HomeMy WebLinkAboutRetirement Committee - Minutes - 02/05/1998Retirement Plan
City of Fort Collins
FORT COLLINS GENERAL EMPLOYEES RETIREMENT COAEM TEE
FEBRUARY 5,1998 MEETING MINUTES
COUNCIL LIAISON: Mayor Ann Azari
COM[M TITEE MEMBERS PRESENT:
Tun Hume, 221-6776
Dave Agee, 221-6770
Alan Krcmarik, 221-6788
Kevin Westbuis, 224-6156
OTHERS PRESENT:
ABSENT:
Patti Teracka, 221-6715
Russ Proctor, Watson Wyatt Worldwide, the City s actuarial firm
Laurie Harvey (Staff Support - Human Resources)
Greg Tempel (Staff Support - Legal)
Bob Eichem (Staff Support - Investments)
Sue Wilcox (Staff Support - Secretary)
CALL TO ORDER: Chairperson Kevin Westhuis called the meeting to order at 1: 25 p.m. in
the Council Information Center of City Hall West.
ITEMS OF NOTE: Prior to the meeting, Jim Hume advised the Chairperson he would arrive
about 2 pm. Patti Teracka was absent due to illness. It was determined that a quorum of three
was present in order to conduct business. Laurie Harvey was welcomed back as the Human
Resources staff support person and thanks were extended to Debbie Weedman for acting in this
capacity in Laurie's absence.
APPROVAL OF MINUTES: The minutes of the January 8, 1998 meeting were distributed and
a correction was noted in Item 3. Alan moved that the minutes be approved as corrected. Dave
Agee seconded the motion, which passed unanimously (3-0).
DISCUSSION TOPICS:
I. GER PLAN MEMBER(S) COMMENTS/CTr] ZEEN PARTICIPATION: There were no
member or citizen comments.
2. PROS & CONS - REPORT ON COLA FOR EXISTING RETIREES
MAIN POINTS: This report was to be a discussion by Jaime Mares of the pros and cons of
funding options for a Cost of Living Adjustment (COLA) for current retirees. However, Jaime
300 LaPorte Avenue • P.O. Box 580 • Fort Collins, CO 80522-0580 • (970) 221-6788 • FAX (970) 221-6782
GERC Minutes - February 5, 1998
has accepted another position and will be leaving City employment. The goal is to discuss with
the City Manager and staff the problem the GERC sees with funding a COLA through the Total
Compensation system.
CONCLUSIONSINEXT STEPS: Laurie Harvey was asked to consult with Jaime, review the
December GERC minutes, and put together a summary for presentation to the GERC. The
Committee would like to come to some resolution on this topic and to make a recommendation to
the Mayor and City Council.
2. FINANCE DIRECTOR AS FUNDING AGENT
MAIN POINTS: One of the charges given to the GERC under the GERP Plan and the GERP
Investment Policies is to hold and invest the Plan's assets. The Committee can delegate this
activity to the Finance Director, which is what has occurred over time in an informal way. Greg
Tempel introduced Resolution 98-1 to document that it is the Committee's wish at this time to
have the Finance Director hold and invest the assets of the Plan as specified by the Plan and
Policies already adopted by the Committee. Greg noted that this designation can be changed by
the Committee at any time.
CONCLUSIONS/NEXT STEPS: Dave Agee moved and Alan seconded the motion to approve
Resolution #98-1 appointing the Financial Officer as the Funding Agent for the GER Plan. The
vote was unanimous (3-0) in favor of the motion. The original document will be Sled with the
City Clerk's Office.
3. DISCUSSION OF GERP BENEFIT CALCULATION FOR A CURRENT PLAN
MEMBER
MAIN POINTS: Laurie Harvey received from a current GER Plan member a request for a
calculation of the actuarial value of her account balance in relation to the distribution of assets in a
divorce settlement. Laurie prepared a preliminary calculation for the employee, which the
employee could have verified by any actuary. Watson Wyatt Worldwide will verify this
calculation and their fee for this service is approximately $50. Laurie asked if the fee would be
paid by the Plan or by the individual. Russ Proctor mentioned that private companies usually pay
for this type of calculation. It was the consensus that having W W W verify a benefit calculation in
this situation would provide no benefit to the Plan or the Committee.
CONCLUSION/NEXT STEPS: Because there is no benefit to the Plan or Committee, Kevin
moved that the GERP member be billed for the cost of verifying her benefit calculation and that
future requests for present value benefit calculations not be paid by the Plan. Dave Agee
seconded his motion and the vote was unanimous in favor of the motion (4-0, with Jun Hume
having joined the meeting).
4. QUALIFIED DOMESTIC RELATIONS ORDERS (QDRO)
MAIN POINTS: The previous discussion regarding a benefit calculation request brought up the
topic of Qualified Domestic Relations Orders related to distribution of GERP benefits. Such an
order may be received by Committee members or staff support personnel. Greg Tempel provided
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details about what is involved in these orders. Russ Proctor noted that the IRS has model
language available and he also provided information on how his firm handles them.
CONCLUSION/NEXT STEPS: There have been changes in State law affecting QDROs. For
the next meeting, Greg Tempel will provide an outline of a suggested procedure for the
Committee / staff to follow in the event a QDRO is received.
5. REGULAR INVESTMENT REVIEW
MAIN POINTS: Alan Krcmarik presented the final year-end investment report, which showed
that the domestic investments were up 45% and the international investments were up 7.5%, with
an estimated total return for 1997 of 12.01%. Alan provided a chart which showed that with the
exception of 1994, the City's rate of return on retirement fund investments has been above the
7.5% assumption every year since 1985. Currently, the rate of return on bonds is low and flat;
even 30 year bonds are lower than our 7.5% assumption. In the last three years the stock market
has risen over 20a/o.
Alan recommended that because of the uncertainty in many of the Southeast and Asian stock
markets, and a significant drop in the rate of return on the T. Rowe Price New Asia international
equity, that a cap be placed on that equity and purchases be discontinued. In order to replace that
segment of the GERP investment plan, Alan and Bob Eichem recommended that the Committee
consider adopting a new international equity called Janus Overseas. They had considered a
Global Asset Management equity fund and another one from Bankers Trust, but preferred the
Janus fund because of its higher return and absence of a load fee. Janus Overseas is primarily
involved in European companies, with just 2% in the Southeast/Asia markets.
CONCLUSION/NEXT STEPS: Kevin Westhuis moved that the Committee follow the
recommendations of the financial officer and the treasury administrator by capping investment in
the New Asian fund at its current level and begin investing in Janus Overseas. Jim Hume
seconded his motion and the vote was unanimous (4-0) in favor of the motion.
6. POSSIBLE DEFINED BENEFIT - DEFINED CONTRIBUTION CHOICE
MAIN POINTS: The GERC has been discussing for several months the possibility of offering
interested members an opportunity to move to a Defined Contribution (DC) type of plan, while
not adversely affecting members who elected to stay in the GERP, a Defined Benefit(DB) plan.
In order to do this, the Committee agreed that it would be necessary to educate interested
members about the two types of plans. Alan and Russ Proctor have been working with ICMA on
a method to prepare individual calculations called Present Value of Accrued Benefits (PVAB),
which would be rolled over to a DC plan.
The Committee would like to have Jeff Kraft of W W W provide an outline of the information to
be presented at education sessions, especially how to explain the differences between the two
plans. The Committee members feel it is important to include information on investing and future
projections of earnings at different rates. A number of ways to provide the education sessions to
the 800+/- members were discussed, including using video tapes and the cable capability of the
City.
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GERC Minutes - February 5, 1998
It would be necessary to determine how many members would be interested in rolling over to a
DC plan and how many would remain in the GER Plan in order to determine feasibility of a cash -
out option. The most recent focus groups (which were attended mostly by longer -term
employees who tend to be older) showed that after they learned how conversion to a defined
contribution plan could be accomplished and how the conversion of their present benefit would be
calculated, not many employees expressed interest in proceeding with that option. Actual interest
could be provided by ballots handed out after the education programs.
CONCLUSIONS/NEXT STEPS: The information to be provided at the education program
needs to be presented to the Committee, perhaps through a dry run, such as Jeff gave before.
7. POSSIBLE CHANGE TO GERC PLAN TO ALLOW LUMP SUM WITHDRAWALS
UPON SEPARATION FROM CITY EMPLOYMENT
MAIN POINTS: Russ Proctor of Watson Wyatt introduced a possible way to allow members to
withdraw their lump -sum benefit upon separation from the City, which would not adversely affect
the Plan. This would require a change in the GER Plan by City Council. Russ illustrated a
formula which would calculate lump -sums using current Plan assumptions in order to have a
neutral affect on the Plan. Russ advised that one possible negative impact on the fund would be
that the Plan investments might have a lower rate of return because of the need to keep them in
more liquid types of investments in order to make the payouts. On the other hand, it was noted
that a one-time, lump -sum payout may be less costly than the cumulative administative cost of
monthly payments for the retiree's lifetime.
CONCLUSIONS/NEXT STEPS: Because this would be a major change to the Plan and
because two members were not able to be present for the discussion (Patti was absent due to
illness and Alan had to leave for another commitment), this needs to be discussed firrther.
8. PERSONAL RETIREMENT PLANNING STATEMENTS / SOFTWARE UPDATE
MAIN POINTS: Sue asked to receive the printed Personal Retirement Planning Statements
(PRPS) by March 16th or 23rd in order to have them inserted in envelopes for distribution. She
also requested the calculations for the terminated employees who are eligible for lump -sum
distributions in 1998. Laurie Harvey asked if the software she uses for preliminary benefit
calculations could be expanded to include two years of salary history.
CONCLUSION/NEXT STEPS: Watson Wyatt should be able to meet the deadline so the PRPS
forms can go out with the March 27th paychecks. Russ will see that the benefit calculation
program is expanded for Laurie's use.
9. REVIEW OF VB vs DC FOR PUBLIC RETIREMENT SYSTEM" CONFERENCE
MAIN POINTS: Jim Hume reported that some attendees at the conference seemed to have
serious doubts about changing from a DB (defined benefit) plan to a DC (defined contribution)
plan. The conference featured presentations by various state and local government groups. Most
were either planning a shift to a DC plan, or had already done so. The focus was on problems
associated with such plan changes. For instance, some smaller entities in Michigan have been
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GERC Minutes - February 5, 1998
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forced by the courts to revoke an irrevocable change from DB to DC.
Several speakers pointed out that after changing from a DB to a DC plan, there must be a
commitment to ongoing employee education in the fundamentals of investing.
Tim noted that most of the DB plans represented at the conference had higher contribution rates
than the GERP, but those higher rates included employee contributions amounting to 2-3% of
salary.
A question was raised about who has the fiduciary responsibility for the City's 401 plan? The
answer appears to be the City Manager and whomever he might delegate.
CONCLUSION/NEXT STEPS: The chair thanked Tim for attending and bringing these
insights back to the other members.
10. GERC ACTING AS 401(a) BOARD
MAIN POINTS: It would not be up to the GERC to decide to act as a board of trustees for a
401(a) plan, as such a body would be appointed by City Council. It appears the City Manager
would have to initiate any action in this direction, but the GERC could make a recommendation
to City Council, including expanding the Committee to include management personnel. There is
no oversight group required for the 457 Plan, as it is not a "qualified" plan and Greg Tempel
noted that the fiduciary responsibility is with the City.
CONCLUSION/NEXT STEPS: It was agreed to keep this topic on the agenda for next month.
AGENDA & SCHEDULE FOR NEXT MEETING
The next meeting will be Thursday, March 5th at 1:15 pm in the Council Information Center
(CIC) of City Hall West. The agenda will include:
1. Plan Member Comments/Citizen Participation
2. Laurie Harvey's Report on COLA Pros & Cons
3. Review ofMember Education Material and Lump -Sum Calculations
4. QDROs Procedures
5. GERC Acting as 401(a) Oversight Board for Money Purchase Plan
6. Regular Investment Review
7. Other Business
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ADJOURNMENT
The meeting was adjourned at 3:21 p.m.
FUTURE MEETING SCHEDULE:
The General Employees Retirement Committee normally meets at 1:15 p.m. on the 1 st Thursday
of each month in the Council Information Center, City Hall West.
THURSDAY, MARCH 5, 1998
THURSDAY, APRIL 2, 1998
THURSDAY, MAY 7, 1998
THURSDAY, JUNE 4, 1998
THURSDAY, JULY 9, 1998**
THURSDAY, AUGUST 5, 1998
THURSDAY, SEPTEMBER 3, 1998
THURSDAY, OCTOBER 12, 1998
THURSDAY, NOVEMBER 5, 1998
THURSDAY, DECEMBER 3, 1998
"Because the July meeting falls so close to the
observance of Independence Day (on July
3rd), it was moved to the next Thursday,
July 9 th, 1998
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