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Exh 5BAGENDA ITEM SB FEBRUARY 24, 2003 CITY OF ATLANTIC BEACH CITY COMMISSIONER MEETING STAFF REPORT AGENDA ITEM: Police Employee's Pension Plan Board's Report. SUBMITTED BY: George Foster, Human Resource Manager DATE: February 18, 2003 BACKGROUND: As of the last annual actuarial evaluation report dated 09/30/01, there were 26 active members, 7 normal retirees, 2 disability retirees, and 3 vested. Effective 10/01/02, the City's contribution rate increased, as a percent of the 09/30/00 payroll of $1,315,089, from 11.75% ($154,523) to 12.44% ($155,752) of the 09/30/01 payroll of $1,252,025. Although the actual increase to City contributions was only $1,229, as a percentage of actual payroll it increased by + .69% based upon less active members and a reduction to overall payroll of 0.4% vs. a 5.5% increase expected. Additionally, a 5% ad hoc COLA for retired members and beneficiaries as of December 31.2000, effective October 1, 2001, increased the City's contribution rate by + .35% of active payroll. Pension plan funding and changes are included within attachment 3. The December 31, 2002 status of the pension plan investments is included within attachment 4. RECOMMENDATION: None. This Staff Report for information only. ATTACHMENTS: 1. Pension board members and professional services 2. Summary of Benefit Provisions 3. Overall funding and history 4. Merrill Lynch December 31, 2002 Summary Report CITY MANAGER: AGENDA ITEM SB FEBRUARY 24, 2003 CITY OF ATLANTIC BEACH PENSION BOARDS GENERAL EMPLOYEE'S PENSION BOARD OF TRUSTEES: Timothy Townsend (Tim) Chair J. Tom Wells Chair Pro-Tem Tony F. Downing Secretary Harry E. McNally Member Edward L. Lipscomb Member POLICE EMPLOYEE'S PENSION BOARD OF TRUSTEES: Henry Bartle Chair B. Dale Hatfield Chair Pro-Tem Tony F. Downing Secretary Harry E. McNally Member Edward (ED) L. Lipscomb Member PROFESSIONAL SERVICES -BOTH BOARDS: Consultants & Actuaries Gabriel, Roeder, Smith & Company Leal Sugarman & Susskind Investment Managers TRUSCO Capital Management EuroPacific Investment Advisor Merrill Lynch Consulting Services ATCH 1 AGENDA ITEM SB POLICE EMPLOYEE PENSION PLAN FEBRUARY 24, zoo3 Summary of Benefit Provisions (September 30, 2001) Normal Retirement (No reduction factor for age): Eligibility Any age with 25 years of service or age 50 with 20 or more years of service or age 60 with 5 or more years of service. Annual Pension Total service times 3.00% of final average salary. Total pension cannot exceed 100% of final average compensation. The normal form of pension is payable for life. Optional forms are available on an actuarial equivalent basis. Final Average Salary shall mean one-sixtieth (1/60) of the aggregate amount of compensation paid a member during the period of sixty (60) months of the member's credited service in which the aggregate amount of compensation paid is greatest. The sixty (60) months of credited service must be contained within the member's last one hundred- twenty (120) months of credited service. If a member has less than sixty (60) months of credited service, final average compensation means the aggregate amount of compensation paid the member divided by the member's months of credited Deferred Retirement (Vested Benefit): Eligibility - 5 or more years of service. Pension begins at normal retirement eligibility. Anneal Pension -Computed as a normal retirement pension but based upon service and final average salary attune of termination of employment. Disability Retirement: Eligibility - 5 or more continuous years of service. Service requirement waived for members if disability is incurred in the line of duty. Anna~al Pension -Computed as a normal retirement pension. Minimum benefit is 42% of final average salary for members if disability is incurred iri the line of duty. Death Before Retirement: Eligibility - 5 or more years of service. Annual Pension -Computed as a normal retirement pension. Member Contributions: Police Bargaining Uhit: 1.0% of salary Police Other: 4.815% of salary Premium Tax Monies: A distribution of casualty insurance premium tax monies collected by the State pursuant to Chapter 185 Florida Statutes. City Contributions: Actuarially determined amounts which together with Chapter 185 monies are sufficient to cover the requirements of the financial objective stated on page A-1. Forfeiture of Retirement Benefits: Retirement benefits granted by the Retirement System are subject to forfeiture if an employee is convicted of an offense specified in Section 112.3173, Florida Statutes, pursuant to the procedures set forth in the cited statute. ATCH 2 AGENDA ITEM SB FEBRUARY 24, 2003 PENSION PLANS UNFUNDED ACTUARIAL ACCRUED LIABILITY FUNDED RATIO General: 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 provids one indication of the system's funded status on agoing-concern basis. Analysis of this percentage over time indicates whether the system is becoming financially stronger or weaker. Generally, the greater the funded ratio, the stronger the plan. The unfunded actuarial accrued liability and annual covered payroll are both affected by inflation. Expressing the UAAL 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 the UAAL, the stronger the plan. Unfunded Actuarial Accrued Liability (UAAL): The Unfunded Actuarial Accrued Liability (UAAL) is the actuarial costs not covered by present assets or the Actuarial Accrued Liability minus the actuarial value of the assets and includes current and anticipated future costs allocated to current pension plan members. Most retirement systems have UAAL. An amount arises each time new benefits are added and each time an experience loss occurs. The existence of UAAL is not in itself bad, any more than a mortgage on a house is bad. UAAL does not represent a debt that is payable today. What is important is the ability to control the amount of UAAL and the trend in the amount (after due allowance for devaluation of the dollar). Funded Ratio: The Funded Ratio is the actuarial value of the assets divided by the actuarial accrued liability. AGENDA ITEM SB FEBRUARY 24, 2003 09/30/02 Unfunded Actuarial Accrued Liability (UAAL) will be received in 2003 Funding ratio will be received in 2003 Five Percent (5%) COLA provided to retirees who had retired on/prior to December 2000 effective October 2001. 09/30/01 General 56.8 Unfunded Actuarial Accrued Liability (UAAL) 80.0 funded ratio Police 82.1 Unfunded Actuarial Accrued Liability (UAAL) 81.1 funded ratio 09/30/00 General 52.9 Unfunded Actuarial Accrued Liability (UAAL) 80.9 funded ratio Police 67.9 Unfunded Actuarial Accrued Liability (UAAL) 81.1 funded ratio 09/30/99 General 52.4 Unfunded Actuarial Accrued Liability (UAAL) 80.2 funded ratio Police 68.4 Unfunded Actuarial Accrued Liability (UAAL) 83.0 funded ratio 09/30/98 Gen & Pol w/o Fire 67.1 Unfunded Actuarial Accrued Liability (UAAL) 77.9 funded ratio Gen & Pol & Fire 53.9 Unfunded Actuarial Accrued Liability (UAAL) 81.3 funded ratio 10/01/97 -- Police union employees contribution rate changed from 2.315% to 1.00%. 09/30/97 Gen & Pol & Fire 55.7 Unfudned Actuarial Accrued Liability (UAAL) 80.2 funded ratio 01/01/97 -- 3% one-time COLA provided to retirees. 10/01/96 -- Police union employees contribution rate changed from 4.815% to 2.315%. 09/30/96 Gen & Pol & Fire 57.1 Unfunded Actuarial Accrued Liability (UAAL) 78.6 funded ratio 09/30/95 Gen & Pol & Fire 54.2 Unfunded Actuarial Accrued Liability (UAAL) 77.0 funded ratio. _ The 09/30/95 report adopted an increased member termination assumption. 09/30/94 Gen & Pol & Fire 75.1 funded ratio 49.3 Unfunded Actuarial Accrued Liability (UAAL) State 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 being utilized. AGENDA ITEM 5B FEBRUARY 24, 2003 09/30/93 Gen & Pol & Fire 83.4 funded ratio 29.0 Unfunded Actuarial Accrued Liability (UAAL) 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 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) PolicefFire eligibility requirement for disability in the line of duty changed from 5 years to 0 years. 5) Retired General employee had their retired pay re-computed with the 2.85% factor. 6) Retired Police employees had their retired pay re-computed with the 3.00% factor. 7) General employee contribution rate increased from 1% to 2%. 8) Police union employee contribution rate increased from 1% to 4.815% Reference Ord. Nr. 58-93-19A 09/30/92 Gen & Pol & Fire 95.1 funded ratio 6.8 Unfunded Actuarial Accrued Liability (UAAL) 09/30/91 Gen & Pol & Fire 91.1 funded ratio 12.0 Unfunded Actuarial Accrued Liability (UAAL) 09/30/90 Gen & Pol & Fire 96.2 funded ratio 09/30/89 Gen & Pol & Fire 104.3 funded ratio 09/30/88 Gen & Pol & Fire 98.5 funded ratio 10/26/87 -- Changed vesting from 10 years to 5 years. Benefit factor for General changed from 2% to 2.25%. Benefit factor for Police changed from 2% to 2.40%. Police member contributions shall be no less than 1 %. General member contributions shall be no less than 1% Note: Retirees were provided with the 12.5% COLA and did not have their retirement pay re-computed with the increased factors. Reference Ord Nr. 58-87-8 10/26/87 -- One time 12.5 % COLA provided to all retirees October 1, 1987. Reference Ord Nr. 58-87-9. 09/30/87 Gen & Pol & Fire 99.5 funded ratio 09/30/86 Gen & Pol & Fire 113.3 funded ratio 09/30/85 Gen & Pol & Fire 109.9 funded ratio 09/30/84 Gen & Pol & Fire Not available 09/30/83 Gen & Pol & Fire 101.1 funded ratio 09/30/82 Gen & Pol & Fire 96.1 funded ratio AGENDA ITEM SB FEBRUARY 24, 2003 09/30/81 Gen & Pol & Fire 82.2 funded ratio 09/30/80 Gen & Pol & Fire 68.4 funded ratio 09/30/79 Gen & Pol & Fire 66.9 funded ratio 09/30/78 Gen & Pol & Fire 60.2 funded ratio 09/30/77 Gen & Pol & Fire 44.7 funded ratio 09/30/76 Gen & Pol & Fire 26.5 funded ratio 09/30/75 Gen & Pol & Fire 12.4 funded ratio Initial Plan Benefit fa ctor of 2% for Police and 2% for General. There were no employee contributions to the plan.