Loading...
HomeMy WebLinkAboutRetirement Committee - Minutes - 12/08/1994FORT COLLINS GENERAL EMPLOYEES RETIREMENT COMMITTEE DECEMBER 8, 1994 MEETING MINUTES COUNCIL LIAISON: Ann Azari, Mayor COMMITTEE MEMBERS PRESENT: ABSENT: Jerry P. Brown Jacci Peterson Dennis Sumner Dave Meyer Alan Krcmarik (Member & Staff Support) OTHERS PRESENT: Sue Wilcox (Staff Support - Secretary) Bobbie Burnette, (Staff Support - Asst. City Attorney) Dave Agee (Staff Support - Controller) Bob Eichem (Staff Support - Investment Officer) Russ Proctor & Mark Sanford of The Wyatt Company, the City's actuarial firm CALL TO ORDER: Chairperson Jerry P. Brown called the meeting to order at 1:21 p.m. in the 2nd Floor Conference Room of City Hall West on December 8, 1994. APPROVAL OF MINUTES: Dennis Sumner moved and Dave Meyer seconded the motion to approve the November 3rd meeting minutes as distributed. The motion passed unanimously. ITEMS OF NOTE: Jerry advised that he will meet with Council Liaison Ann Azari on December 12th to discuss how City Council can assist the GER Committee in 1995. He will discuss the items in the Work Plan with her and at the members' request, thank her for her interest, commitment, and support of the GERC's work. He will also discuss the selection of the 401 plan. DISCUSSION TOPICS: 1. PLAN MEMBER/CITIZEN COMMENTS: There were no member or citizen comments. 2. INVESTMENT REPORT - THIRD QUARTER FINAL REPORT At the November meeting, Alan provided preliminary third quarter investment results. At this meeting, Alan and Bob Eichem presented the complete report. Equity investments were up in the third quarter. Investments in fixed income bonds improved, but the investment return was less than the 7.5% assumption used in the actuary's reports. Committee members asked about the Orange County, California, investment problems that had been covered in the media. Bob explained that while the City's investment policies allow some of the types of investments the Orange County Treasurer used, these policies provide for diversification of the pension portfolio. In Orange County, the Treasurer invested a very large portion of the total portfolio in derivatives and reserve repurchase agreements. These investments did very well in the falling interest rate market. However, as rates went up, they turned into losers. The Orange me County problem was compounded because the basic portfolio of about $7.5 million was leveraged to nearly $20 billion. Bob asked the Committee to authorize selling some investments at a loss. Last spring, funds from maturing investments were put into short-term securities until the market was more favorable. Bob feels that taking a small loss now can be more than made up with long-term investments at higher rates in 1995. Bob suggested not adding to the mutual funds at this time as he expects a significant correction (downturn) in the market. He did propose researching mutual funds for later purchase which will further diversify the portfolio. The First Quarter, 1994 Investment Report was issued in draft form because the Finance Department was changing computer programs for tracking the investments. This change in software caused some figures in the final report to change. Copies of the final report will be sent to GERC members. Anyone wishing a copy may contact Sue. CONCLUSIONS/NEXT STEPS: The vote was 4-0 in favor of the motion to sell stocks for a reduction in yield in 1994, with Alan abstaining. Dave Meyer moved and Jacci Peterson seconded a motion to accept the Third Quarter Investment Report. The motion passed unanimously. 3. MERCER-WYATT TRANSITION UPDATE MAIN POINTS: Russ reported receiving the actuarial data from William M. Mercer, Inc. and was successful in duplicating their findings within 2.5%. However, due to the way the contribution is calculated, this 2.5% difference in liabilities translates into a 10% difference in Plan cost. Because of the different methods used in various calculations, up to 5% deviation in liabilities is considered acceptable. One cause for the variation could be the difference in how the two firms calculated the 1994 death benefit change. Russ said additional information from Mercer, Inc. might clear up the difference. The assumptions that Mercer has been using include a 5% inflation rate. The inflation rate is used as a base for both the salary scale assumption and the interest rate assumption. Using historical information and the Plan's current investment allocation, Russ has determined that a 3-1/2% real interest rate (net of inflation) is justified. With the current 7-1/2% interest rate assumption, the inflation rate could be lowered to 4% (4% inflation plus 3-1/2% real interest rate equals a 7-1/2% total return). Using this 4% inflation assumption instead of the current 5% assumption would lower the salary scale assumption by a full percentage, which translates into a lower cost for the Plan. CONCLUSION/NEXT STEPS: Russ will prepare a request for the information he needs to do an additional test case; we will get a cost estimate for this service from Mercer, Inc.; and then the GERC will decide whether to authorize the expense. The GERC and staff need to decide which of the two inflation assumptions should be used for the January 1, 1995 valuation. Laurie Harvey of Human Resources will provide a 10-year history of salary increases, which -2- will be compared with the salary scale assumption to determine if lowering the assumption is justified. 4. VALUATION MEETING SUMMARY MAIN POINTS: Jerry and staff support members had met earlier in the day with Russ and Mark regarding the format, contents, and schedule of the annual valuation report. The executive summary will be expanded and include terms and definitions. It will contain a summary of last year's results and more graphs. A copy of the Valuation Meeting minutes will be included with these minutes for GERC members, staff support, and Russ Proctor. Anyone wishing a copy of those minutes can call Sue at 221-6788. CONCLUSION/NEXT STEPS- The data tape will be delivered to Wyatt Company early in January, with a draft of the actual report for staff review in April. The final draft will come to the GERC before their May 5th meeting and will be presented and reviewed at that meeting. 5. STATUS OF °EARLY OUT° TASK FORCE STUDY MAIN POINTS: Discussions about the "Early Out" program continue with the Executive Lead Team (EL Team). Questions are being researched and an overview of the proposal is scheduled to go to the Council Finance Committee in January. There is a question of what impact this program might have on the GER Plan if a group of older employees retires under it and wants to begin drawing their GERP retirement benefits also. CONCLUSIONS/NEXT STEPS- The EL Team will discuss the proposal again. Russ will look into the question of potential impact on the GER Plan and bring it to the January 12th meeting. 6. 457/MONEY PURCHASE PLAN SELECTION PROCESS MAIN POINTS: Over 25 educational meetings were held to provide information to employees about the choice they are required to make between the 457 Plan and a Money Purchase Plan. City employees, who were trained by Wyatt personnel, conducted the meetings, which were well -attended. It appears from early returns that the number of employees selecting the Money Purchase Plan has easily exceeded the 50% of employees required for compliance. Department and division heads currently in the 457 appear to also be making the MPP selection. Assuming the MPP selection receives sufficient votes, this plan will be implemented January 1, 1995. CONCLUSIONS/NEXT STEPS: The final statistical results will be presented at the next meeting. 7. DISTRIBUTION OF PERSONAL RETIREMENT BENEFIT REPORT FORMS MAIN POINTS: The Personal Retirement Benefit Report forms traditionally are distributed to Plan members in May or June, along with their paychecks. Because the paycheck distribution systems within departments vary so much, there was concern that not all are received. There was also concern that -3- this information was available for anyone to see. It was pointed out that since individual names are on the report forms, it is likely that they are distributed correctly. It was also noted that the checks themselves are also open to public view and that they contain much more information than the benefit forms. There have been few problems or complaints about the present system. CONCLUSIONS/NEXT STEPS: It was agreed to keep the current system for distribution of the benefit forms. However, if privacy concerns arise, we will probably re -visit this issue. 8. PLAN DOCUMENT INCONSISTENCY MAIN POINTS: Because of the wording in two different sections of the Plan, the age of retirement is inconsistent. By changing Article 9, page 2, Section 2 "Early Retirement", last paragraph, it makes the rest of the document consistent with the wishes of the Committee. CONCLUSIONS/NEXT STEPS: Russ will prepare a letter to Bobbie Burnette, assistant city attorney, outlining the quotes and the inconsistency. This item will be corrected the next time Plan changes are presented to City Council. 9. SEMINAR IN JANUARY MAIN POINTS: On January 26th the Wyatt Company will present a seminar called "The Sleeping Giant - Impact of the Boomers on Pension Plans", about the repercussions for the next 10 years, including Social Security. CONCLUSIONS/NEXT STEPS: Because this information may be of interest to the GER Plan members, Wyatt agreed to repeat the presentation in February to City employees. More information will be available in January. AGENDA & SCHEDULE FOR NEXT MEETING The next meeting will be January 12th at 1:15 p.m. in the 2nd Floor Conference Room of City Hall West. The agenda will include: 1. Plan Member/Citizen Comments 2. Review of draft 1994 GERC Annual Report 3. Early Out Task Force Update 4. Final Results - 457/MPP Selection Process 5. Report by Jaime Mares - status of several GERC Work Plan items. (Early Out/Workers Comp/Medical Insurance for Retirees/401H Set - aside for Health Care, Etc.) 6. Potential impact of an "Early Out" program on GER Plan & 401H pre- -4- tax funds for medical care at retirement - Russ Proctor ADJOURNMENT The meeting was adjourned at 4:05 p.m. FUTURE MEETING SCHEDULE: The General Employees Retirement Committee meetings are normally held at 1:15 p.m. on the 1st Thursday of each month in the 2nd Floor Conference Room, City Hall West. PLEASE NOTE DATE CHANGE FOR JANUARY, 1995. THE TIME REMAINS 1:15 P.M. THURSDAY, THURSDAY, THURSDAY, THURSDAY, THURSDAY, THURSDAY, THURSDAY, JANUARY 12, 1995 FEBRUARY 2, 1995 APRIL 6, 1995 JUNE 1, 1995 AUGUST 3, 1995 OCTOBER 5, 1995 DECEMBER 7, 1995 -5- THURSDAY, MARCH 2, 1995 THURSDAY, MAY 4, 1995 THURSDAY, JULY 6, 1995 THURSDAY, SEPTEMBER 7, 1995 THURSDAY, NOVEMBER 2, 1995 i GENERAL EMPLOYEES RETIREMENT PLAN VALUATION REPORT COORDINATION MEETING DECEMBER 8, 1994 ATTENDING: Russ Proctor and Mark Sanford of The Wyatt Company; Jerry P. Brown, GERC Chairperson; Laurie Harvey of Human Resources; Linda Brown, Edna Hoernicke, Dave Agee, Alan Krcmarik, and Sue Wilcox of Finance. The purpose of the meeting was to coordinate the preparation of the GER Plan's annual actuarial valuation report and the individual employee benefit report forms. I. SAMPLE VALUATION REPORT Russ presented a sample valuation report. Dave asked for a narrative section or for the executive summary to explain the report in layman's terms. This would include a list of definitions used in the report, any Plan changes, and any unusual occurrences during the year. Russ said that comments on short- and long-term trends would be included in the analysis section. He was asked to show how and why costs have risen to the level of contributions. The goal is to set the assumptions for contributions and costs so that they are as close to equal as possible. Russ asked for copies of the previous Mercer actuarial valuation reports. The tracking of trends in the Wyatt reports will begin with their first report (no previous years are included). Dave asked that the Financial Accounting Standards Board 35 (FASB 35) reporting requirements be dropped since they apply to private business, and that Governmental Accounting Standards Board 5 (GASB 5) requirements be used instead. Dave will outline what he wants included under GASB 5. Dave will also provide a COPY of the 1993 Comprehensive Annual Financial Report (CAFR) to Russ, who will give suggestions for changes in the GERP area of the 1994 report. New standards governing investments are being prepared. Russ was asked to use the 7-112% investment rate of return target percentage in the report. Table 7 needs to include detail on data "adjustments" for historical reference. Referring to the Mercer report, the pie chart on page 5 is not necessary, but keep the table. Keep the chart on page 8 tracking the Plan history. Keep Page 16 "Benefit Payment Projection". Keep page 24 with detail on retirees. The "smoothing technique" used to combine equity and bond investments should be kept. Keep page 25 showing employees reaching retirement age. RERT POCSS: Near the draftTofNthe PvOaluationEreport to staffeforoeview��Heuwill meet with the staff, make changes, and distribute the report to GERC members before the May 5th meeting. Dave mentioned the confusion which can be created by GASB Table 11 showing present value of the GER Fund and the future obligation. Russ will include an explanation in the report and his presentation. He also will determine a cost to include terminated vested liability in their calculations and the GERC will decide whether to proceed. II. PLAN CHANGES The only Plan changes were the death benefit and change in vesting (Resolution 93-185). Mary Crumbaker's clarification memo would be beneficial. Russ requested copies of the letters explaining beneficiary designation. III. ACTUARIAL ASSUMPTIONS It was decided to keep the 7.5% rate of return on investments in order to keep pace with salary increases and inflation. Russ, however, suggested that the assumed inflation rate be changed to 4% and the rate for other changes be kept at 3-1/2%. That way the projected costs and rate of return are equal. Russ requested a chart of salary increases for the last 10 years. Russ can show the inflation rate at both 4% and 5% and compare the assumptions with actual costs over the last 10 years and a decision can be made in April on which to use. IV. MATCH VALUATION Russ reported that they did match Mercer's figures on the valuation and the test case matched very closely. He went over the various calculations. Terminated vested liability is not now being tracked, but Russ can determine a cost for this and the GERC can decide whether the cost is justified. V. INDIVIDUAL BENEFIT FORMS Sue reported that Mercer has two reams of preprinted City letterhead which they will deliver to us for these reports. The format is acceptable. The earned benefits will be changed to zero for those who are less than 2 years vested. The Social Security information number will be printed on section 2 of the form. The vesting status section will include "as of 1/1/94" because the forms are distributed in May and this causes confusion and phone calls. Linda Brown will add the location code for easier sorting and distribution of these reports. The questions of privacy and distribution problems will be deferred to the GERC meeting. (See Item 7 of the December 8, 1994 minutes.) VI. FORMER urie Harvey ll projections for Lterminated YEE MemplOoye sa and end them � to Sue and retirement and Ednaare . Sue will forward the calculations to Mark Sanford at Wyatt Company for the official calculations. Terminated employees with less than 2 years's service have no GERC benefits, but a list of these employees to Russ, with a copy to Edna, would be helpful. Laurie has received requests from former employees from 20-25 years ago requesting employment and pension information. This plan was begun in the early 1970's so they probably had no pension benefits. The former actuary would have no information about these individuals either. VI1. The data tape from the last December payroll will be sent to the Wyatt Company, along with a computer printout. The printout breaks out retirees, vested deferred members, and beneficiaries. After January 1, Edna will also send a trial balance of the fund worksheet.