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HomeMy WebLinkAboutRetirement Committee - Minutes - 04/03/2003City of Fort Collins Genera. employees Retirement Plan GENERAL EMPLOYEES' RETIREMENT COMMITTEE April 3, 2003, MEETING MINUTES COUNCIL LIAISON: Mayor Ray Martinez COMMITTEE Susan Lehman, Chair, 221-6813 MEMBERS Michele Hays -Johnson, 416-2158 PRESENT: Bill Switzer, Vice Chair, 221-6713 MEMBERS Dottie Nazarenus, 204-4429 ABSENT: Approved May 1, 2003 Jim O'Neill, 221-6779 Alan Krcmarik, 221 788 OTHERS Julie Depperman & Ann Wardle (Finance) PRESENT: Pat Kahle, Actuary & Joel Stewart, Analyst (Milliman USA) Debbie Weedman (Human Resources) Greg Tempel (City Attorney) CALL TO ORDER: Susan Lehman called the meeting to order at 1:20 p.m. Five members of the Committee were present, constituting a quorum. PLAN MEMBER COMMENTS: The Committee reserves this place on the agenda to receive comments from Members of the Plan or the public. There was an open house scheduled from 11:30 a.m. to 1:15 p.m. This open house was the second of two scheduled to provide an opportunity for Plan Members to discuss the proposed Full-Time/Part-Time Plan change. One Member attended and asked about what was happening with the proposed change and also about the health of the Plan. The proposal was reviewed and the Member was told that it will go to City Council for approval with an intended implementation date of July 1, 2003. Jim O'Neill told the Member that she was welcome to stay for the regular meeting to hear the answer to her question about the Plan's health. Susan had two telephone calls from Plan Members she has yet to reach; she will forward any comments to Ann Wardle for documentation. Debbie Weedman said she received a call from a Member who said he has had a significant increase in pay since the Personal Retirement Planning Statements were calculated, and he wanted it to be run again. Re -calculating these are costly and the Plan can not afford to pay for updates. Debbie will let the Member know that these are run once per year and he can contact ICMA-Retirement Corporation ("RC") and the Social Security Administration to obtain information that is more current. NqW'59A44A2W�l ipal P.O. Box 580 • Fort Collins, CO 80522-0580 • (970) 221-6788 • FAX (970) 221-6782 General I� loyee's Retirement Committee April 3, 2003, Meeting Minutes Page 2 of 4 Debbie asked Greg Tempel a question regarding the distribution of benefits once a Member dies leaving two beneficiaries, Greg will need to research this question before providing a response. Debbie also asked Greg if a Member's will overrides a beneficiary form; Greg said that the Plan is required to follow the instructions on the beneficiary form. APPROVAL OF MINUTES: Alan Krcmarik distributed the draft minutes of the March 6, 2003, meeting. Minor wording changes were suggested. Jim moved approval of the minutes as corrected, and Alan seconded the motion. The Committee approved the minutes unanimously (5-0). DISCUSSION TOPICS 1. Plan Philosophy: There were no comments on the Plan philosophy. 2. Status on Proposed Part -Time Plan Change: Alan said the Committee would be ready to present the Plan change to City Council at the May meeting if everyone's questions have been answered. The change would be a Council agenda item with an attached resolution and would normally go on the consent agenda. Bill Switzer said he wants to document that this is equitable, cost effective, and that we are aware of the detrimental impacts of this change to some members. Alan will circulate what will be presented to Council for the Committee to review. Jim moved that the proposed change be presented to Council on May 6, and Susan seconded the motion. The motion passed unanimously (5-0). 3. Review of Actuarial Report: Pat Kahle distributed copies of her Power Point presentation and a preliminary draft of the Actuarial Valuation as of January 1, 2003. Pat introduced Joel Stewart, also of Milliman USA. Pat reviewed a chart depicting the membership of the Plan: wherein there were 385 active Members on January 1, 2002, the number dropped to 362 as of January 1, 2003; the Plan started with 109 terminated, vested Members and ended with 116 as of January 1, 2003. Julie Depperman asked for suggestions on how to track Members who have been gone for a long time. Social Security has a web site that might be of assistance, and Pension Benefit Information (PBI) will do a search of confirmed addresses for a fee; Joel will get this information to Julie. Julie said she is considering mailing letters to retired Members and requiring that Members have their signatures notarized on a return form to ensure that a Member has not died and someone else has been depositing their checks. Pat will remove Plan Member names from Table 6 of her Actuarial Valuation draft. Pat will keep the information in her Valuation Report but will, instead of using Member names, put the Table in the order of retirement dates. Pat will provide Julie with this information. Pat said they used conservative assumption tables because the Plan is closed and the group is limited in the number of Members. Filename: GMIN 2003 4APRIL Final '^ General 1^ loyee's Retirement Committee April 3, 2003, Meeting Minutes Page 3 of 4 Pat reviewed financial data. As of January 1, 2002, the Plan had a market value of $32,064,482 and ended December 31, 2002, with a market value of $29,082,465 after disbursements and contributions. Pat reviewed the actuarial methods used, including the Aggregate Cost Method (page 7 of the handout). The Aggregate Cost Method is, in general, a conservative cost method, in that it typically funds plan benefits more quickly than other funding methods. Funding is spread over the remaining expected working lifetime of the currently active members versus a fixed number of years, which may or may not relate to percentage of pay rather than a fixed annual dollar amount. A level percentage of pay method is appropriate since salaries generally increase as time passes. All of the actuarial assumptions were reviewed. Alan asked Pat if the Plan could be cashed out today. Alan merely wants to have the answer to this question in case the City Manager's Office asks him. Pat will provide this information to Alan before the next meeting. Pat will also send Alan her PowerPoint presentation materials electronically. Alan asked that everyone review the draft of the Actuarial Valuation report and let him know of any questions or changes by Thursday, April 10, 2003. Milliman USA's contract says they'll provide the report by April 30, but Pat said it will not take long at all to finalize once she hears back. Dottie Nazarenus will be mailed the materials to review since she was absent from the meeting. 4. Discussion of Funding Options: Bill distributed a handout regarding City Manager John Fischbach's request for ideas on what can be done to save the Plan money. Bill said that if the benefit to Plan Members is reduced that he would expect to see the same reduction applied to the defined contribution plans. Bill reviewed information that was distributed prior to the 1998 Plan conversion to help employees make a decision whether to stay in Plan or convert to the defined contribution plan. Michele said the asset risk is wholly owned by the City and that a defined benefit plan is for those who do not want to take risks. It was pointed out that the Committee said in 1998 that the City contributions may vary from year to year. It was also mentioned that the options presented to Plan members at that time implied equivalent contributions by employees to their retirement regardless of whether they stayed in the Plan or opted for the defined contribution plan. If the Plan were frozen, Pat said the City would still be liable. Jim said he is interested in options that would keep the Plan whole. Committee members do not want to reduce the 1.5% benefit credits. Michele said she thinks that it would damage the Member's retirement if the percentage were reduced, and she thought it would be damaging to even suggest this option. Alan pointed out that the City Manager and the Council Members were not here when this Plan started, that most of them have borne the risk in their own plans, and are not invested in this Plan. He said the Committee will need to provide background information to them regarding this Plan. This Plan part of a management strategy to bring higher -qualified individuals to the City of Fort Collins and was utilized for recruitment and retention. Michele suggested pointing out that a defined benefit plan is a near -contractual arrangement with employees. If the City froze the Plan and put began contributing 4.5% into a MPP, the City would not continue to accrue the future Filename: GMIN 2003 4APRIL Final General r'lloyee's Retirement Committee April 3, 2003, Meeting Minutes Page 4 of 4 liability of the Plan. Greg will give Alan some cases to explain the relationship of promises being contractual and refer to the implied employment contract going back to 1971. Alan will prepare and route the budget memo due April 28, 2003 for everyone to review. Susan motioned that Alan will put together a budget based on actuarial figures today and based on the 5.7% contribution rate provided in the Actuarial Report; Jim seconded this motion. The motion carried unanimously (5-0). 4. Other Business: The review of the actuary's services will be put on next month's agenda. Adjournment: There being no further business, the Committee adjourned at 4:09 p.m. TOPICS FOR NEXT REGULAR MEETING The next regular meeting of the Committee will be on May 1, 2003, at 1:15 p.m. in the Council Information Center of City Hall. The tentative agenda includes: Plan Member Comments Approval of Minutes Plan Philosophy Review of Actuary Status on Proposed Part -Time Plan Change 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. 2003 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 2003, the Committee has scheduled the meetings as shown below: 3anuaFy-9 April 3 July 10 October 2 Februafy-6 May 1 August 7 November 6 Mareh 6 June 5 September 4 December 4 Filename: GMIN 2003 4APRIL Final Genera. t mvlovees Retirement Plan DATE: April 23, 2003 TO: FROM: SUBJECT: MEMORANDUM John F. Fischbach, City Manager General Employees' Retirement Committee Alan J. Krcmarik, Finagsial Officer and staff liaison to the Committee Budget Request Funding Support for the Plan in the 2004 and 2005 Budget SUMMARY: According to a special study by Milliman USA, the actuary for the General Employees' Retirement Plan, the Plan will be underfunded by a projected $8.9 million in 2023. To cover this liability the actuary recommended the City contribute an additional $709,000 (each year over the next 30 years) to the Plan. This level of contribution would alleviate the long-term shortfall. Recognizing the budgetary constraints now in effect, the Committee presented a proposal to the City Manager to have $250,000 transferred into the Plan from unused 2002 fund balances. This proposal was approved in March and the Committee greatly appreciates the contribution. The investment markets have continued to struggle through April of this year. The expectation is that the markets will continue to be volatile and uncertain. The Committee respectfully requests that the additonal $250,000 annual contribution be continued for 2004 and 2005. While this level of contribution does not fully mitigate the unfunded liability, it demonstrates the City's willingness to contribute toward the solution of the long-term problem. The Committee is continuing to work with the actuary to develop other proposals that will contribute to the long-term viability of the Plan. The most promising strategy reviewed so far is to start with low payments in the early years and escalate the future payments gradually over time. The Committee and staff are also exploring methods to improve the investment returns for the Plan's assets. BACKGROUND The City of Fort Collins General Employees' Retirement Plan is a defined benefit plan. Based on a "defined" formula, employees earn their pension benefits. All defined benefit plans begin with unfunded future liabilities because the contributions that are made to the Plan always lag the work service being provided by the employee. Traditional principles of sound pension financing require level contributions (as a percent of the covered employee payroll). Standard pension financing theories also indicate that an average plan will take approximately 50 years to reach a fully funded status, where annual contributions as a percentage of payroll are expected to be level. See Exhibit 1. 215 North Mason Street • 2nd Floor • P.O. Box 580 • Port Collins, CO 80522-0580 • (970) 221-6788 - FAX (970) 221-6782 1: Expected Funding Level of Defined Benefit Plan 0/of Em Employee I Cash Be efitL S / I �_ Investment Returns p y �� 11 Returns Payroll Level contributions Employer Contributions Start 50 +/- Years of Time Source: Financing Retirement Systems by Richard G. Roeder, 1987, Government Finance Officers Association. The City began its defined benefit plan in 1971. The purpose was to provide a more competitive retirement plan so the City could recruit and retain a highly qualified work force. Through the Plan adopted by the Council, the City gave service credits to employees that worked for the City before 1971. Therefore, the Plan began with liabilities for employees that had worked for the City for many years before 1971. This increased the beginning unfunded liability for the Plan. The main source of employee retirement benefits in 1971 was the national Social Security program. Many other cities in Colorado opted to allow their employees to join the Colorado pension program (PERA). With Social Security and the employee's own savings, the General Employees' Retirement Plan was viewed as a good way to diversify one's retirement program. At its peak in the 1980s, the General Employees' Retirement Plan was the major City -sponsored retirement plan, covering ver 95% of the full-time employees. In the early 1980s, the City began to offer other programs, including deferred compensation plans, and defined contribution retirement plans for management staff. In the late 1990s, the City began to offer the defined contribution plans to new employees and when given the option to convert to a defined contribution plan, many members of the GERP elected to do so. Whenever new retirement options were provided, existing members of the Plan were informed that in the defined benefit plan, the City would be responsible to absorb the market risk of investments for the Plan. Legal counsel have advised the Committee that there is an implied contract between the City and members of the Plan. The City, based on studies and recommendations from actuarial firms, made extraordinary contributions into the Plan to reduce the unfunded liability. The actuary studies suggested that it would take 30 to 40 years to remove the liability. Due to the extra contributions, high levels of investment returns, and substantial turnover rates (unvested employees forfeit their contributions to the Plan) the Plan reach positive funded status in the late 1980s. At that time, due to budget constraints, the City reduced its normal contribution level. The chart below shows the history of the contribution rates for the Plan. From the late 1970s to the mid-1980s, the City made additional cash contributions from the General Fund to reduce the unfunded liability more quickly. Conclusion The City made a commitment to the members of the General Employees' Retirement Plan when the Plan began and has reinforced this commitment through the years. In order to resume adequately funded status, the Plan now needs additional contributions. While the actuary studies indicate a need of $709,000 annually for the next 30 years, the Committee has reduced this to a reasonable request of $250,000. Should the markets improve and reduce the unfunded liability, the City could then reduce its annual contribution. The Committee appreciates the 2002 contribution and is willing to discuss this matter in depth. No Text