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HomeMy WebLinkAboutRetirement Committee - Minutes - 08/19/1993FORT COLLINS GENERAL EMPLOYEES RETIREMENT COMMITTEE AUGUST 19, 1993 MEETING MINUTES COUNCIL LIAISON: Ann Azari, Mayor COMMITTEE MEMBERS PRESENT: ABSENT: Jerry P. Brown Jackie Davis Dennis Sumner Dave Meyer Alan Krcmarik (Member & Staff Support) OTHERS PRESENT: Bob Eichem (Staff Support - Investment Officer) Sue Wilcox (Staff Support - Secretary) Amy Coffern & Don Mazanec of William M actuarial firm. Opal Dick, Purchasing Division Ann Turnquist, Employee Development Dave Agee, Edna Hoernicke, Rita DeCourcey Claudia Haack -Benedict, CPES Admin Janet Meisel, Planning Angelina Powell, ICS Mercer, Inc. the City's - Accounting Division CALL TO ORDER: Chairperson Dennis Sumner called the meeting to order at 1:30 p.m. in the 2nd Floor Conference Room of City Hall West on August 19, 1993. APPROVAL OF MINUTES: Jerry Brown moved and Dave Meyer seconded a motion to approve the minutes of July 1st and July 13th as distributed. The motion passed unanimously. ITEMS OF NOTE: Dennis was contacted by Ann Azari, who said that she would be unable to attend today's meeting because of a prior commitment. Jackie Davis requested and the Committee agreed to routinely hold the General Employees Retirement Committee meetings in the 2nd Floor Conference Room, since the Finance Conference Room cannot accommodate many visitors. REVIEW OF DISCUSSION TOPICS: "Purchasing's Concerns Regarding Selection of the City's Actuary" was added to the agenda. Ann Turnquist also requested time to present a Total Compensation example as it relates to pension. DISCUSSION TOPICS: 1. MEMBER COMMENTS: Claudia Benedict felt it was unlikely that Council would increase funding for pension benefits and she asked the GER Committee to be as cost-effective as possible in its proposals for changes. Dennis suggested the Committee may consider some low-cost changes in the present plan while exploring the possibility of a defined contribution plan. Angelina Powell suggested that the agenda include some approximate times when various items will be considered, as Plan member -employees are not always able to attend the entire meeting. There is significant interest in members -1- participating in the meetings. The Chairperson will try to accommodate this request. 2. SECOND QUARTER INVESTMENT REPORT MAIN POINTS: Treasury Administrator and Investment Officer Bob Eichem reported that the investment yield for the first half of 1993 was 8.16%. He is currently assessing future trends to guarantee pension benefits. With a year's experience investing in mutual funds, equities have shown a return of 13.28%. Because interest rates are so low, Bob has been investing in short- term (less than 5 years) investments, so that if interest rates rise, the Pension Fund is not locked into long-term investments at low rates of return. Also the possibility of moving to a defined contribution plan would make it prudent to have short-term investments at this time. Bob explained that he would like to introduce the option of investing in international funds. This can be done by City Council making the appropriate changes in the ordinances and policies. Alan noted two changes in the report: page 5 next to last line should read "1993 Interest Income..." and on page 7 the next to the last line should read "Market Value at 1/1/93". CONCLUSIONS/NEXT STEPS: Dave Meyer moved that the report be approved as corrected. Jerry Brown seconded the motion and it passed unanimously. 3. ACTUARIAL REPORT FOR YEAR ENDING 12/31/92 MAIN POINTS: Don Mazanec noted on page 1 under Members, that the Present Value of the Pension Fund is $12.763 million. This is the amount that would be required to pay off all benefits already earned as of January, 1993. The portion called "Pension Benefit Obligation" ($17.147 million) includes future projected salary increases. The Present Value of Projected Benefits" equals $28.5 million and the Actuarial Value of Assets equals $21.8 million. The difference between the $28.5 million in obligations (present value of projected benefits) and $21.8 million in current assets (actuarial value of assets) is covered by the payroll contributions to the Plan. Last year's pension fund had an 8.6% rate of return, which is 1.1% above the assumed return of 7.5%. This resulted in approximately $200,000 more in assets. An error in computer data supplied to Mercer last year resulted in 12 participants not being included in the plan or in last year's actuarial report. Those individuals have now been included in the calculations, which resulted in an increase in the normal cost rate of approximately 0.463%. Although new systems are in effect to prevent this from happening again, Dave Agee, Edna Hoernicke, Don Mazanec and Laurie Harvey of Employee Development will review individual files and examine the whole process, as well as review procedures to ensure it doesn't happen again. Laurie has assumed many of the functions performed by Mollie Mercer. See Post Note #1 for update on Mollie's replacement. Section 1.7 of the report was developed to show gains and losses for equities. Previously all investments were for a fixed return rate, so the -2- 9 value in future years was locked in. With the value of equities fluctuating with the stock market, their future value must be computed as a multi -year average. The chart will show the performance of the equities in the current year, plus their history for the previous four years. It will also show gains to be recognized in the future. Dave Agee asked several questions related to the format used in comparison to prior reports. He also suggested that the Actuarial Asset Valuation be approved separately by the Board. CONCLUSION/NEXT STEPS: Alan Krcmarik moved and Dave Meyer seconded a motion to approve the Actuarial Asset Valuation Report. This motion was approved unanimously. Jerry Brown moved and Alan seconded a motion to accept the actuarial report subject to the satisfactory resolution of the 12 Plan members who were temporarily excluded from the Plan. The motion was approved unanimously. 4. EXECUTIVE LEAD TEAM CONSIDERATION OF WORKERS COMP/DISABILITY PROPOSAL MAIN POINTS: No new information was available except Ann Turnquist reported that the Staff Committee on Pensions has some sub -committees which are just beginning to look at this topic. CONCLUSIONS/NEXT STEPS: The GER Committee will continue to monitor this item. 5. EXPLORATION OF PLAN CHANGES. A. Costs for Identified Changes MAIN POINTS: Don Mazanec presented cost estimates for some plan changes (including death benefits for employees under age 55, 5-year vesting, immediate vesting, unreduced early retirement benefits, and cost -of -living provisions) that the Committee had requested. Don advised that each change should be considered individually, as in most instances the combined cost of a given benefit is not equal to the simple total of the cost for the separate benefits. In summary, the cost (as a percentage of salary) for each of the plan changes considered was as follows: REFERENCE: Current Plan A. 50% death benefit for all active members. B. 100% death benefit for all active members. C. Immediate vesting. D. 5-year graded vesting; 20% at 1 year, 40% at 2 years, etc. E. Rule of 80 early retirement. F. Cost -of -living provision to maximum of 3% per year. G. Cost -of -living provision to maximum of 4% per year. H. Cost -of -living provision to maximum of 5% per year. -3- Current VARIOUS PLANS Plan A B C D E F G H Benefit Cost* -0- .164 .67 .083 .074 1.821 3.725 5.354 7.229 *(Incremental cost of benefit as % of Payroll. Current = 3.553%) CONCLUSIONS/NEXT STEPS: The Committee would like to study and review these further. B. Consideration of a Defined Contribution Study MAIN POINTS: Don advised that having two plans (defined benefit and defined contribution) requires multiple administration costs and monitoring systems. A study of the possibility of instituting a defined contribution plan will take some time and could cost in the neighborhood of $80,000 and therefore should not be undertaken without specific direction and goals. Potential changes in the Pension Plan should be made only if it is understood how the changes/costs fit into the Total Compensation package. The attached sheet shows an example of how a change in pension benefits might affect Total Comp. The Committee can recommend, but only City Council can decide on changes. Under the present system of salaries and benefits, if one benefit increases, then salaries (or another benefit) will decrease. Also, the age of the employee influences the cost of retirement. The relationship of the ICMA benefit to retirement was also discussed. CONCLUSIONS/NEXT STEPS: The Committee members felt it is necessary to get some direction from City Council, so as not to waste either time or money and to make sure Committee work is in line with Council expectations. Alan and Dennis will see if they can meet with Ann Azari (Committee liaison) and Bob Winokur (Council Finance Committee) to get clarification on Council expectations. C. Coordination with Staff Committee on Pensions (SCOP) MAIN POINTS: Dave Agee and Ann Turnquist were present representing the Staff Committee on Pensions (SCOP), which Alan is a member of also. Ann noted that 70 employees in department and division head positions are not in the GER Plan. Their committee is studying the federal government's ruling (to take effect in 1996) which requires that pension plans be comparable among various employee groups. SCOP is aiming for implementing any changes in time for Plan Year 1995, as 1996 is the current implementation date mandated. CONCLUSIONS/NEXT STEPS: The Committee will continue to monitor this item. Mitt�l��i�] I7 :F]:Iitil MAIN POINTS: Based on some of the recent discussion on retirement and total compensation, Ann Turnquist felt there may be some confusion. The attached chart was presented as an example of how a change in pension benefits would impact an employee's total compensation. -4- CONCLUSIONS/NEXT STEPS: Ann's chart is being attached to these minutes for people's review and reference. 7. GERC MINUTES MAIN POINTS: Alan advised the Committee members that sending draft minutes to all Committee members for comments put a workload burden on the secretary. He asked if another option could be considered. CONCLUSIONS/NEXT STEPS: It was concluded that the Chairperson would provide minutes review prior to minutes distribution and consideration by the whole committee. 8. PURCHASING DIVISION CONCERNS ABOUT SELECTION OF ACTUARY MAIN POINTS: Because of a previous commitment, Opal had to leave the meeting before consideration of this topic. CONCLUSIONS/NEXT STEPS: This topic will be moved to the September 8th agenda and Opal will be able to attend. 9. CHANGE OF MEETING TIME FOR NEXT MEETING MAIN POINTS: Because of schedule conflicts, the September meeting will be rescheduled. It would be desirable to have Council liaison Ann Azari attend. CONCLUSIONS/NEXT STEPS: The meeting was moved to Wednesday, September 8th at 9:00 a.m. in the 2nd Floor Conference Room of City Hall West. Dennis will contact Ann Azari about attending. POST NOTE ill: Mollie's replacement will be Gabe Serenyi, who will begin work on Monday, August 30, 1993. ITEMS FOR FUTURE DISCUSSION 1. GERP / Workers Comp / Disability Proposal to E-Team 2. Settlements with retired employees with low monthly benefit payments. 3. Monitor progress by Staff Committee on Pensions 4. Pension investment seminar / public benefit plans workshop for Committee members. AGENDA i SCHEDULE FOR NEXT MEETING The next meeting will be September 8th at 9:00 a.m. in the 2nd Floor Conference Room. The agenda will include: 1. Plan Member Comments 2. Exploration of plan changes -5- 3. Purchasing Division Concerns on Selection of City Actuary. ADJOURNMENT The meeting was adjourned at 4:45 p.m. 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 of City Hall West. Any change from that will be noted. WEDNESDAY, SEPTEMBER 8. 1993 AT 9:00 A.M. THURSDAY, OCTOBER 7, 1993 2ND FLOOR CONFERENCE ROOM, CITY HALL WEST THURSDAY, NOVEMBER 4, 1993 THURSDAY, DECEMBER 2, 1993 Effect on Total Compensation of Changing Contribution for Pension Plan EXAMPLE: From 3.553% To 5% GERP at 3.553% $2,000.00 $426.60 $153.00,, $60.00 GERP at 5% $1,976.56 $426.36 $59.30 The mix between funds allocated to salaries and benefits may change, but Total Compensation remains constant. Salary + Benefits = TOTAL COMPENSATION In order to maintain Total Compensation at a consistent target, as the cost of any benfit changes, salary must vary. Therefore, in this example, as the contribution to Pensions increases, funds available for salaries and salary driven benefits decrease. $135.54 $2,846.20 $133.95 $2,846.20