Exh 8EAGENDA ITEM #8E
FEBRUARY 12, 2001
STAFF REPORT
CITY OF ATLANTIC BEACH
CITY COMMISSION MEETING
AGENDA ITEM: Consider Recommendation For Providing COLA Increase To
Retirees
DATE: February 5, 2001
SUBMITTED BY: Jim Hanson,~iLy.ildau
BACKGROUND: In 1981, the City Co ' sion of Atlantic Beach adopted a
resolution directing the City Manager to "review the City of
Atlantic Beach Pension Plan and Ordinance to make
recommendations concerning any needs for increases in benefits for
members of the retirement program:.,at three yeaz intervals from
June 1, 1981." The City Commission has since made changes to
improve the benefits of retirees in October of 1987, October 1993
and January .1997.
In late 1998, a previous City Manager requested that the Pension
Board consider the retiree COLA issue. In July of 1999, the
Pension Board received a report from the actuaries estimating the
cost of various one time COLA increases and automatic COLA
provisions. After consideration of the various options, the Pension
Boards (now split into two separate boards) made a
recommendation to the City Commission last month for a five
percent COLA increase.
DISCUSSION: The Commission's 1981 resolution did not specify any factors for
the City Manager to consider in recommendirig benefit changes,
although a consideration of affordability at each three year
`Svindow" is implicit. The Atlantic Beach Commission in 1981
probably understood that adopting an automatic COLA provision
for retirees would cost more than the City could afford. Few cities
have such provisions. The 7/99 Actuary Report estimated the cost
of an annual COLA with a max. 2% increase/year to be $155,144
annually and a max three percent COLA at $231,034 annually.
What reasons would the City have for providing a COLA increase
for retirees and can the City afford it? Fairness could be one
important reason. A possible inducement to recruiting, or
AGENDA ITEM #SE
FEBRUARY 12, 2001
providing a COLA as a reward for employees' past service could
also be reasons:
Is a COLA increase needed to be fair with our employees? The
most direct way to answer this question would be a comparison
with other cities. The report provided in a recent Commission
meeting (also attached to this report) shows that Atlantic Beach's
retirement provisions are better than other cities surveyed
comparing the amount of retiree benefit to the amount the
employee made prior to retiring (multiplier). Also, the amount of
the contribution required from employees is lower in Atlantic
Beach than in other cities compazed (2 percent versus 4 percent,
6.45 percent and 6.5 percent).
A one time COLA increase as an inducement to recruiting would
probably have little value. Most new hires are faz to focused on
the salary, with little or no consideration given to retirement
benefits. While it may be plausible that an automatic COLA
provision would provide some incentive for employee recruitment,
the possibility of receiving one time COLA increases in the future
will probably do little to attract any recruits. From a business
perspective, an increase in starting salaries may be more urgently
needed as evidenced by the City's recent difficulty in filling vacant
positions. The Pay Plan and Compensation Study is expected to
include recommendations for the Commission to consider in
connection with next year's budget.
This leaves the rationale for giving a COLA as a rewazd for past
service. Thus; the question of providing a COLA is not a
business decision but a value judgement which would best be made
by the Mayor and Comrission.
Can the City afford it? The Pension Fund actuary has estimated
the cost at $8,412/yr fora 30 year period. While retiree benefits
would increase immediately, the City's cost would not increase
until the next fiscal yeaz. However, the long term cost is significant
and my recommendation to the Commission for virtually all items
that have significant long term impact is to reserve judgement until
the time of the annual budget consideration. Then all public
projects/expenditures can be weighed against the cost paid by the
community for those in terms of taxes, utility rates and other fees.
The balancing of all of these interests is usually the srrlgle most
important and difficult decision that the Mayor and Commission
will make in any given yeaz.
AGENDA ITEM #SE
FEBRUARY 12, 2001
One possible alternative to waiting for the budget process
would be to consider the next actuarial evaluation of the
Pension Funds which should be received in Mazch or April. If
this report lowers the City's contribution rate (as a
percentage of payroll dollazs), one possible reason for taking
up the issue would be that it would not be an increase over
what the City is already paying.
RECOMMENDATIONS: 1) Delay consideration of the one time retiree COLA until the
upcoming budget process this summer, or
2) The City Commission may consider approving the five percent
one time COLA for retirees if the annual evaluation shows a
reduction in City colrtribution as a percentage of salary dollazs.
ATTACHMENTS: -Pension Comparison Information (Comparing Atlantic Beach
with other cities)
- Letter from Pension Boards dated January 3, 2001
-Pension Funded Ratio (1975 to 1999)
- City Contribution Rate as a Percent of Payroll (1975 to
2000)
- July 15, 1999 report from Brad Armstrong of Gabriel,
Roeder, Smith and Company
AGENDA ITEM #8E
FEBRUARY 12, 2001
PENSION COMPARISON INFORMATION
Atl Beach = City of Atlantic Bech
Jax Beach = City of Jacksonville Beach
Fern Beach = City of Fernandina Beach
St. Augustine = City of St. Augustine
Neptune Beach. Neptune Beach was not utilized within this comparison as they have a
Defined Contnibution Plan and not a Defined Benefit Plan.
Jacksonville. The CiTy of Jacksonville was not utilized as the City of Jacksonville
does not participate within the Social Security program
The Benefit Formula determines the employees retirement benefit and consists of multiplying the
employee's Final Average Salary (FAS) times the employee's Yeazs of Creditable Service (YOS)
' times a multiplier. The multiplier utilized by different Cities is indicated below.
GENERAL EMPLOYEES: Atl Jas Fern St.
Beach Beach Beach Augustine
COLA Provision: No No No No
COLAs Provided: 2* 0 0* 1.
Retirement age (Hotel): 60 60 SS 60
Years of service (Note 1): S S 2S 10
Mutiplier: 2:85% 2.50% 2.75% 2.50%**
Employee Contribution: 2.00% 6.45% 6.50% 4.00%
City Contribution: 11.24% 0.00% 7.90% 7.15%
* Currently considering pr oviding COLA to retirees.
** Benefit multipliez reduces to 2% at S ocial Security eligibility, i.e., age 65.
POLICE EMPLOYEES: Atl Jax Fern St.
Beach Beach Beach Augustine
COLA Provision: No No No Yes
COLAs Provided: 2* 0 0* 7***
Retirement age (Note 1): SO SS Any 52
Yeazs of service (Note 1): 20 30 2S 25
Mutiplier: 3.00% 3.00% 2.75% 2.50%**
.Employee Contribution: 1:00% 6:45% 6.90% 4.00%
City Contribution: 10.33% 6.00% 3.80% 2.50 .
* Currently considering providing COLA to retirees.
** Benefit multiplier reduces to 2% at Social Security eligibility, i.e., age 6S.
*** Will receive up to a'3% COLA if City contribution rates do not increase.
NOTE 1. Most common retirement option listed. Other retirement options may be available
including early retirement with reduced benefits or a DROP plan.
AGENDA ITEM #SE
FEBRUARY 12, 2001
CITY OF ATLANTIC BEACH
800 SEMINOLE ROAD
ATLANTIC BEACH, FLORIDA 32ti3-5445
TELEPHONE: (904) 247-5800
FAX: (904) 247-5805
SUNCOM:852-5800
http://ci.atlantic-beach.fl.us
January 3, 2001
MEMORANDUM
T0:
SUBJECT
Honorable Mayor and City Commissioners
Cost of Living Adjustment (COLA) for Retirees
The Police and General Employee Pension Boards respectively request that the City Commission
approve aone-time cost-of--living adjustment (COLA) of &ve percent (5%) for all City retirees
and beneficiaries"to be effective January 2001.
City retirees aze not provided with a Cost of Living Adjustment (COLA) except on a exception
basis as approved by the City Commission. The last COLA received was a three percent (3%)
COLA on January I, 1997 which was "a one-time cost-of--living adjustment' provided to all
retirees and beneficiaries who retired prior to January 1, 1997. Since the City's pension plans
were established in September 1975, retirees have received two COLAs (a 3% COLA in 1997 and
a 12.5% COLA in 1987) and one re-computation ofretirement pay in 1993 based upon a change
to the retirement multiplier.
Based upon an actuarial evaluation completed by Gabriel, Roeder, Smith & Company, the -
adoption of this proposal would require. an additional City contribution of 0-18% of salary
($4,032 annually} for General employees and 0.43% of salary ($4;380 annually) for Police Officer
employees.
Sincerely,
Cin Anderson
Chairperson,
Police Pension Boazd
Tim Toc end
Chair rson,
General Employee Pension Boazd
AGENDA ITEM #8E
FEBRUARY 12, 20D1
PENSION PLAN
FUNDED R.A.TIO
09/30/99 80.2 % funded ratio for General Employees' Plan.
83.0 % funded ratio for Police Employees' Plan.
State mandated sepazate pension plan accountability.
09/30/98 77.9 % funded ratio_
Fire Pension assets transferred to City of Jacksonville.
10/01/97 -- Police union employees contribution rate changed from 2:315% to 1.00%.
09/30/97 80.2 % funded ratio.
If excess gains were not deferred over five years; the Funded Ratio would be
87.0%.
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 78.6 % funded ratio.
09/30!95 77.0 % funded ratio.
The 09/30/95 report adopted an increased member termination assumption:
09/30/94 75.1 % funded ratio.
State mandated, for future actuazial valuations, use of mortality rates not less
than those of the 1983 Group Annuity Mortality Table. Implementation of this
mandate increased the contribution requitement and decreased the funded
percent as the mortality rates in the 1983 table were lower than in the table
being utilized.
09/30/93 83.4 % funded ratio.
Benefits were changed, effective October 25, 1993, as follows:
1) General benefit factor increased from 2.25% tb 2.85% for active and
retired members and some vested terminated members (from 2.0% to
2.85% for the re**~ain;ng 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 rema;n;ng 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 yeazs of credited
service. Previous eligibility was age 55 with 20 or more yeats of credited
service. Eligibility at age 60 with 5 yeazs of credited service remained
unchanged.
4) Police/Fire eligibility requirement for disability in the line of duty changed
from 5 yeazs 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 95.1 % funded ratio.
09!30/91 91.1 % funded ratio.
09/30/90 96.2 % funded ratio.
AGENDA ITEM #8E
FEBRUARY 12, 2001
09/30/89 104.3 % funded ratio.
09/30/88 98.5 % funded ratio.
10/26/87 -- Changed vesting from 10 years to 5 yeazs.
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 lessshan 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 99.5 % funded ratio.
09/30/86 113..3 % funded ratio.
09/30/85 109.9 % funded ratio.
09/30/84 Not available
09/30/83 101.1 % funded ratio.
09/30/82 96.1 % funded ratio.
09/30/81 82.2 % funded ratio
09/30/80 68.4 % funded ratio,
09/30/79 66.9 % funded ratio.
09!30/78 60.2 % funded ratio.
09/30/77 44.7 % funded ratio.
09/30/76 26.5 % funded ratio.
09!30/75 12.4 % funded ratio-
Initial Plan
Benefit factor of 2% for Police and 2% for General.
There were no employee contributions to the plan.
WP//gag/MYFiles//Peusiod/Fu°ded-Ratio-Ch°nca
AGENDA ITEM #SE
FEBRUARY 12, 2001
PENSION PLAN
CITY CONTRIBUTION RATE
AS A PERCENT OF PAYROLL
GENERAL POLICE
10/O1/00 11.24 % 10.330
10/01/99 11.58 % 10.193
IO/O1/98 .11.94 % 10.575
10/01/97 11.99 % 11:445
10!01/96 11,12% 7.595
10/01/95 10.8 % 14.945
10/01/94 9.57 % 11.315
10/01/93 9.02 % 10.460
10/01/92 9.27 % 11.150"
10/01!91 9.89 % 12.770
10/01/90 Unavailable Unavailable
10/01/89 9.20 % 11.550
10/01/88 9.69% 10.320%
10/01/87 9.24 % 8.360
10/01/86 Unavailable Unavailable
10/01/85 Unavailable Unavailable
10/01/84 Unavailable Unavailable
10/01/83 - Unavailable Unavailable
10/01/82 9.91 % 7.610
10/01/81 Unavailable Unavailable
10/01/80 Unavailable Unavailable
10/01/79 Unavailable Unavailable
10/01/78 Unavailable Unavailable
10/01/77 Unavailable Unavailable
10/01/76 Unavailable Unavailable
10/01/75 Initial Plan
AGENDA ITEM #8E
FEBRUARY 12, 2001
CITY OT' ATLANTIC BEACH EMPLOYEES RE'TIREMEN'T SYSTEM
GENERAi!-POLICE-FIl2E MEMBERS.
PROPOSALS UNDER CONSIDERATION
SUBI-IITTED To: ..The Board of Trustees
RATE: July 15, 1999
SUBIYIITTED BY: Brad L: Armstrong, ASA, EA
Gabriel, Roeder, Smith & Company
BACKGROUND
This report contains the results of supplemental actuarial valuations requested to determine the costs
associated with changes under consideration for all General and Police members and Fire retired
members and beneficiaries. The proposed changes for Proposal 1 and 2 were valued to be funded
entirely by additional city contributions and for Proposal 3 were valued. to be funded entirely by
additional member contributions.
Except as other wise noted, valuation data, methods and assumptions were the same as those used for
the annual actuazial valuation as of September 30, 1998. Increases in unfunded actuarial accrued
liability were amortized as level percent of payroll over 30 yeazs. The member data as of
September 30, 1998 can be summarized as follows:
General Police
No. of active members 68 23
Annual payroll $2,067,310 $940,002
~
Averages -age 44.9 yeazs 36.1 yeazs
'. -service 7.5 yeazs 7.9 years
- pay $ 30,402 $ 40,870
General Police Fire
No. of retired members beneficiaries 23 8 7
Annual pensions $174,013 $158,270 $71,058
Averages
- age on 9/30/1998 65.5 years 54.8 years 63.2 years
- age at retirement 59.9 yeazs 49.7 years 58.2 yeazs
- annual benefit $ 7,568 $ 19,784 $10,151
AGENDA ITEM #SE
FEBRUARY 12, 2001
EXPLANATION OF "TERMS
The term "Normal Cost" in this report refers to the on-going cost of providing the changes for each
year of credited service. This cost continues for the working life of current and future active members,
if they aze to be included in this change.
The term "UAAL" (unfunded actuarial accrued liability) in this report refers.to the temporary cost of
providing the changes to each year of service already rendered by active members as of September 30,
1.998. This cost is scheduled to continue for 30 years.
The amounts shown aze the level percents of payroll applicable to all current and future active
members present during the amortization period. All items cover death and disability (where
applicable) benefits paid from the pension fund, including post-retirement survivor benefits, if
applicable age, duration and.service requirements aze met.
The cost of applying the changes to Fire employees transferred to Jacksonville is NOT included.
VALUATION RESULTS
Proposal lA - Provide a 3% ad-hoc COLA for current retired members and beneficiaries. For
example, a $100/month pension would become a $103/month pension.
Adoption of this proposal would require an additional C~ contribution o£
Percent of Payroll FX 99/00 Dollars
General Police Fire General Police Fire
Normal Cost 0.00% 0.00% $ 0 $ 0 $ 0
UAAL 0.11 0.26 2,464 2,648 1,042
Total 0.11% 0.26% N.A. $2,464 $2,b48 $1,042
Proposal IB -'Provide a 5% ad-hoc COLA for current: retired members and beneficiaries. For
example, a $100/month pension would become a $105/month pension.
Adoption of this proposal would require an additional C~ contribution of:
Percent of Payroll FY 99/00 Dollars
General Police Fire General Police .Fire
Normal Cost 0.00% 0.00% $ 0 $ 0 $ 0
UAAL 0.18 0.43 4,032 4,380 1,824
Total 0.18% 0.43% N.A. $4,032 $4,380 $1,824
AGENDA ITEM #8E
FEBRUARY 12, 2001
Proposal 2A - Provide a COLA provision utilizing a standard CPI, which is not to exceed 2%. This
provision applies to General and Police members only.
Adoption of this proposal would require an additional C~ contribution of:
Percent of Payroll FX 99100 Dollars
Generalx Police GeneralK Police
Normal Cost 1.73% 3.13% $38,755 $31,882
UAAL Active 1.24 1.98 27,778 20,168
UAAL Inactive 0.10 0.06 2,240 611
UAAL Retired 0.70 1.77 15,681 18,029 .
Total 3.77% 6.94% $84,454 $70,690
* These results are not additive to those presented in Proposal3.
Proposal 2B - Provide a provision utilizing a standard CPI, which is not to exceed 3%. For the
purpose of this study, we are assuming 2.8%. 'T'his provision applies to General and Police members
only.
Adoption of this proposal would require an additional C~ contribution of:
Percent of Payroll FY 99!00 Dollars
Generalx Police Generalx Police
Normal Cost 2.57% 4.68% $ 57,573 $ 47,671
UAAL Active 1.83 2.96 40,995 30,151
UAAL Inactive 0:16 0.08 3,584 815
UAAL Retired 1.05 2.65 23,522 26,993
Total 5.61% 10.37% $125;674 $105,630
' These results are not additive io those presented in Proposal 3.
AGENDA ITEM k8E
FEBRUARY 12, 2001
Proposal 3 -Change the normal. retirement eligibility condition for General members from age 60
with 5 or more yeazs of service to age 55 with 5 or more yeazs of service or any age with 25 or more
yeazs of service. Change the deferred retirement commencement age from age.60 to age 55. This
reflects the change in normal retirement eligibility.
Adoption of this proposal would require additional member contribution of:
'Percent of Payroll
General`
FY 99/00 Dollars
Generalx
Normal Cost 2.12% $47,492
UAAL 1.29 28,898
Total 3.41% $76,390
* These results are not additive to those presented in Proposal 2.
COMD'LE1~TT: The additional contribution rate needed to support this proposal is sensitive to the
utilization of retirement rates for the proposed retirement conditions. The cost shown above would
increase (decrease) if utilization (retirement) rates were higher (lower) than assumed. Please refer to
the next page for these rates.
AGENDA ITEM#SE
FEBRUARY 12, 2001
Increases in unfunded actuarial accrued liability were amortized as level percents of payroll over 30
years. ,
The preceding calculations were based on thesame member data, methods, and assumptions used in
the'Septemb.er 30, 1998 annual actuarial valuation except as follows:
The retirement pattern used in Proposal 1 was adjusted to zeflect utilization of provisions allowing
General members to retire at age 55 with 5 yeazs of service or at any age with 25 yeazs of service. The
patterns used were as follows:
25&Out 55Lai5
Service at Percent of Eligible Retirement Percent.ofEligible
Retirement Persons Retiring Ages Persons Retiring
25 15% 5S 1S%
26 10 56 10
27 10 S7 10
28 10 58 10
29 10 59 10
30 10 60 IS
32 10 61 8
32 10 62 15
33 10 63 9
34 10 64 IS
35 100 65 90.
66 30
67 40
68 50
~
69 60
70 100
Note: An actuarial impact statement and cost estimate, in the format required pursuant to Chapter 112,
Florida Statutes, must be submitted to the Department of Administration, Division of Retirement, State
of Florida, prior to final action adopting a change to the Ordinance.