Fort Walton Beach Council agenda — 09-11-2007 regular agenda — reading text

the Agreement with the Community Development Corporation when they take over the administration of the CDBG program and she will make sure it is put into the Agreement. Dr. Pullen moved to approve Res. 07- 17. Mr. Garvie seconded motion and it carried unanimously with Holmes, Miller, Reeves, Garvie, Pullen, Hartwell, and Minich in favor. GENERAL EMpLOYEES PENSION FUND Presentation of professional analyses of General Employees Pension Fund. Mr. Minich moved to suspend Roberts Rules of Order. Mr. Holmes seconded motion and it carried unanimously with Holmes, Miller, Reeves, Garvie, Pullen, Hartwell, and Minich in favor. Jim Linn, Pension Attomey with Lewis, Longman & Walker; Mike Tiemey, Plan Actuary with Actuarial and answer Concepts; and Angela Balent, with O' Sullivan Creel, City's Auditor, were present to discuss questions on their professional analysis reports. Mr. Linn noted the three reports are all consistent in their findings and conclusions. He began by the Pension Plan is providing a brief general overview of the current status of the Plan. He reviewed that a Defined Benefit Plan where the benefits are based on a formula that includes a member's years of the service, final average earnings and a benefit multiplier; the City is required under the law to fund on a sound actuarial basis which means the City must annually contribute the annual pension plan annual required required contribution ( ARC) determined by the actuary; the City has always paid the contribution to the plan; the plan has always been funded in accordance with the law; and pointed out the chart which shows a retirement plan comparison with other Florida Cities and noted the funded ratio for the City is 87% which compares generally favorably with most of the other cities in the sampling. He noted of all the cities there is only one that is 100% funded ration and there are many funds that have a the funded ratio has fallen lower funded ratio than the City of Fort Walton Beach. He commented that because a lot from 1 00% to 87% in the last few years should not be a sign the pension fund is in trouble of other funds and investment plans had similar types of losses over that period. would The question was asked if the City should try to achieve a 100% funded ratio and if so, how they do it. Mr. Tierney replied the City should not focus on the 100%; that the purpose of the actuarial funding is to automatically get it to 100% by the time they need 100%. He said to focus on anyone year along need the path is not as important as making sure they are on the path to 100% funding by the time they market assets, the it. He said, to put it in perspective, as of a year ago there was almost $30 million in is worth about $18. 9 annual payments to retirees are $ 1. 6 million, the retiree liability for the next 20 years the active million of the $ 30 million, so the rest of the assets already there are on the way to fully funding 25 years after retirees some time in the future and then those payments get paid out over the next 20- for a long that. He said in terms of needing the money, there is plenty of money to meet the obligations a standardized method of period of time in the future and the only important thing is to have make measurement to see where they are, but that should not be the focus. He said the City should with how to the contributions more stable, sure that the requirement is paid and if they want to deal keep of the way the that is where to spend the focus and time. He said the City will get to 100% by the nature actuarial cost methods work. because each plan is Mr. Linn explained the each City had a different total required contribution structure, so every plan has to be separate, has different assets and liability, and has different benefit the Actuary for each looked at individually, separately by an actuary. He said the State mandates that is in compliance with the Statutes; it is the actuary who plan certify that the funding of the plan determines what the required contribution needs to be.  Special Council 8- 22- 07 99 GENERAL EMPLOYEES PENSION FUND cont Mr. Tierney explained the funding ratios are not used to determine how much should be paid into the plan. He said the actuary makes sure that the plan is actuarially sound, meaning funding recommendations will balance the plan in accordance with the rules under State law, and that it will get to where it needs to be some time in the future. He said to have it 100% can depend on the interest rate used and the assumptions made. He said the plan will always be in actuarial balance, the only issue is how much you have to pay to get there and not focus on the funded status but to spend time on how to manage the annual contribution requirements. l There was some discussion on whether or not putting in more than the annual contribution requirements would build up a cushion and reduce the volatility. Mr. Tierney commented it is a Council policy decision whether to adopt a philosophy going forward to p'ut in more than the requirement in some years to build up a cushion. There was a question on the comment in the City Auditor' s report that there is a shift in the financial health of the Plan, and whether the Plan is in good health. Ms. Balant explained it was a comment that the status of funded ratio has shifted downward in the past several years which she did not believe was the result of any action or inaction taken by the City, but believed is the result of the market conditions of the stock market in that time period. She expressed her belief that the Plan is in very good financial condition. Mr. Linn next reviewed the past funding practices where historically the City has budgeted an amount for retirement that is based on an estimate from the Actuary received prior to the beginning of the fiscal year, which has generally been based on the prior years required contribution amount and the actual Required Contribution Amount has not been received by the City until after the budget is adopted. In those years. . when the amount budgeted for retirement contributions exceeded the Annual required contribution, funds ,"" were transferred to other areas of the budget in accordance with the City' s own budget ordinance which', contains language that expressly authorizes budget transfers that are approved by the Finance Director ] or City Manager, and Council approval is not required unless there is a change to the total dollar amount . of the budget. He noted the Actuary and the City' s Auditor recommend that in going forward the City' move to the payment delay model for future actuarial valuations. He explained with the payment delay model the City' s annual required contribution would be determined based on the Actuary' s report received before the budget is adopted, which means the amount budgeted will be the actual annual required contribution amount and there will be no more difference during the year once the payment delay method is incorporated into the budget. Mr. Tierney added if the City wants to have stabilization they need to figure out a budgeted amount that will overall allow them to lower the volatility. He said he has fixed it actuarially so that the report the City receives will be the requirement in a timely manner so the budget will always match. The City Attorney received confirmation that none of the issues need to go back before the General Employees Pension Advisory Committee. The City Manager explained that the Advisory Committee has not in the pastacted on it and Council is the Boald of Trustees for the Pension Plan. The City Manager commented if Council does not accept staff' s recommendation to use the payment delay methodology then staff would need to know because there is no other alternative to fund the pension plan and would need to direct Mr. Tierney to provide another methodology because the budget J is predicated on the payment methodology. It was further explained that the Advisory delayed Committee has not traditionally made recommendations with regard to funding the ARC, it is not one of their roles and has not been one of their roles in the past. It was noted the role of the advisory committee is on the list as an item of discussion. Mr. Linn went over the pros, cons and the risk to the employees on five options the City may wish to consider for reducing retirements costs by restructuring or replacing the existing City defined benefit plan. Options include: 1) close the existing City plan to new members and establish a defined contribution for future hires; 2) close the existing City plan to new members and join the Florida plan Retirement System ( FRS); 3) terminate the existing City plan and join FRS or establish a defined contribution plan for all employees; 4) close the existing City retirement plan to new members, and create a new defined benefit plan with benefits