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HomeMy WebLinkAboutRetirement Committee - Minutes - 10/21/19910 0 FORT COLLINS GENERAL EMPLOYEES RETIREMENT COMMITTEE OCTOBER 21, 1991 MEETING MINUTES MEMBERS PRESENT: MEMBERS ABSENT: Jerry Brown Mollie Mercer Alan Krcmarik Angelina Powell Dennis Sumner Sue Wilcox, Secretary Visitors included Don Mazanec of William M. Mercer, Inc.; Mary Crumbaker- Smith of Employee Development; and Bob Eichem, Treasury Administrator. CALL TO ORDER: Chairperson Dennis Sumner called the meeting to order at 2:05 p.m. APPROVAL OF MINUTES: Angelina Powell moved and Mollie Mercer seconded the motion to approve the minutes. The minutes were approved as distributed. ITEMS OF NOTE: Angelina Powell had compiled information from the Actuarial Valuation Report, the benefits survey, and the Kipplinger Newsletter related to defined contributions, and she requested an opportunity to discuss this with the Committee. REVIEW OF DISCUSSION TOPICS: The agenda was reviewed and Angelina's topic was added. DISCUSSION TOPICS: Open Items 1. THIRD QUARTER INVESTMENT REPORT MAIN POINTS: Treasury Administrator Bob Eichem presented the third quarter investment report and noted the rate of return for the quarter was 10.03%. This return is relatively high for current market conditions and was due in part to liquidating certain investments during the quarter. Bob explained he would like to encourage the use of mutual fund equity investments for a portion of GER funds. He feels there may be advantages to the fund. He asked for thirty minutes of the Committee's time at some point in the future for this discussion. CONCLUSIONS/DECISIONS: The Committee members praised Bob for the high rate of return and indicated they would like to discuss equity investments later this year or early next year. NEXT STEPS: Mutual fund equity investments will be put on the "Items for Future Discussion" list. 2. RESPONSE TO AUDIT COMMENT REGARDING FUNDING STATUS MAIN POINTS: Don responded to the recommendation of Price Waterhouse, the City's external auditor, that the City consider reducing the annual level of contributions to the pension fund. The auditors based the -1- recommendation on the 1990 normal costs of the plan and because the assets of the plan exceed the Total Benefit Obligation (which is calculated according to Governmental Accounting Standards Board [GASB] Rule #5). Don first pointed out that the normal costs of the Plan had increased since the 1990 Actuarial Report and that the normal costs were being funded at an appropriate level. The increases in normal costs were due to the update in the mortality tables and because members were added back into the Plan. In response to the calculation of a fund surplus, Don pointed out that while GASB #5 is an appropriate way to look at current funding of the Plan, it does not show the funding requirement for an ongoing plan where annual contributions are determined as a level percentage of future payroll. To illustrate this point, if fund assets of the GERP were equal to the Total Pension Benefit Obligation calculated for accounting purposes, the total City contribution requirement for 1991 would need to increase from 3.6% to 5.8%, an increase of $418,000. CONCLUSIONS/DECISIONS: No change is necessary in the City's retirement contribution rate. NEXT STEPS: Alan will respond to the auditor's comments and forward responses to the Council. Next year, the auditors will review the actuarial results and the GASB #5 calculation with the Actuary, prior to issuance of the management letter. The results of these discussions will also be shared with the GERC. 3. LUMP -SUM PAYMENTS MAIN POINTS: Sue reported that 38 former City employees had received checks for lump -sum payment of retirement benefits for a total of $54,048.44. Eleven former employees have not replied to the first letter, so second letters were sent on Friday, October 18th as a reminder. Sue will send certified letters to any of the eleven she does not hear from, stating that we will assume they do not wish to accept a lump -sum benefit. One individual, Gail McGaha-Miller, is a former City employee eligible for a lump -sum payment, but she is currently working under a contractual arrangement with the City. Her absence from permanent City employment will be five years on June 30, 1992, but she is hoping that she will be offered a permanent position in the near future. If this occurs and if City Council changes the amount of time allowed for a break -in-service to five years before the June 30, 1992 date, she would like the option of keeping her lump -sum benefit and service credits intact. With this in mind, she would like to defer a decision on her lump -sum benefit until after June 30, 1992. Her alternative would be to take the lump -sum payment now and if both the above conditions are met within the time constraints, she could pay back the lump -sum amount to the GER Plan, plus the interest the money would -2- have earned had it been in the GER fund during that time. It was noted that IRS requirements would make this process complicated for Gail. Angelina withdrew from discussion at this point because her own situation involves a break in service and she could have a conflict of interest in this discussion. The members' concerns were: 1. were there others like Gail who are partially vested with a break in service who would be affected by a decision on this question and 2. if the Committee agreed to Gail's request and if she was able to keep her present benefits and service credits, would others make a similar request in the future? CONCLUSIONS/DECISIONS: Alan moved and Jerry seconded a motion to approve Gail McGaha-Miller's request to defer her decision until after June 30, 1992, pending a decision on approving a 5-year break - in-service and Ms. McGaha-Miller's rehire as a permanent employee by June 30, 1992. The motion was approved unanimously, with Angelina Powell abstaining. NEXT STEPS: Sue will keep a tickler to follow up on this in June or July. 4. PROPOSED ADMINISTRATIVE AMENDMENTS TO THE PLAN General Information MAIN POINTS: Mary Crumbaker-Smith presented a memo dated 10/18/91 summarizing the proposed administrative amendments to the GER Plan. The minutes below summarize the discussion on each of the seven amendments under consideration. CONCLUSIONS/DECISIONS: See below. NEXT STEPS: Mary's memo will be revised and additional data gathered as noted below. Amendment 1. LONG-TERM DISABILITY VS WORKERS COMPENSATION QUESTIONS MAIN POINTS: This amendment summary addresses the Workers Comp versus Long-term Disability question. Section A defines various disability categories and who or what agency determines the disability. Section B addresses the related question of how service is credited for each category of disability defined in Section A. Section C addresses retirement dates for disabled workers. CONCLUSIONS/DECISIONS: There was concern that the situations for members "under the age of 65" referred to in Section B might need to be treated separately. NEXT STEPS: Don Mazanec will review this section with the company attorney for an opinion. The rest of the changes were acceptable. -3- Amendment 2. ADDITION OF EXISTING UNCLASSIFIED MEMBERS MAIN POINTS: There was some concern about how this section might apply to the 18 classified personnel who went from classified to unclassified status when they were promoted. CONCLUSIONS/DECISIONS: This needs further review. NEXT STEPS: Don Mazanec and Mary Crumbaker-Smith will look at this section as it relates to the paragraph on membership and the 18 people mentioned above. Amendment 3. EXTENDING PERIOD FOR RETURN TO EMPLOYMENT AND GERP MAIN POINTS: This section was acceptable, but it was noted there were some current City employees who may be affected by this change. There is no automated way to identify which employees left and then returned to City employment within a five-year period. This data will be needed to help identify costs and impacts of this amendment. CONCLUSIONS/DECISIONS: The wording was acceptable. NEXT STEPS: Mary to revise effective date and include in the final package of changes. Mollie will review Employee Development personnel records to identify employees who would be affected by this amendment. Amendment 4. DATE FOR MONTHLY BENEFIT PAYMENT MAIN POINTS: This section brings the Plan into line with the current practice of paying pension benefits at the end of the month. CONCLUSIONS/DECISIONS: The last sentence will end with the word "paid" and the rest of the sentence will be deleted. NEXT STEPS: Mary will make the necessary change. Amendment 5. REFERENCING SPOUSAL CONSENT REQUIREMENT MAIN POINTS: This refers to a spouse being consulted on the benefit payment option chosen when an individual retires. CONCLUSIONS/DECISIONS: No change necessary. NEXT STEPS: Mary to include in final draft. Amendment 6. ADDITION OF ONE YEAR BETWEEN RETIREMENT AND PAYMENT OF LUMP - SUM BENEFIT MAIN POINTS: This section requires a one-year wait between termination date and the date of paying a lump -sum payment to those whose regular retirement benefit would be less than $100 per month. The rationale is -4- that if the individual were to return to City employment, they would be most likely to do so during that first year. By not issuing the check for one year, it would not be necessary for the employee to pay back the principal and interest, should the person return to City employment. CONCLUSIONS/DECISIONS: The wording is accepted. NEXT STEPS: Mary will include in final draft. Amendment 7. ELIMINATION OF AUTHORITY TO ACCEPT QDROs MAIN POINTS: QRDOs (Qualified Domestic Relations Orders) would no longer be honored for payment for any amounts except child support. There is some ambiguity in the State law about whether GERP is or is not prohibited from complying with QRDOs which address marital property and financial issues other than child support. The elimination of the Plan language which authorizes compliance with QDROs would assure that GERP is in compliance with current State law. CONCLUSIONS/DECISIONS: This is accepted. NEXT STEPS: Mary and Don will get further legal review of this amendment to ensure it is properly stated. 5. PROPOSED ENHANCEMENTS TO THE PLAN MAIN POINTS: Three enhancements to the GERP have been under consideration by the GERC for some time. 1) Change to full vesting at five years. This change is relatively low cost, less than one-half percent of payroll. It would bring the City's plan closer to the standards that apply to private employers. 2) Use of a three-year salary average to determine benefits. This benefit is also more in line with the practice of private employers. The cost for this change would be approximately one-half percent. 3) Implementation of a "Rule of 80" type plan. In this provision, an employee's years of service are added to the employee's age. When, given other criteria, this total equals some number ("80" is simply a common practice), the employee is eligible for full retirement. Contrasting this with the Fort Collins plan, a 25-year employee at age 55 only gets a 50% benefit from the current Fort Collins plan. The cost for this feature is approximately one and one-half percent. CONCLUSIONS/DECISIONS: These changes are all considered desirable, but due to their costs, may not be feasible unless employees choose to fund them. NEXT STEPS: No closure was made on these enhancements. The Committee -5- will discuss them further at our next meeting. 6. DEFINED BENEFITS VERSUS DEFINED CONTRIBUTION PLANS MAIN POINTS: Angelina Powell presented the information in her handout regarding the pros of the Defined Contribution (DC) system. Don Mazanec pointed out that this system requires greater contributions, which can be accomplished by shifting funds from other parts of the total compensation package (such as ICMA) and by requiring employees to contribute 5-6% of their income to pension benefits. (A total of 10-12% of income would be required to make a DC system worthwhile for employees.) Don said that the City of Aurora worked to educate the employees on the pros and cons cf defined contribution plans before Aurora went to one. One county merely surveyed its employees on which type of plan they would want and the results were predictable based on employee demographics. Younger workers earning less wanted every dollar as salary, while older workers looking at retirement wanted a substantial retirement benefit. Don also noted that it is difficult to make this type of change. Not only do employees have different values that tend to split along demographic lines, but also it is difficult to give employees enough information so they can make informed decisions. Also, there are equity issues that make it difficult to make this change based on a simple majority vote. NOTE: Earlier in the meeting Bob Eichem offered to present information to the GER Committee on investment issues related to conversion to a defined contribution plan. CONCLUSIONS/DECISIONS: To begin to evaluate this issue, information is needed on how much the City currently contributes to ICMA in matching funds compared with how much a defined contribution plan would require. NEXT STEPS: Alan will get information on how much the City currently spends to match ICMA contributions by employees. Other aspects of this issue will be discussed at our next meeting. ITEMS FOR FUTURE DISCUSSION 1. Pension Investment Seminar/Public Benefit Plans Workshop Evaluation of competitiveness of the GER Plan, based on Total Comp Study. Defined contribution study. (Refer to 10/26/89 meeting minutes.) Delayed until changes to the current plan have been studied and resolved. (Refer to 1/25/90 minutes.) Possible involvement of GER Plan in the 401(a) deferred compensation plan. 5. Plan improvements to be considered. (Review in June. See October 29th letter from Don Mazanec for costs.) 6. Resolve retirement benefit questions related to employees injured during employment with the City, i.e. Sehestedt and Hattan. 7. Discussion of mutual fund equity investments with Bob Eichem (Refer to 10-21-91 minutes.) 8. Meet with City Auditors in March or April for preliminary review of their report. (Refer to 10/21/91 minutes.) AGENDA & SCHEDULE FOR NEXT MEETING It was suggested that a more regular schedule for meeting times would be useful for the Committee members. A "normal" monthly meeting at 1:15 p.m. on the first Thursday of the month was selected. Due to other conflicts the December meeting will be 12/19/91 and January's will be 1/9/92. The next meeting will be December 19, 1991 at 1:15 p.m. in the Finance Conference Room. The agenda will include: 1. Update on lump -sum payments and letter. 2. Proposed administrative amendments to the Plan. 3. Proposed enhancements to the Plan. 4. Defined Contribution VS Defined Benefit. ADJOURNMENT The meeting was adjourned at 12:30 p.m. MEETING SCHEDULE THURSDAY DECEMBER 19, 1991 1:15 P.M. FINANCE CONFERENCE ROOM THURSDAY JANUARY 9, 1992 1:15 P.M. FINANCE CONFERENCE ROOM THURSDAY FEBRUARY 6, 1992 1:15 P.M. FINANCE CONFERENCE ROOM THURSDAY MARCH 5, 1992 1:15 P.M. FINANCE CONFERENCE ROOM THURSDAY APRIL 2, 1992 1:15 P.M. FINANCE CONFERENCE ROOM THURSDAY MAY 7, 1992 1:15 P.M. FINANCE CONFERENCE ROOM THURSDAY JUNE 4, 1992 1:15 P.M. FINANCE CONFERENCE ROOM -7-