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Exh 8HAgenda Item: Date: 2- ~ - 40 _ CITY OF ATLANTIC BEACH CITY' COMMISSIONER MEETING STAFF REPORT ITEM: Request Commission guidance on implementation of State mandated changes to the Police Pension Benefits, City's Code of Ordinances, Article VI, Employee Benefits, Division 3, Retirement System. SUBMITTED BY: George Foster, Human Resource Manager DATE: February 8, 2000 BACKGROUND: On March 12, 1999, the State substantially amended Chapters 175 and 185, Florida Statutes dealing with Fire/Police Pension Funds. The City Commission conducted a first reading to implement these changes based upon our assumption that they would result in no additional costs to the City since the City's Police pension benefits were currently equal to, or greater, than those mandated. However, based upon the "legal" wording of these changes, an actuarial impact cost statement has been received indicating the cost for these changes would be 1.06% of Police payroll or approximately $12,528.00 annually. (See attached) These changes are not mandatory until sufficient additional Chapter 185 fiends become available from the State; therefore, the City may delay implementation until additional State funds are received. _ Based upon receipt of $70,289.46 Section 185 funds for 1997 (the base year) and receipt of $68,047.84 Section 185 funds for 1998, the date that these changes would need to be implemented is not known. CHANGES & STAFF The State has mandated three major changes to the City's Police RECOMMENDATIONS: Pension Plan as indicated below. Staff recommendation would be to delay implementation of these mandated changes until sufficient additional Section 185 funds become available. However, any, or all, of the mandated changes maybe implemented prior to receipt of additional State Chapter 185 funds. Change 1. Addition of a normal retirement eligibility of age 55 with 10 years of service. Annual cost of .3% or $3,056. Comments. The City Police Pension Plan currently has retirement eligibility as follows: 1. Age 50 with 20 years of service, or 2. Age 60 with 5 years of service, or 3. Any age with 30 years of service. Recommendation. Delay implementatin until additional State Section 185 funds become available. Change 2. Addition of an early retirement of age 50 with 10 years of service. Annual cost of .27% or $2,750. Comments. The City could implement this change with a reduction to benefits for the early retirement; however, the State has limited the reduction to be no greater than 3% for each year by which the member's age, at retirement, preceded the member's normal retirement age. Therefore, there will be an annual cost to implement this change even with the reduction factor. - Recommendation. Delay implementation until additional State Section 185 funds become available. Chance 3. Addition of a normal retirement under the standard form of payment which is payable for life and 10 years certain. Annual cost of .66% or $6,722. Comments. This will become the City's Police Pension Plan's "standard'' retirement benefit; however, a retiree may select an alternative method of payment such as "employee life only" or a retirement option with a survivor benefit. This option maybe able to be implemented with an actuarial reduction in benefit while retaining the current benefit of 3% times length of service times final average salary as an optional benefit. Recomrr~endation. Implement the benefit with current 3% multiplier which will be actuarially reduced based upon age/sex but not less than the State mandated 2% multiplier. The 3% multiplier will be retained as an optional benefit that employees may select. This should provide a no cost method of implementation and not change (increase) the current benefit provided. FITNDING: If changes are implemented prior to receipt of additional Chapter 185 funding from the State, then funds would be required from the City. ATTACHMENT: Actuarial Impact Statement _ ~ CITY MANAGER: ----.- ;' GABRIEL, ROEDER, SMITH & COMPANY Consultants & Actuaries 1000 Town Center • Suite 1000 • Southfield, Michigan 48075 • 248-799-9000 • 800-521-0498 • fax 248-799-9020 December 7, 1999 Mr. George A. Foster Human Resource Manager City of Atlantic Beach 800 Seminole Road _ Atlantic Beach, Florida 32233-5445 Re: Proposed Benefit Changes for Active Police Members Dear George: Enclosed are 10 copies of the supplemental valuation done to determine the individual costs associated with proposed benefit changes for the City of Atlantic Beach Police Officers' Retirement System. The results do not add to 1.06% shown in the November 8, 1999 Impact Statement due to overlap of the 55 & 10 and the 50 & 10 when combined. If you have questions or comments regarding these results, please call. Respectfully submitted, r~ ~ ~, Brad L. Armstrong, ASA, EA BLA:cg Enclosures 5 CITY OF ATLANTIC BEACH POLICE OFFICERS' RETIREMENT SYSTEM PROPOSALS UNDER CONSIDERATION SUBMITTED TO: The Board of Trustees DATE: ~ December 7, 1999 SUBMITTED BY: Brad L. Armstrong, ASA, EA Gabriel, Roeder, Smith & Company BACKGROUND This report contains the results of supplemental actuarial valuations requested to determine the individual costs associated with changes under consideration for all active Police members. The proposed changes for Proposals 1, 2 and 3 were valued to be funded entirely by additional Employer contributions from additional funds through Chapter 185. Except as other wise noted, valuation data, methods and assumptions were the same as those used for the annual actuarial valuation as of September 30, 1998. Increases in unfunded actuarial accrued liability were amortized as level percent of payroll over 30 years. The member data as of September 30, 1998 can be summariz°d as follows: Police No. of active members 23 Annual payroll $940,002 Averages -age 36.1 years - service 7.9 years - pay $ 40,870 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 are 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, 1998. This cost is scheduled to continue for 30 years. The amounts shown are 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 are met. VALUATION RESULTS Proposal l -The addition of a normal retirement eligibility of age 55 with 10 years of service. Adoption of this proposal would require an additional Employer contribution of: Percent of Payroll FY 99/00 Dollars PoliceX Police* Normal Cost 0.22% $2,241 UAAL 0.08 815 Total 0.30% $3,056 __ _ * These results are not additive to those presented in Proposals 2 and 3. Proposal 2 -The addition of an early retirement eligibility of age 50 with 10 years of service. Adoption of this proposal would require an additional Employer contribution of: Percent of Payroll FY 99/00 Dollars Police* Police* Normal Cost 0.18% $1,833 UAAL 0.09 917 Total 0.27% $2,750 * These results are not additive to those presented in Proposals 1 and 3. Proposal 3 -The addition of a normal retirement benefit payment under the standard form of payment which is payable for life and 10 years certain. Adoption of this proposal would require an additional Employer contribution of: Percent of Payroll FY 99/00 Dollars Police* Police* Normal Cost 0.40% $4,074 UAAL 0.26 2,648 Total 0.66% $6,722 * These results are not additive to those presented in Proposals.l and 2. COMMENT: 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 could change if utilization (retirement) rates are different than assumed. Please refer to the next page for these rates. r Increases in unfunded actuarial accrued liability were amortized as level percents of payroll over 30 years. The preceding calculations were based on the same member data, methods, and assumptions used in the September 30, 1998 annual actuarial valuation except as follows: The retirement pattern used in Proposal 1 and Proposal 2 were adjusted to reflect utilization of provisions allowing Police active members to retire at age 55 with 10 years of service or age 50 with 10 years of service. The patterns used were as follows: 55&10 50&10 Retirement Percent of Eligible Early Percent of Eligible Ages Persons Retiring Retirement Ages Persons Retiring 55 10% 50 20% 56 10 51 15 57 10 52 10 58 10 53 10 59 20 54 10 60 100 55 10 56 10 57 10 58 10 59 20 60 100 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.