Fort Walton Beach Council agenda — 08-22-2007 special agenda — reading text

statute. Clearly, the City Council could revise the language of the budget ordinance to provide for greater specificity in terms of the types of transfers or amendments that are authorized, and a more detailed approval procedure. As a technical matter, the City Council may also wish to revise the rather budget ordinance to provide that transfers between funds be implemented by ordinance than by resolution, to reflect the precise language of section 166. 241( 3)( c). JWLles Page 41  Attaclunent 5 MelDo frolD Joyce Shanahan City Manager Be Pension Beconunendations 6/ 11/ 07  City of Fort Walton Beach MEMORANDUM To Lisa Absher, Finance Director From: Joyce Shanahan, City Manager Subject: Pension Recommendations Date: June 11, 2007 I offer my comments regarding your recommendations for changes to the General Employees' Retirement Plan (the Plan), without benefit of your total analysis, since only the recommendations were presented for my review via email on Friday, June 8 at 2: 37pm. 1 Pursuant to Plan duties prescribed in section 17- 11 ( 3)( a) of the General Employees' Retirement Plan document, and past practice of the Advisory Committee, all recommendations of this nature were typically vetted thoroughly with the Committee before forwarding them to City Council ( as the Board of Trustees.) As I understand it, only recommendation # 3 was presented to the Advisory Committee. Role and Composition of Advisory Committee: The Plan document was revised by the Plan' s Pension Attorney in 2002. At that time the plan document was reviewed for consistency with Federal tax law changes and Florida State statutes, as well to incorporate, back into one document, Plan amendments that had occurred over the last several years. This Plan has had a long standing history of having an active Advisory Committee that serves as a forum for employees about their Plan; for this reason the Plan document requires Committee members to be active Plan members. The Plan was specifically designed to provide employees with input into their plan through the Advisory Committee, but vests the Finance Director, as plan administrator, with the investment of funds. The designation of trustees and the role of the advisory committee currently function consistent with and pursuant to the Plan document sections 17- 11. 22 and 17- 11. 33. The plan document currently provides clear delineation of duties and responsibilities. I 17- 11.3 ( 3) Administration of fund; designation of trustees; designation of Plan administration and adoption of rules and regulations ( 3) The Committee shall perfonn the following functions and duties: ( a) fully acquaint itself with full details of the benefit and administrative provisions of the pension fund. (b) Serve as liaison between trustees, Plan administrator and members to promote the exchange ofinfonnation concerning the fund. ( c) Review all applications for disability benefits and supporting documentation, and render a decision granting or denying the application. ( d) Perfonn other functions and duties as directed by the board of trustees. 2 17- 11. 2 Administration of fund; designation of trustees; designation of Plan administration and adoption of rules and regulations. (1) The authority and responsibility for the establishment, amendment and administration of the Plan is vested in the City Council of the City of Fort Walton Beach and the members thereof shall be designated as trustees of the fund. The trustees are authorized to adopt reasonable rules and regulations for the administration of the fund created by this plan. 317- 11.3 (1) Establishment of pension advisory committee; election; term; vacancy; duties. ( 1) There shall be a pension advisory committee made up of five ( 5) persons appointed by the City manager. Four ( 4) members of the committee shall be active Plan members, no two of whom shall be employed from the same division. The fifth member shall be the Plan administrator. Committee members shall serve four year, staggered tenns and may succeed themselves. If a committee member resigns, retires or tenninates employment, his successor shall be appointed by the City Manager to serve the remainder of his tenn. Page 1 of 4 Page 42 The composition of the Advisory Committee is provided for and is consistent with the Plan document. The HR Director is an active Plan member and serves as one of four employee members. The Finance Director is the Plan Administrator, an active Plan member and serves as the fifth member of the committee. The members' terms are currently staggered and limited, allowing members to serve no more than two ( 2) four-year terms. ( See footnote 2). So there is no action necessary with regard to recommendation no. 2c. It is certainly within Council' s purview to change the composition of members, their appointments and their duties; noting however that any change to the existing structure would require an amendment of the Plan document which must be accomplished by ordinance and should be fully reviewed by the pension attorney. The purpose of the Advisory Committee is to give active Plan members a medium to provide input for their Plan benefits. The Plan Administrator and Board of Trustees are vested with the financial responsibilities of the plan, so perhaps a better alternative is to create a separate board of trustees or and and independent representation on a newly formed Pension Committee provide employee committee. If, however, the goal of recommendations 1 and 2 are to simply to broaden the perspective of the Advisory Committee, then I support amending the plan to allow for two additional members rather involvement not to dilute employee than reducing existing employee membership and so as representation in their Plan. Review of Actuarial Information: the Plan' s According to recommended practices by the Government Finances Officer' s Association, actuarial valuations should be subject to a peer review at least once every ten ( 10) years. As we have and previously discussed and I concurred, it is prudent to have the Plan' s actuarial assumptions reasonableness of their actuarial methods reviewed. Therefore, I believe recommendation no. 3c could be done more frequently than the 10 years recommended by GFOA. The concept of actuarial smoothing of gains and losses of assets is com~ lex. As you know, most pension over a 3, 4, or 5 year plans, the City' s included, provide for the smoothing of the Asset Valuation Method term. Experts indicate this methodology has worked well over the last 25 years, however when there are extreme declines in market valuations, like we' ve recently seen, then assets can diverge significantly from market value. Consideration of extending asset/liability smoothing over a longer period, should be approached cautiously. The caution here is that the " smoothed value" of assets could become about the Plan' s significantly different from market value, and consequently send conflicting signals funding. That being said, I with recommendation 3d. to review the Plan' s smoothing methodology and concur term broaden that recommendation to include actuarial analysis of any impact of smoothing on long- contribution rates. Contribution Rates: The City' s contribution rates are annually determined by the Plan' s actuary in accordance with the Plan document and the Governmental Accounting Standards Board ( GASB) Statement # 27. In every instance, over the last ten years, the City has made the Annual Required Contribution ( ARC) as indicated by the actuary and in accordance with GASB standards and reported in the City' s Annual Comprehensive Financial Reports ( CAFR). based The General Employees Retirement Plan document does not require that City contributions be of active member payroll, but rather that it shall contribute such additional sums as are upon a percentage necessary to maintain the actuarial adequacy of the Plan. Pursuant to the General Employees 4 Our Retirement Plan section 17- 12 ( 2) the City remits employer contributions on a quarterly basis. 417- 12 Member and employer contributions. ( 2) The City shall contribute such additional sums as are necessary to maintain actuarial adequacy in meeting on a current and annual basis the past service, nonnal and administrative Page 2 of 4 Page 43 remittance is consistent with the provisions of the Plan and on a schedule consistent with other local governments. Stabilization of contribution rates is an excellent goal, but such rate stabilization may not be possible by merely setting a rate based solely on percentage of active payroll. The major concern with setting a contribution rate tied to active payroll is that it very likely can not be set at such a rate that factors the risk of extreme market declines, such as those seen in 2000- 2003. In addition, if the rate is not adjusted to equal the actuarially determined Annual Required Contribution, the City could have a resulting accounting liability and in some years may not satisfy the requirements of GASB Statement 27. If the goal of recommendation 4 is to explore ways to stabilize our employer contributions, then I support exploring all rate stabilization alternatives including: Establishing funding corridors - under this approach employer contributions remain fixed when a plan' s funded ratio is within an established range and change when the ratio falls outside the range. Establishing asset value corridors - where smoothed value of assets is preventing from going below 90% or exceeding 110% of market value. Linking employee contributions to the Plan' s financial position/ condition - under this approach contribution rates are tied to a percentage of the required contribution or gradual