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HomeMy WebLinkAboutRetirement Committee - Minutes - 02/01/1996FORT COLLINS GENERAL EMPLOYEES RETIREMENT COMMITTEE FEBRUARY 1, 1996 MEETING MINUTES COUNCIL LIAISON: Ann Azari, Mayor COMMITTEE MEMBERS PRESENT: ABSENT: Jerry P. Brown, 221-6350(w), 226-0800(h) None Jacci Peterson Dave Meyer Gary Ellis Alan Krcmarik, Member/Staff Support OTHERS PRESENT: Sue Wilcox (Staff Support - Secretary) Dave Agee (Staff Support - Controller) Russ Proctor - The Watson Wyatt Company, the City's actuarial firm Laurie Harvey (Staff Support - Human Resources) Bobbie Burnette (Staff Support - Assistant City Attorney) Bob Eichem (Staff Support - Investments) Plan Members: Light & Power - Don Mueller, Lowell Cary, Randy Swain, Ed Koski, Kellan Duncan, John Lindsay; Finance - Edna Hoernicke, Opal Dick; CDBG - Jackie Davis; Planning - Ken Waido; CLRS - Chuck Ainsworth; Water & Wastewater - Brian Hahn CALL TO ORDER: Chairperson Jerry P. Brown called the meeting to order at 12:38 p.m. in the 2nd Floor Conference Room of City Hall West on February 1, 1996. ITEMS OF NOTE: There were no items of note. APPROVAL OF MINUTES: Alan Krcmarik moved that the minutes of January 4, 1996, be approved as written. Jacci Peterson seconded the motion, which passed unanimously. DISCUSSION TOPICS: 1. CONFERENCE REPORT FROM JACCI PETERSON MAIN POINTS: Jacci Peterson attended the Teachers' Retirement System Symposium in January and distributed a 2-page summary of the sessions she attended, which included the Trend toward Defined Contribution Plans, Investing, and the Omaha School Employees' Retirement System. She attached information from the California and Washington State Teachers' Retirement Systems. She also discussed briefly some of the significant points. CONCLUSIONS/NEXT STEPS: Jerry Brown thanked her for attending and bringing information back, as the conference addressed many of the same issues the GERC is facing, so the information will be relevant. 2. PERSONAL RETIREMENT PLANNING STATEMENTS !LAIN POINTS: Russ Proctor of Watson Wyatt distributed a draft of the -1- Personal Retirement Planning Statement form which had been reviewed and revised by Jerry, Laurie Harvey, and Sue Wilcox, and reformatted by Watson Wyatt. The new forms (replacing the Personal Retirement Benefit Report forms formerly used) will now contain information about GERP benefits, Social Security benefits, and any benefits the employee may have in the City 457 Deferred Compensation Plan and/or the 401(a) Money Purchase Plan (MPP). The information on pages 1 and 2 is specific to the individual and includes projected benefit amounts, vesting, etc., and a comparison with the individual's projected income needs at retirement. Page 3 of the form contains general information about the GER Plan, Social Security, and the 457 Deferred Compensation and 401(a) Money Purchase plans. Page 4 is a chart listing the various ICMA funds, the types of investments in each, the investment objectives, and the degree of risk for each fund. The goal of the GERC is to provide a full picture of an employee's benefits from the City, a comparison with their expected needs at retirement, and some information on making changes, if needed. CONCLUSIONS/NEXT STEPS: Jerry asked the members and support staff to forward any additional changes and corrections to Sue by February 15th. She will forward them to Russ for incorporation into the final form to be brought to the March 7th meeting. It is expected that some sample statements will be run from the 1995 data to check for accuracy. 3. PLAN MEMBER/CITIZEN COMMENTS MAIN POINTS: Brian Hahn of the Water and Wastewater Department asked the GER Committee to consider allowing all present GER Plan members a one-time option to receive GER Plan funds in a lump -sum payment upon termination of employment. He felt that it would allow members to control the return on their GERP funds between the time they leave the fund and the time they retire. It also would increase the portability of this benefit. Randy Swain of Light and Power expressed concern with the recent nationwide trend for employers to "down -size", laying off large numbers of employees. His question was whether the City would continue to contribute to the GER Plan on behalf of any employees laid off by the City. CONCLUSION/NEXT STEPS: The Committee responded to Randy's question that the City would not continue to make payments on behalf of an employee once they were separated from City employment. Jerry told Brian that the Committee would respond to his request at a future meeting after the Committee and staff has had time to review it. 4. RULE OF 80 ISSUES A. Latest Trends in Retirement MAIN POINTS: Russ distributed to the members and staff copies of the overheads he uses in his presentation of "Latest Trends in Retirement". CONCLUSION/NEXT STEPS: Russ agreed to present this program at the next GERC meeting on March 7th at 1:15 p.m. in Council Chambers. -2- B. Pros and Cons of "Rule of 80" MAIN POINTS: Russ distributed another handout about the "Rule of 80" which listed the pros (it is a valuable employee benefit; by encouraging employees to retire early it provides opportunities for promotions; and by encouraging employment of younger workers, it could lower disability rates among employees) and cons (high cost; loss of experienced workers; and inequities between the plan costs experienced by younger and older workers). There was also concern that a longer period of retirement might cause older workers to "run out of money". CONCLUSIONS/NEXT STEPS: The GERC felt this was a philosophical matter which may need City management and City Council discussion. Cost of a "Rule of 80" MAIN POINTS: The cost of a "Rule of 80" would be quite high if initiated now. Under such a plan, a significant group of employees could retire soon, leaving only a short time for them to put aside sufficient funds for the extended time that benefits would have to be paid to them. This would require younger employees to put aside a disproportionately larger share of their pay in order to provide payment for the older employees who retired soon, as well as for themselves. An estimated projection was that 10% of pay could be required to fund this enhancement. CONCLUSIONS/NEXT STEPS: It was pointed out that many employees are already putting aside extra funds in the deferred compensation and money purchase plans. A "Rule of 80" would have to take that into consideration also. The direction from City Council to the GERC has been to keep all Plan costs within the Total Compensation limit. D. Legal Issues MAIN POINTS: The issue of possible discrimination would have to be addressed to ensure that the "Rule of 80" did not unlawfully discriminate against any employees on the basis of legally protected characteristics. There was also the concern that a "Rule of 8O" might possibly provide an incentive to hire younger workers. Jackie Davis of CDBG asked that the Committee provide some projected costs so that discussions could take place in relation to Total Compensation versus out-of-pocket costs. CONCLUSIONS/NEXT STEPS: Legal ramifications would require review. E. Education of Members MAIN POINTS: As a step in evaluating a "Rule of 80" type of plan, Alan Krcmarik moved that the GERC ask Watson Wyatt for an analysis and study for the GERC for "Rule of 80" (and "Rule of 85") plans so that education and discussion of the topic can continue. Dave Meyer seconded the motion. Russ Proctor said he felt such a study could cost around $5,000. The motion passed 4-1, with Jerry voting no. CONCLUSIONS/NEXT STEPS: Russ will prepare a projection of the costs to -3- initiate a "Rule of 80" (and a "Rule of 85") analysis and study, including the feasibility of providing individual cost projections. 5. COST OF LIVING ALLOWANCES (COLAs) MAIN POINTS: The GER Plan has no cost of living increases built into it. There have been two, one-time, cost -of -living increases granted to retirees since the Plan was implemented in 1972. To institute a COLA now would mean that active employees would pay for increased retiree benefits because the cost would be part of Total Compensation. A COLA for current retirees only, separate from current employees, was proposed. The cost is not known. CONCLUSIONS/NEXT STEPS: It was agreed that Russ will estimate the costs of providing a COLA for current retirees, as well as for current Plan members as an enhancement to the Plan. 6. INVESTMENT REPORT - FOURTH QUARTER, 1995 l YEAR-END PRELIMINARY NAIN POINTS: The fourth quarter, 1995, rate of return on the bond portfolio was 6.97 and for the year, it was 7.13%, compared with the benchmark 5-year treasury yield, which was 6.4%. The domestic mutual fund component of the portfolio had a .99% rate of return during the fourth quarter, but a 30.8% return for the year. The performance measure for the GERP's mutual funds is Standard and Poor's Index 500, which returned 37.6%. Copies of the Year-end Investment Report are available from Finance Administration, ext. -6788. CONCLUSIONS/NEXT STEPS: The Committee was told to expect lower rates of return as the economy slows down. Fund acquisitions in 1996 will be concentrated in the medium value and large value categories. 7. FINANCE POLICIES MAIN POINTS: The City Council Finance Committee will consider policy changes that would allow investments in 4-star rated funds with strong track records, rather than requiring only 5-star rated funds. Many good equities which have 4-star ratings are just reflecting the general economy and do offer the City a good opportunity to acquire solid, substantial stocks at low market rates. CONCLUSIONS/NEXT STEPS: The Committee requested that Bob Eichem proceed with acquiring equities, moving toward a 50-50 split between bonds and equities. 8. ASSUMPTIONS FOR 1-1-96 VALUATION REPORT MAIN POINTS: Russ gave a brief run-through of the assumptions proposed for the 1-1-96 valuation report he is preparing, including assumptions on employee turnover, anticipated rates of return on investments, inflation of salaries and wages, etc. CONCLUSIONS/NEXT STEPS: These should give a more accurate figure to be used in preparing the 1997 budget when the process begins in March. OTHER BUSINESS - REQUEST FROM COMMUNITY SERVICE OFFICERS -4- • MAIN POINTS: Laurie Harvey received a memo from the Community Services Officers of the Police Department, requesting that the GER Committee study allowing the CSOs to withdraw from the GERP and move to the Fire and Police Pension Association. CONCLUSIONS/NEXT STEPS: Although the Plan has no provision for members to withdraw from the Plan, it evidently has happened at least once. This will require some research, as not enough is known about prior events to indicate how to proceed. Staff will study this point and report back to the GERC at the March 7 meeting. AGENDA & SCHEDULE FOR NEXT MEETING The next meeting will be March 7th at 1:15 p.m. in the City Council Chambers where Russ Proctor of Watson Wyatt will present "Trends in Retirement" for all GERP members and other interested staff. This is a continuation of the program presented February 2, 1995. The regular meeting will follow at approximately 2:15 p.m. in the 2nd Floor Conference Room. 1. Plan Member/Citizen Comments 2. Discussion on "Rule of 80" Study Issues/Costs 3. Cost Estimates of COLAs for Retirees and GERP Members 4. Final Draft of GERP Summary Booklet 5. Final Draft of Personal Retirement Planning Statements 6. Financial Policy Changes Update ADJOURNMENT The meeting was adjourned at 4:03 p.m. FUTURE MEETING SCHEDULE: The General Employees Retirement Committee normally meets at 1:15 p.m. on the 1st Thursday of each month in the 2nd Floor Conference Room, City Hall West. THURSDAY, MARCH 7, 1996# THURSDAY, MAY 2, 1996 THURSDAY, JULY 11, 1996** THURSDAY, SEPTEMBER 5, 1996 THURSDAY, NOVEMBER 7, 1996 THURSDAY, APRIL 4, 1996 THURSDAY, JUNE 6, 1996 THURSDAY, AUGUST 1, 1996 THURSDAY, OCTOBER 3, 1996 THURSDAY, DECEMBER 5, 1996 #Note change in March meeting location as outlined in "Agenda & Schedule for Next Meeting" above. **Rescheduled because of holiday Attachment: 1995 General Employees Retirement Committee Annual Report -5- City of Fort Collins General Ei. eloyees Retirement Plan GENERAL EMPLOYEES RETIREMENT COMMITTEE 199S ANNUAL REPORT The General Employees Retirement Plan (GERP) is the largest of several retirement plans offered by the City, and is managed and administered by the General Employees Retirement Committee (GERC) in accordance with the terms of the Plan. The most recent actuarial report (January 1, 1995) shows the GERP has 748 active members, 93 retired members, 126 inactive members with vested benefits, and nine beneficiaries, for a total of 965 individuals. This report highlights the notable discussion/action items and issues of the GERC in 1995. Money Purchase Plan Implementation -- The GERC fully supported this change. On January 2, 1995, 82% of the 777 eligible employees elected to participate in the 401(a) Money Purchase Plan (MPP). All new employees will automatically be in the MPP, where the City contributes 3% and the employees contribute 3% of their pre- tax pay for retirement. Eighteen percent of the eligible employees elected to retain their 3% - 3% match in the 457 Deferred Compensation Plan. Revision of Death Benefit Interpretation -- In December, 1993, the GERC members recommended a change to the GERP to extend the death benefit to beneficiaries of Plan members under age 55. After the 1993 amendment was in effect, the GER discovered that the wording of the amendment could cause disproportionate benefits to be paid The GERC then recommended revisions to the wording. Subsequent to the revisions, the GERC selected a new actuarial firm (Watson Wyatt), which advised the City that the death benefit wording needed further clarification to remove any potential ambiguity. The clear intent is to provide as equitable a death benefit as possible, regardless of marital status or age of the surviving spouse or beneficiary. This was accomplished when City Council adopted Resolution 95-101 on July 18, 1995. Retiree Health Insurance -- A desirable enhancement requested by GERP members is retiree health insurance. In 1995 the City added such a plan, available to any employee with 10 or more years of service, who retires after January 1, 1996 (or is a current retiree on COBRA). The plan is optional, with the retiree responsible for paying the full monthly premium. The GERC will continue to explore the possibility of implementing a pre-tax savings account for future retiree medical benefit payments. Review of "Break in Service" Policy -- Currently, any separation from credited City employment greater than five years constitutes a "break in service". In 1995 the GERC dealt with a request from an employee who originally worked for the City for 13 years and left credited employment for five years and seven months. This employee asked to "buy back into the Plan" and that the new employment be added to the "old" service. The employee further requested retroactive modification to the GER Plan. The GER Committee unanimously rejected all the requests, as the plain language of the Plan does not allow it, and in the judgment of the GERC, it was not appropriate and not a priority at this time for potential enhancements to the GERP. 300 LaPorte Avenue • P.O. Box 580 • Fort Collins, CO 80522-0580 • (970) 221-6788 • FAX (970) 221-6782 General Employees Retirement Committee 1995 Annual Report Page 2 Valuation Report/Contribution Percentage -- For nearly a decade the Employer's contribution rate to the GERC has remained at 3.553% of payroll. In previous years, more favorable conditions resulted in contributions to the GERP which have a current value of 5.1%, but which kept the cost of the Plan at or below the budgeted 3.553%. However, enhancements to the Plan, including extending the death benefit to employees under age 55, allowing partial vesting after two years of service with full vesting after five years instead of ten, and the inclusion of more than a dozen employees who were inadvertently not represented in the valuations, combined with changes in world economic conditions which reduced investment income, causing the actual amount of the contribution to the Plan to rise to 4.093%. This was approved by City Council as part of the 1996 Total Compensation Plan. The GERC will continue to carefully examine the Plan assumptions (employee turnover rate, rate of inflation, investment return rate, etc.) used to help calculate the contribution percentage to provide an exact number for the 1996 Valuation Report. Percentage of Investments in Eguities -- As of July, 1995, the GERC investment portfolio had 22% invested in mutual funds, which we started purchasing in 1993 as we began converting the Plan assets from bonds. This diversification of the portfolio was done to reduce the risk and increase the rate of return over time, as historically equities have outperformed bonds. The bulk of GERP members will not retire for 12-15 years, so our investment horizon is longer and can absorb any potential volatility associated with equity investments. The "Wilshire Report" of state and municipal investment funds shows the median among such funds allocates 40% for domestic equities and 4.8% in international equities. The GERC has approved 35% in equities, with the potential of achieving 50% in equities, with 10% being international. The GERC is also investigating expanding our list of potential investment opportunities beyond only those rated Five -Star. Educational Opportunities -- In our continuing efforts to provide educational opportunities to GERP members in 1995, the GERC did the following ... on February 2 we offered a two-hour presentation by Russ Proctor of Watson Wyatt entitled "Retirement in the 21st Century - The Sleeping Giant Awakens", with approximately 50 employees attending... the Human Resources Department, at the encouragement of the GERC, began offering "Pre -Retirement Planning Seminars" to employees/spouses twice per year ... we purchased a brochure called "Top 10 Ways to Beat the Clock and Prepare for Retirement", which will be distributed to all employees in early 1996... the GERC and Human Resources jointly purchased a software program that can calculate various retirement benefits/projections on a personalized basis... we are in the process of updating/revising the "Planning For Your Retirement" booklet (name changed to "General Employees Retirement Plan Summary") and the "Personal Retirement Benefits Report" forms (name changed to "Personal Retirement Planning Statement"), which will both be available in early 1996... obtained copies of "Request for Social Security Earnings and Benefit Estimate Statements" to be distributed with the Personal Retirement Planning Statements in 1996. General Employees Retirement Committee 1995 Annual Report Page 3 The "Rule of 80" and COLA's -- As a part of 1995 Work Plan, the GERC agreed to revisit the issue of a "Rule of 80" in relation to employee interest and feasibility. At our October 12 meeting, a dozen GERP members (representing many other employees) attended and expressed their interest in a "Rule of 80" type of enhancement to the GERP. The GERC continued to discuss this issue at both the November and December meetings, agreeing that there is sufficient interest to pursue the feasibility. A "Rule of 80" (Years of Age + Years of Work for the City - 80) appears to be a fairly high -cost item (estimated at 3-4% of pay) and currently would be considered a part of Total Compensation. The GERC plans to fully study this issue in 1996 by reviewing its pros and cons, legal and financial impacts, and by researching trends in retirement, including other potential alternatives to the GERP such as converting all or partially to a Defined Contribution Plan. Also, the issue of "Cost of Living Increases" (COLA's), which are not currently a part of the GERP, needs to be studied. Action Within the GER Plan -- The General Employees Retirement Plan saw three employees retire during 1995; six retirees died, three of whom had spouses who began receiving benefit payments; and 11 former employees and one retiree received lump -sum payments, as their benefit payments would have been less than $100 a month. Activity Within the GER Committee -- The General Employees Retirement Committee is composed of Jerry Brown (Chair - Parks and Recreation), Dave Meyer (Vice Chair - Water and Wastewater), Jacci Peterson (Finance - Customer Information Services), Gary Ellis (Light and Power), and Alan Krcmarik, Finance Director, who is also staff liaison. Gary Ellis replaced Dennis Sumner (also of Light and Power), who stepped down in July, having served the Committee very well for eight years. Recognition should also be given to the other staff support: Laurie Harvey, benefits administrator; Dave Agee, controller; Bobbie Burnette, assistant City attorney; and Sue Wilcox, secretary. In conclusion, the GERC feels that, with the support of City Staff and City Council, it served its mission effectively and efficiently in 1995 and looks forward to 1996.