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HomeMy WebLinkAbout2005-04-14 Pension Study workshop City Commission meeting minutes MINUTES OF PENSION STUDY WORKSHOP DANIA BEACH CITY COMMISSION THURSDAY, APRIL 14, 2005 - 7:00 P.M. 1. Call to Order Mayor Castro called the workshop to order at 7:16 p.m. Present: Mayor: Anne Castro Vice-Mayor: Patricia Flury Commissioners: Bob Anton John Bertino C.K. McElyea City Manager: Ivan Pato City Attorney: Thomas Ansbro City Clerk: Louise Stilson 2. Pension Study Jim Linn, of Lewis, Longman & Walker, P.A., and Michael Tierney, of Actuarial Concepts introduced themselves to the Commission. Mr. Linn remarked retirement programs are expensive programs and there is no quick fix to the situation the City finds itself in with respect to the cost of the existing plans. The options are presented with the idea that these are things the City would look at for the long term. He noted the City may have to spend more in the short-term in order to get to a point of reducing the costs in the long-term. He gave an overview of the City's current General Employees' Benefit Plan. He noted the City's DROP plan does not require the employee to leave City employment after the seven year period; however, it is fairly common that DROP plans require the employees to submit a letter of resignation when they enter the program so that it is definite they will leave at the end of the DROP plan. He advised the cost of the City's contributions to the ,General Employees' Retirement Plan has risen 66% during the past three years. General Employees Pension Plan Option 1 Close the existing City plan to new members and establish a new defined contribution plan. Option 2 Close the existing plan and join the Florida Retirement System (FRS). Option 3 Close the existing City plan and create a new defined benefit plan based on a target contribution rate. Option 4 Maintain existing plan benefits for current members; adjust benefits for future hires. Mr. Tierney noted all the options assume the City will continue its current plan for all existing employees. He indicated there would not be any cost savings based on what we are currently paying, no matter what we do in terms of the future generations. Those savings will come in the future and may take 15-20 years. Option 1 - Defined Contribution Plan Individual accounts Contributions are defined by Ordinance Employees bear investment and demographic risks This is not the recommended plan. Option 2—Florida Retirement System (FRS) Current members would have choice of staying in current plan or joining the FRS All new employees would be members of the FRS Defined Benefit Plan 6 year vesting period Current employer contribution is 7.39% Defined contribution option (employee choice) which has a current employer contribution of 9% Guaranteed 3% COLA per year; the current City plan does not Guaranteed health subsidy; the current City plan does not Option 3 — Close existing City plan and create new defined benefit plan with benefits based on a target contribution rate Defines cost as the focal point, rather than benefits This is not the recommended plan. Option 4—Maintain existing plan benefits for current members; adjust benefits for future hires This may be the only option if we do not want to change the type of plan we currently have Firefighter Pension Plan Mr. Linn remarked the Firefighter plan is different from the General Employees Plan because it is set up under Chapter 175 of the Florida Statutes. He noted as part of this Chapter, the City receives premium tax money which is taxes collected on property insurance premiums written on property in the City for the purpose of providing these retirement benefits to Firefighters. He noted the cost of the Firefighter's plan has risen by 52% over the past three years. He advised under the Chapter 175 Plan, State rules say that if the City sets up a new plan, it must only be in specific ways or we would lose the premium tax money. The City can continue to receive the premium tax money if they set up a new plan and give all Firefighter employees the ability to participate in either plan, or if the City contracts for fire services with another agency that participates in FRS. The problem is that we cannot say that all new hires have to go into a different kind of plan, or the State will not continue to let us have the premium tax money. Mr. Linn noted the FRS plan is more comparable with the City Firefighter Plan than with the General Employee Plan because of the Special Risk Class of FRS has a higher benefit structure. Minutes of Pension Study Workshop 2 Dania Beach City Commission Thursday, April 14,2005—7:00 p.m. Mr. Tierney noted the FRS benefits, including COLA, are actuarially more valuable than the City's benefits for Firefighters. City Manager Pato asked Mr. Tierney how we give future taxpayers a more manageable system that does not hurt employees. He commented the FRS option seems to be best for everyone. He asked for a projection of the soundness of FRS versus the City being in a position to look at ways of adjusting its plan at some cost to the employees. Mr. Tierney indicated if he had to pick an option he would pick the FRS. He noted it is a complicated topic and there is no all right answer. City Manager Pato commented he currently receives a pension from the FRS. He indicated this is a worry-free proposition for the employees because they know the FRS will always be there. He remarked the FRS is a good way for cities to manage their costs. Mr. Tierney responded every plan has its risks. He indicated employees are in a precarious position because they are not in charge of the cost of the plans, so they may have a different view from the City perspective. It is a matter of do we want a no-worry plan; a defined contribution plan is not a no-worry plan, it has to do with do we want to go to a future environment where everybody is in charge of their own account and it is their problem if they do not have enough. He noted this is the problem the government is having with Social Security. He remarked there is no right answer, but his option would be the option of some of each. He thinks to have all risk or no risk is probably wrong. He thinks people should have a stake in the game, and it is wrong to have the employees manage all the risk because they cannot do what the City can do at a larger level. He remarked the law of large numbers is what an Actuary relies on; if you have a big enough group you can spread the risk, and that is the key here. We are not just talking about benefits, but how to manage risk. Commissioner Bertino commented he does not see where the Union would have a problem because all of the present employees would get exactly what they are getting for the rest of their life; they are taken care of. The only ones that would be affected are the new employees that will come aboard. Assuming FRS is competitive in the County, it would put us in a competitive situation for hiring good employees. Mr. Tierney responded the Unions may have their own views and the Commission may want to hear them before concluding that is how they think. City Manager Pato remarked the Commission has said this is about future hires, the current employees do not have anything to worry about, but the City does. The Commission asked the Pension Board Attorney to give his opinion. Bob Sugarman, Attorney for both Pension Plans, stated his clients just learned about this workshop today. He indicated five minutes is not enough time, and he would like another workshop and to bring the Union's Actuary. He noted his problem is the assumption that if we Minutes of Pension Study Workshop 3 Dania Beach City Commission Thursday,April 14,2005—7:00 p.m. • change the Firefighter Plan the City would recover the entire 32% contribution it currently pays. He stated the City would not recover that because the 22.2% of City-paid member contribution would be paid back to the employees as their payroll and increase the wages. He pointed out this report is based on the years 2003-2005, which are the worst years in the history of the stock market which was kicked off by 9/11/01. He indicated we need to look at what happened in the years we were doing so well and bringing checks to the City to pay the City's liability for retiree health insurance. He stated if the City goes to the Firefighter FRS option the City would lose money because they are cutting off money coming into the current plan (State Revenue). He indicated as the older employees move toward retirement the cost would go up every year because all the new money is being given to the State (FRS). He questioned if it was good to have the new employees in the FRS Plan. He remarked he was going to stop talking as a Pension Lawyer and talk about somebody who has been handling Firefighters, both as a Union Attorney and a Pension Attorney for over 30 years. He told the Commission he was there when every single Dade and Broward County Municipal Fire Department left and went in the FRS. He indicated the City has been able to preserve a City Fire Department and keep people because of the City's Pension Plan. He remarked when the City puts the new people into the FRS the people will be able to leave and not lose any of their Pension benefits because it is portable. Vice-Mayor Flury asked Mr. Tierney to respond to Mr. Sugarman's comments. Mr. Tierney explained when you have an unfunded liability the dollar amount does not change; if you take all the people out and divide and get a percentage of payroll you get a big percentage of • payroll but the dollar amount is the same. As the employees do not go into the plan, the normal cost of the plan gets reduced; so the plan should go down in dollar amount total. He indicated the Firefighter Plan has an unfunded liability of $SM, with $1M that is not recognized, as of 2003. He indicated the only way to catch up is by more earnings or by more employee or City contributions. He explained there are two pieces of funding; the normal cost piece which is calculated actuarially as this years' pro rata actuarial portion of the total projected liability for that employee. That normal cost, if we pay it from the time the employee starts to when he retires, will fully fund the benefits. Mr. Sugarmann remarked the summary of the FRS option is that we all agree that the City will lose the State money; in eight years the City will lose $1M. This money will need to be replaced by the City. Vice-Mayor Flury remarked someone needs to take a look at the difference in cost over that ten year period of time because that money is not necessarily coming from the City. She indicated it would need to be calculated to determine the 45% we are paying now versus 20%. Mr. Sugarman remarked the City is not paying 45%, it is only paying 15.68%. If the City eliminates the plan, the other 22.15% goes back to the employees' wages; there would be no savings to the City. He stated he does not want the City to cut off the money coming into his Pension Plan because that is how they finance the plan and keep the contribution rate at 15.68%. He remarked he did not see how going into FRS with a million dollar down payment over eight years is in anybody's interest. • Minutes of Pension Study Workshop 4 Dania Beach City Commission Thursday, April 14,2005—7:00 p.m. • Vice-Mayor Flury asked Mr. Sugarman what his suggestion was for a new plan for new employees. Mr. Sugarman responded for Fire and Police you cannot set up a two tiered plan; the idea is to work with our Actuaries to look at the big picture. Commissioner Anton remarked Mr. Sugarman says the 22.20% of the cost is City-paid member contributions that the City would have to roll back into the employee salary. He noted the option to cut this cost is for the City, through the Collective Bargaining Agreements, to negotiate down this percentage. He remarked we all agree we have to lower the cost somehow. Mr. Sugarman remarked that was received in lieu of wage increases. Commissioner Anton remarked he understood that, but there were all kinds of things that happened a hundred years ago that we are paying for today. He said sometimes you have to draw the line and you have to do something. He knows that the Fire Department's pay is mid- range; but overall the Firefighters will be better off with FRS. He indicated he was not sure if Mr. Sugarman was accurate in saying the City-paid member contributions would have to be returned to the employees in their salaries. Mr. Sugarman responded he may want to ask the Firefighter Union members who were present. • Commissioner Anton asked the Labor Attorney whether that would have to return because that is something the City is paying and there are some issues that come into play there. He is concerned with some of the points Mr. Sugarman is making and he would rather hear them from someone that has no benefit from this. Mr. Sugarman responded he is privileged to be the attorney for the current plan, but if you cut off all the new members to the continued plan,this plan will still need a lawyer for the rest of time. City Manager Pato remarked to Mr. Sugarman that he believed he was also the Union Attorney sitting presently at the negotiating table arguing for items that are beneficial to the Union. Mr. Sugarman agreed with the City Manager and replied he did not know if the City Manager was attacking him or not. He remarked if you want to talk about what the Union negotiations are, he defers to the Union officials. Commissioner Bertino commented he would like to receive information in advance before the next workshop. Mr. Tierney responded there is danger in that because a lot of the information needs to be explained. He indicated today's meeting was to explain their findings and should be followed up with another meeting. Mr. Linn responded to Mr. Sugarman's comment about the City-paid employee contribution • amount. He noted he did not look at the Collective Bargaining Agreements, but he knows what Minutes of Pension Study Workshop 5 Dania Beach City Commission Thursday, April 14,2005—7:00 p.m. • is in the Pension Plan. He noted it says that employees who were hired prior to October 2001 pay 2%, and employees who were hired after that time pay 6.46%, and that the City pays the remainder of 24.6%. He indicated he was confused and does not know where it gets to the point of saying if the City does not have this plan it goes back to the employees. He questioned if a new plan were created if the new employees would receive a 24.6% higher salary than the current employees. Commissioner Anton asked the City Manager to ask our Labor Attorney to look at this and provide us some information. City Manager Pato responded he did not mean to attack Mr. Sugarman; he was only trying to figure out which hat he was wearing tonight. He indicated he found his presentation a little confusing. 3. Adjournment Mayor Castro adjourned the workshop at 9:28 p.m. CITY OF DANIA BEACH • ATTEST: ANNE CASTRO f7 MAYOR-COMMISSIONER LOUISE-STILSON CITY CLERK Approved: May 10, 2005 Minutes of Pension Study Workshop 6 Dania Beach City Commission Thursday,April 14,2005—7:00 p.m.