout. All
actuarial and investment risk is born by the city. With a multiplier of 2.85% per yeaz of
service, an employee can, with 35 years and 1 month of service, retire with a city pension
of 100% of his last 5 yeaz average compensation. The benefit payable to an employee is
capped at 100% of his last 5 year average compensation. Therefore, with a few long term
employees, they continue to pay into the pension plan with little to no increase in benefit
after 35 years.
In addition, employees aze entitled to a social security benefit (50% funded by the city)
which provides a total retirement compensation potential well in excess of their fmal
compensation at the time of retirement. The plan calls for the employee to complete 5
years service before being vested within the retirement plan.
Employee Retention -The existing plan is highly valued by employees with significant
years of service and those with the knowledge and sophistication to understand to value
of the benefit provided
Employee Recruiting -City management does not believe that the pension plan is a
significant decision factor in the recruiting of new employees. The lack of portability in
the plan requires a commitment exceeding that generally contemplated by new hires. The
portability issues can be addressed in a defined contribution plan with a step vesting
schedule.
Workforce Behavior -The existing plan provides a strong incentive for an employee to
plan a lengthy career with the city. This can provides awin/win for city and employee as
it encourages continuity. It also can increase costs resulting from over-qualified
individuals remaining in positions that could be filled by lower cost new hires.
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Anticipated Trends -Over the coming years, it is expected that the actuarial tables that
determine in part the city's cost of the pension plan will be revised. This is to reflect the
increased life expectancy of retirees. This will increase the cost to the City as it will
anticipate a longer payment period for retirees. In addition to actuarial tables, investment
assumptions also drive the cost of the pension plan. If, as a result of investment
performance, there is a decrease in investment earnings assumptions, this could increase
the cost of the plan. On the other hand, an improvement in investment earnings could
reduce the cost of the plan.
Pension Plan Recommendations
a. General Employees:
(1) Retain the current Age 60 with 5 Years of Service (YOS) criteria for
retirement eligibility.
(2) Discontinue employee contribution of two percent (2%) once an employee
reaches their maximum accrual date (currently at 35 yeazs and 1 month of
service).
(3) Establish a cost neutral 5 yeaz Deferred Retirement Option Plan (DROP).
(4) Establish a Defined Contribution (DC) plan for all new employees while
retaining the Defined Benefit Plan for current employees.
Note:
A Defined Contribution (DC) plan is a plan where the contribution is defined
and the benefit is based upon the individual employee's account balance.
A Defined Benefit (DB) plan is a plan where the benefit is defined and the
contribution depends on the variables in order to fund the "promised"
benefit.
if a Defined Contribution Plan is not established for new employees:
(1) Increase the contribution rate for all employees.
(2) Decrease the multiplier for new employees to 2.5% (currently 2.85%).
b. Police Employees:
(1) Add additional benefit items as required by FS 185 based upon receipt of
sufficient Section 185 funding.
(2) Retain the Defined Benefit plan. The City would lose State Section 185
funding ($85,719 received for 2001) if changed to a Defined Contribution
plan.
(3) Establish a cost neutral s yeaz Deferred Retirement Option Plan (DROP).
(4) Increase the employee contribution rate for current employees by a one-
time employee salary increase.
(5) Increase the employee contribution rate for new employees.
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MAY 27, 2008
EMPLOYEE SUPPLEMENTAL INVESTMENT PLAN:
The City provides an additional voluntary retirement planning vehicle for individuals
interested in accumulating additional retirement savings. This is similar to a traditional
401 K plan and includes no city contribution other than the administrative cost of the plan.
Recommendation
No changes to the current voluntary employee ICMA 457 plan.
HEALTH AND MEDICAL INSURANCE:
The city currently provides HMO and PPO medical insurance plans either of which may
be selected at the option of the employee. The City currently pays 100% of the cost of
the employee coverage and a portion of the cost of dependent coverage. The coverage is
effective on the first day of the month following the official hire date. The dependent
coverage contribution by the employee is based on historical dollar amounts and is no
longer commensurate with the total cost of the coverage.
As a result of recent claims experience and relatively small size of the insured employee
population, the premium rates aze extremely high with the PPO exceeding the HMO in
cost.
Employee Retention -The existing plan is highly valued by existing employees and is
believed to be a key reason for the retention of employees.
Employee Recruiting -The current plan is a significant tool in attracting new employees
to work for the City. Management believes that it is sometimes the primary reason for an
employee seeking employment. The experience rating which has driven up the cost of
medical insurance to the City may well be evidence of that.
Work Force Behavior -The medical insurance plan provides options that allow access to
medical care and prescription drugs at minimal cost. The interests of both the employees
and City are served by maintaining a healthy workforce with minimal absenteeism. The
current plan provides two options including an HMO and a PPO plan. While the cost of
the PPO exceeds that of the HMO, the cost to the employee for employee only coverage
is the same -Zero.
Anticipated Trends -The annual escalation in medical insurance premiums has
significantly affected the cost of the employee benefit plan. Management believes that
there is a potential for cost reductions based on improved claims experience. However, it
is prudent to anticipate the potential that costs may stabilize briefly at their current level
and continue the trends seen over the past years. With no cost participation by the
employee, there is no incentive for an employee with other available coverage to decline
participation in the City funded plan in favor of another plan. If only healthy employees
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MAY 27, 2008
opted out because of alternate coverage, some of the benefit of reduced premiums may be
lost.
Recommendation
There is the potential that the City of Jacksonville may allow the City employees to join
their plan. This has major implications and action on recommendations pertaining to
health insurance and related employee benefits (flexible spending accounts, life, vision
and dental insurance) should be delayed pending receipt of a decision from the City of
Jacksonville on a proposal to allow the City to join Jacksonville's health and benefit
plan(s). Recommendations are as follows:
a. Change effective date from the first day of the month following the month in
which an employee is hired to first day of the third month following the month
that the employee is hired.
b. During future premium rate increases/decreases, adjust the percentage that the
City pays for employee only coverage with a goal of the City paying 90% of
the HMO employee only premium. This would discontinue the current policy
of the City paying more for an employee that selects the PPO plan over the
HMO plan and would also result in a cost shaze between employees and the
City for basic health insurance.
c. Change the percentage that the City pays for employees that select additional
insurance to be a standard percentage. Note: Currently the City pays 67.70%
percent of the difference for Employee/Family coverage, 70.69% of the
difference for Employee/Spouse coverage and 76.70% of the difference for
Employee/Child(ren) coverage.
FLEXIBLE SPENDING ACCOUNTS:
The City provides the opportunity for employees to pay certain child Gaze and health care
expenses out of pre-tax earnings. This program is consistent with the benefits provided
by many employers and is consistent with the objectives defined for the benefit plans in
terms of enhancing employee retention and recruiting. It is cost neutral to the City.
The City should publicize the benefits of the FSAs during the next open enrolment period
and hold group meetings with employees.
PAID TIME OFF:
The City has a program for paid time off that combines sick leave, vacation time and
personal leave. Twice a year, the City pays employees for all leave that exceeds the
maximum accrual limit as established by the employee.
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MAY 27, 2008
Employee Retention/Recruiting -The current plan provides flexibility to employees to
utilize their paid time off as is appropriate for the individual circumstance. This is an
important benefit to employees and is well received by new hires.
Work Force Behavior -The current plan is beneficial to employees and the City in that it
allows the appropriate allocation of personal leave time to be defined by the employee.
The policy of paying employees for unused leave may have the result of discouraging
employees from taking leave. This may not be a good thing as it increases payroll
expense and reduces reliance on cross training to cover periods of leave time.
Recommendation
Consider modifying buy back policy to require taking a certain amount of leave. This
reduces cost except where absence is required to be covered by overtime and encourages
cross training.
LIFE INSURANCE:
The City's "one time annual salary" rounded up with a maximum of $50,000 life
insurance is an average to below average benefit. Most employers offer a basic benefit of
1 % to 2 times annual salary.
Employee Retention/Recruiting -While the current plan is somewhat below competing
plans, it is unlikely to adversely affect either retention or recruiting of employees.
Recommendation
Consideration should be given to increasing basic life insurance to 11/z to 2 times annual
salary upon identification of a source of funding.
SHORT TERM DISABILITY:
The City currently provides no short-term disability coverage. Employees may utilize
their personal time for this purpose or may receive contributed days off from other
employees.
Recommendation
An optional employee paid short-term disability insurance policy should be provided.
LONG TERM DISABILITY:
The City currently provides no long -Term disability coverage. Employees may utilize
their personal time for this purpose or may receive contributed days off from other
employees.
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Recommendation
Long-term disability insurance is a valuable benefit, and should be provided upon
identification of a source of funding.
OVERTIME POLICY:
(a) General Employees:
(1) Overtime:
Change the current policy of paying overtime for all hours worked that
exceed the employee's normal scheduled workday to paying overtime in
accordance with the Fair Labor Standards Act for all hours worked that
exceed 40 hours in any 7 calendar work period.
(2) Hours Worked:
Change the current policy of considering all hours paid to the employee
(including holidays, personal leave and compensatory time) as hours
worked to considering only hours actually worked in determining
overtime.
(b) Police Employees:
(1) Overtime:
Change the current policy of paying overtime for all hours worked that
exceed the employee's normal schedule workday to paying overtime in
accordance with the Fair Labor Standards Act for all hours worked that
exceed 80 hours in any 14 calendar work period.
(2) Hours Worked:
Change the current policy of considering all hours paid to the employee
(including holidays, personal leave and compensatory time) as hours
worked to considering only hours actually worked in determining
overtime.
EMPLOYEE BENEFIT STATEMENTS:
The City should enhance communication for benefits available, as well as their cost (on
an individual basis), to all employees by use of an Employee Benefit Statement.
Summarizing employee benefits and their related cost is considered a valuable method to
provide employees with a summary of benefits, as many employees do not know the
benefits that they receive or their related costs.
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Item Recommendation Comments
FSA Publicize the benefits of FSAs Completed 10/O1/O5.
Added a Debit card.
Health Change effective date from first day of Completed 07/01/04.
Insurance the month following the month of hire to
the first day of the third month following
the month of hire
Health Change the percentage that the City pays Completed 09/01/04. Changed to City
Insurance for additional insurance to a standard paying 100% of the HMO Employee only
percentage. Currently the City pays the coverage and 55% of the difference in
following percents of the differences in additional optional HMO coverage.
EmployeeJFamily: 67.7%; Employee pays the HMO premiums plus
Employee/Spouse: 76.7% 100% of any differences in PPO and
Employee/Child(ren): 76.7% HMO costs.
Eff 10/01/07. Reduced benefits offered,
provided a "buy up" plan and decreased
difference aid from 55% to 50%.
Pension Establish a cost neutral five year DROP Completed 03/08/04. Pension Plan
chan ed er Ordinance 58-OS-30.
Pension Police Only -Add additional benefits as Completed 03/08/04. Pension Plan
re uired b FS185 chan ed er Ordinance 58-04-29.
Pension General Employees Only - If a Defined Completed 04/11/05. Pension Plan
Contribution plan not established, changed per Ordinance 58-OS-30.
decrease employee multiplier, for new
em to ees, from 2.85% to 2.5%
Pension General Employees: If a Defined Completed.
Contribution plan not established, 04/11/05: From 2% to 3% of salary
increase the contribution rate for all 05!07/06: From 3% to 4% of salary
em to ees. 09/24/06: From 4% to 5% of sal
Pension Police Employees. Increase the Completed.
em to ee contribution rate. 09/23/07: From 1% to 4.815% of sal
Pension General Employees. Retain the current Pending.
Age 60 with 5 YOS vesting criteria for To be changed to Age 60 with 10 YOS
retirement eli ibili vestin
Pension General Employee Only - Establish a Not Implemented at this time.
Defined Contribution (DC) plan for all Decision to retain Defined Benefit Plan
new employees. If a DC plan not with change of multiplier from 2.85% to
established: increase employee 2.5% for new employees and an increase
contribution rate and decrease multiplier in employee contribution rates for all
A DC plan was not recommended for employees.
Police employees based on Sec 185
funding.
Pension Discontinue General employee Not Implemented at this time.
contributions once an employee reaches Contributions should be reduced, not
their maximum accrual (multiplier) that discontinued as Final Average Salary will
is 35 yrs l mt with a 2.85% multiplier still increase based upon salary increases
and 40 ears with a 2.5% multi Tier. and increase the erasion benefit.
AGENDA ITEM # 8E
MAY 27, 2008
Item Recommendation Comments
Health Adjust future "employee only" coverage Not Implemented at this time.
Insurance premium with goal of City paying 90% City's currently paying 100% of HMO
of the HMO "employee only" premium "employee only" coverage and 50% of
for all employees the difference. A change to a 90%/10%
City/Employee HMO Employee Only
payment not implemented based upon
review of policies of other cities.
10/01/07: Plan benefits reduced and
Difference paid by City reduced from
55% to 50%.
10/01/08: Increase of +17.3%.
Overtime Change overtime policy from daily to all Not Implemented at this time.
hours worked that exceed 40 per work Changed from daily to weekly.
week (general) or 80 hours per two work
week eriod (Police)
Hours Change from considering all hours paid Not Implemented at this time.
Worked as hours worked to considering only Currently utilize all hours paid per week
hours actuall worked to determine overtime.
Personal Consider modifying leave "cash in" Not Implemented at this time.
Leave policy to require employees taking
certain amount of leave
Life Consider increasing basic life insurance Not Implemented at this time.
Insurance to 1 %2 or 2 times annual salary City currently provides 1 x salary with
$50,000 maximum
Employee Provide employees with an Employee Not Implemented at this time.
Benefit Benefit Statement
Statements
Long Term Long term disability insurance should be Not Implemented at this time.
Disability provided City does not currently provide to
Insurance em to ees.
Short Term Optional, employee paid, short term Not Implemented at this time.
Disability disability insurance should be provided City does not currently provide to
Insurance em to ees.
H:\oldpc\MyFiles\08-Pension\Pension Committee Actions to do - Stahu.doc
AGENDA ITEM # 8E
MAY 27, 2008
Pay History -City of Atlantic Beach:
10/01/07 +2.7% Pay table adjustment
+2.7% for employees with less than 6 months of service
+5.7% new midpoint for employees with more than 6 months of service
June 2007 CPUW South Urban: 2.7%
10/01/06 +3.5% Pay table adjustment
+3.5% for employees with less than 6 months of service
+6.5% new midpoint for employees with more than 6 months of service
PLUS:
Final SO% of reclassification amount if reclassified per Springsted
June 2006 CPUW South Urban: 4.S% Annual for 2006: 3.4
10 / OS +3% pay scale adjustment
+3% for employees with less than 6 months of service
+6% new midpoint merit for employee with more than 6 months service
PLUS:
First SO% of reclassification amount if reclassified per Springsted
June 2005 CPUW South Urban: 2.7 Annual for 2005: 3.6
10 / 04 +3% pay scale adjustment
+3% for employees with less than 6 months of service
+6% new midpoint merit for employee with more than 6 months service
+6% new mazimum -Police Officer with more than S YOS
June 2004 CPUW South Urban: 3.2 Annual for 2004: 2.S
10 / 03 First cycle of Employee Evaluation System
+3% pay scale adjustment
+3% for employees with less than 6 months of service
+6% new midpoint merit for employee with more than 6 months service
June 2003 CPUW South Urban: 2.1 Annual for 2003: 2.3
10 / 02 +3% pay scale adjustment
+4% of new midpoint merit for all employees
June 2002 CPUW South Urban: 0.8 Annual for 2002: 1.3
10 / O1 Implemented Palmer & Cay Classification and Pay Study
New pay scale with new classifications and new grades
Variable pay increases for employees
All employees received minimum of +4% of new midpoint
10 / 00 +4% all employees
10 / 99 +4% all employees
10 / 98 +3% all employees