HomeMy WebLinkAboutRetirement Committee - Minutes - 10/03/2002City of Mort Collins
Genera. Employees Retirement Plan
GENERAL EMPLOYEES' RETIREMENT COMMITTEE
October 3, 2002, MEETING MINUTES
Approved November 7, 2002
COUNCIL LIAISON: Mayor Ray Martinez (present)
COMMITTEE Susan Lehman, Chair, 221-6813 Dottie Nazarenus, 204-4429
MEMBERS Bill Switzer, Vice Chair, 221-6713 Jim O'Neill, 221-6779
PRESENT: Michele Hays -Johnson, 416-2158 Alan Krccmmmaarik, 221-6788
OTHERS Julie Depperman & Ann Wardle (Finance)
PRESENT: Nancy Wagner (Actuary)
Debbie Weedman & Vincent Pascale (Human Resources)
CALL TO ORDER: Susan Lehman called the meeting to order at 1:27 p.m. All
members of the Committee were present. After Susan called the meeting to order,
the Committee moved ahead in the agenda to the discussion of actuarial assumptions
and funding options.
PLAN MEMBER COMMENTS: The Committee reserves this place on the agenda to
receive comments from Members of the Plan or the public. There were no Plan
Member comments.
APPROVAL OF MINUTES: Minutes for the August 1, 2002, meeting were
distributed. Alan Krcmarik noted a minor numbering change. Jim O'Neill moved
approval of the minutes as corrected and Dottie Nazarenus seconded the motion. The
Committee approved the minutes unanimously (6-0).
DISCUSSION TOPICS
1. Discussion of Assumptions and Funding Options: Alan, Bill Switzer, Julie
Depperman, and Susan met with Mayor Martinez on October 1. They discussed the
Plan's projected funding shortfall (due to three years of declines in the stock market)
and the options for correcting the shortfall. The Committee believes that if the City
can make additional annual Plan contributions, the future unfunded liability will be
more manageable. Mayor Martinez suggested a format for presenting the problem
and solutions to the City Council.
Nancy Wagner handed out a bar chart Projection of Assets and Liabilities and an
informational comparison sheet for the years 2000, 2001, and 2002. In compiling this
information, Nancy assumed that the market value of assets would decrease by 10%
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for 2002, a reasonable assumption given the market conditions. She assumed a 7.5%
return in years 2003 and beyond. The projected difference between a market value
loss of 10% and a break-even return for 2002 is approximately $10 million in 2011.
The difference between the liabilities and assets in 2011 using a 10% loss for 2002 is
almost $20 million.
Mayor Martinez joined the meeting at this point (1:40 p.m.). Nancy indicated that the
current policy of contributing 4.5% of payroll to fund the Plan clearly is not sufficient,
as the Plan's funding status is projected to fall way short. Assuming that the Plan
benefits are funded over the future working lifetime of current Members, making up
the potential $20 million asset/liability gap is not possible as a percent of payroll. The
Plan is "frozen", meaning no new members are permitted. With a frozen plan, when
the current Members all reach retirement age, contributions as a percent of payroll
cease. This combined with the three years of negative stock market returns will cause
a huge deficit requiring supplemental funding.
Alan pointed out that beginning in 1971, the City added general fund dollars in every
year up until about 1986 to help fund the Plan. At that point the Plan had reached an
actuarial equilibrium where the City did not think they needed to make additional
contributions. That was true of both the firefighters' and police pension plans, as well,
which at that time were still defined benefit plans.
Nancy reviewed her summary handout illustrating the Plan's funding status for the last
three years. The market values have dropped from $35 million and they are expected
to be less than $30 million at the beginning of 2003. Liabilities, on the other hand,
continue to grow as people get closer to retirement. The funded ratio fell from 96%
at the beginning of 2000 to 86% in 2001 to 77% in 2002. Assuming a market value
loss of 10% in 2002, Nancy projects the funded ratio to fall below 70% at the
beginning of 2003. Nancy said to make up the potential funding shortfall today would
require a $5 million cash infusion.
The Committee is developing funding alternatives to review with the City Manager and
City Council. For example, Nancy suggested making additional Plan contributions of
$250,000 per year for ten years or stretching the funding horizon over a longer
period. The Committee also discussed possibly taking these costs out of various
departmental budgets based on participation in the Plan; i.e., looking at who is still in
the Plan, which fund they worked for, and prorating the costs by fund. Splitting the
cost among the funds would be a little more manageable; and if Utilities amounted to
30% of the total membership of the Plan, it would make sense to ask them for 30% of
the liability. Another option the Committee discussed is to reduce future accruals for
active Members. Nancy said the shortfall burden should not rest solely on the active
Members. Mayor Martinez suggested coming up with at least a couple of options to
present to Council.
The Mayor asked what the repercussions would be if Council refused to make
additional funds. Alan said there would be a red (negative) number to report on the
financial report, retirement payments would eventually deplete remaining, and
retirees would not get retirement money. Nancy said the issue would come up 25
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years from now for a different Council if the money is not contributed now; at that
time, the Council would have to come up with the funds due to a contract issue.
Mayor Martinez agreed that Council needs to understand the contract agreement
between the City and the Plan Members.
Mayor Martinez said he would like meet with the Committee and review the materials
prior to it being presented to Council. Alan will draft a memo to the City Manager
from Mayor Martinez describing the Plan's funding issues and Committee
recommendations. Alan will circulate the memo to the Committee for comments prior
to sending it to the City Manager.
2. Consideration of the 2nd Amendment to the Plan: Greg Tempel had prepared
draft #3 of the 2nd Amendment to the Plan amending the Plan's definition of
Compensation. The IRS provided the Plan with a favorable determination letter on the
condition that the Committee and Council adopt the Amendment. Alan moved
approval of the Amendment and included in his motion any other minor changes the
attorneys may need to make before it goes to Council. Dottie seconded the motion.
The motion carried unanimously (6-0).
3. Plan Philosophy: Covered under Discussion of Assumptions and Funding
Options.
4. Part -Time Plan Change: Julie distributed a Full-time/Part-time report providing
details on the impact of implementing a proposed change in the benefit calculation.
The report shows a comparison of current and proposed monthly benefits. She also
handed out a draft of the Proposed Change to the General Employees' Retirement
Plan. Pension attorney, Steven Weinstein, had previously reviewed the document,
and found it to be acceptable. Julie attached a few charts that show the number of
Members who would be affected. The Committee will review this information and
bring any comments or suggestions to the November meeting.
5. Follow up for Council Review: Alan indicated that all of the pertinent
information regarding the meeting with the City Council on July 23 was covered at the
August Committee meeting. The only outstanding issue is to obtain the Actuarial
Report electronically so that it can be shared with Council and Plan Members. Nancy
will send Alan an electronic file containing the data so that it can be put on the
intranet. The document will be checked to ensure it does not contain any Member's
names or social security numbers.
6. Quarterly Investment Update: Julie distributed the Plan Investment Report for
the quarter ended September 30, 2002. Julie reported the Plan assets are down to
$28 million. The year-to-date loss was just over 10% as of September 30, 2002.
Nancy said -10% is typical of what others are at right now. Among the factors still
hurting the financial markets are: concerns about the U.S. going to war with Iraq,
corporate scandals, disappointing corporate earnings and the Longshoreman's strike.
Adjournment: The Committee adjourned at 3:29 p.m.
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TOPICS FOR NEXT REGULAR MEETING
The next regular meeting of the Committee will be on November 7, 2002, at 1:15
p.m. in the Council Information Center of City Hall. The tentative agenda includes:
Plan Member Comments
Approval of Minutes for the October 1 meeting
Plan Philosophy
Discussion of Funding Options
Annual Work Plan Preparation
Annual Report Preparation
Status of Proposed Part -Time Service Credit Plan Amendment
Monthly Investment Update
Other Business
GENERAL EMPLOYEES' RETIREMENT PLAN WEB PAGE: The General Employees'
web page can be found at www.fcgov.com/city clerk. The Committee's 2001 Annual
Report, 2002 Work Plan, and monthly minutes are available at this site.
2002 Meeting Schedule:
The regular meeting time for the Committee is at 1:15 p.m. on the first Thursday of
each month. The regular location is the Council Information Center at City Hall. For
2002, the Committee has scheduled the meetings as shown below:
A pH l A fine ed te, '� 3ely 11 Geteber 3
May August 1 November 7
ne ` "ea` December 5
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