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

0 receiving the 6% or 8% City contribution the same way the employee' s contribution is going in on a two~week basis. The Finance Director replied the City' s portion of the contributions was done quarterly and the recommendation on dollar- cost averaging would average out the risk on investment, and the fund would be better off. Jim Linn, City' s Pension Attorney with Lewis, Longman anp Walker, Tallahassee, said he represents approximately 30 Cities and Pension Boards around the State in pension matters. He said he has not had a great opportunity to review the Finance Director's recommendations; they were sent to him the first time on Friday and the rest of the materials referred to were to him tonight so he will be given unable to comment much on the recommendations. He said, in response to the question asked earlier on whether the City had violated the law by the contributing required contribution amount as opposed to the budgeted amount, that the answer is no. He said what the law required for defined benefit plans is that the City contribute the amount that the actuary determines is required to fund the pension plan on a sound actuarial basis. He said that is in the Constitution of the State, in State Statute, and a number of other Statutes that bear on that and there is simply no basis in law for saying that this City should have contributed more than the required contribution amount. He said some Cities choose to contribute more but in his experience that does not happen very often. and in his experience the Actuary determines the required contribution amount and that is exactly what the City pays. He said different Cities have different ways of contributing but what the law requires is thatthat contribution amount be contributed during that planned year that it is applicable so that by the end of the planned year the full required amount is contributed. He has not. seen or heard anything that has indicated to him that the City has done otherwise. He said the Council needs to look at the problem, as it has been characterized, with the General Pensioll Plan in context. He said certainly no city likes to look at required pension contributions of 15% or 20%, but he can say there are a lot of cities in the State that are making employee pension contributions of 30%, 40% even 50% of payroll. He said one thing he would_urge before taking any action on the recommendations Is to have someone take a look at the bigger picture in terms of how the Plan in Fort Walton Beach compares with the universe of Plans out there. He said, to put the General Plan in context which has been characterized as having these problems, he would point out that if they just look at their own Police and Fire Plans and look at the total required contributions for those Plans for this year, the total required contribution for Fire is 25. 7% which is the combined employee/ employer stake, the total required contribution for Police is 23. 9%, the total required contribution for the General Plan is 20. 95%. He said no one likes to see contribution levels even that high but he would urge before taking action on any of the recornmendations to look at it in terms of what the other Plans are doing and what other Plans around the state are doing. He concluded by saying that much of what the Finance Director presented to Council has merit, there are things said that are certainly worthy of Council's consideration, they are policy issues. He said whether Council wants to give more independence, more authority to the General Pension Board is a policy issue that ultimately Council would decide. He pointed out a lot of things said he could not follow the basis and some of the recommendations, one in particular, would violate the law and because they did not have an opportunity to talk about it in advance of the presentation he was not able to convey that to the Finance Director before he conveyed it to Council. 0 Mr. Minich wished to know how long it would take Mr. Linn, after his review of the recommendations, to come up with his recommendations on the recommendations. Mr. Linn two to three weeks. replied  21 Regular Meeting 6- 12- 07 REVIEW OF PENSION PLANS cont. Mr. Hartwell asked Mr. linn to enlighten Council on which recommendation is illegal. Mr. Unn replied. based on his understanding on the recommendation that the City needs to have. a fixed contribution amount and needs. to stick to that fixed contribution amount, that is really hot the way that defined benefit plans work and it is not the way the law works for' defined benefit plans. He said a fixed contribution amount is fine jf there is a defined contribution plan like a 401 K where the employer decided they will put in 5% and that is it and whatever the employee wants to contribute that is it and then what ever the account value is, that is what the benefit is. He said in a defined benefit plan there is a promise of benefits, there is a formula to get X percent per year and when you retire you can calculate what your benefit is worth. He said because of the nature of the plan it is funded in a different way in an actuarial, it is required by law to be funded in an actuarial fashion which means that the City is required to put in whatever is necessary to maintain the Plan on a sound actuarial basis, and that is what the Actuary brings to the City and that is why setting a fixed contribution amount does not really work for those kinds of Plans and, he believed, would be contrary to the State law on funding these Plans. Mr. Miller commented Council will meet again in two weeks and asked if Mr. Linn could return with his evaluation and recommendations then. Mr. Minich called a point of order that Council has not heard from the Actuary and it is not known how long it would take for his evaluation. Mike Tierney, Actuary, first stated he agreed with the recommendation on getting a second opinion, it is a good idea and he would welcome it. He addressed the comment that the 14. 95% City 4":, contribution was a high figure and stated for a Plan like the City's which has an automatic cost-of-' ~;- living feature of 3% it is actually a lower than average cost as not a lot of Plans have an automatic .-t; cost- of-living feature which add 30% to the cost of the Plan. He said because of that they have to .. compare themselves, not to the universe but to other Plans that have cost-of-living benefits. He explained how the actuarial methodology smoothes the results over a five year period to try to dampen the volatility of the economic effects on the financing of the Plan through asset averaging and liability amortization. Mr. Hartwell commented it se~ med that practice puts the City at risk and more vulnerable whereas a'" set amount contributed. like a 401 K. by the City then it is the stock market that helps the Plan grow and it is not the City having to make up the difference in the lean years. Mr. Tierney stated that is a good point but that means the City would have to change the structure of their Plan; they have a defined benefit plan which means the City has promised benefits and they have to pay whatever it is and they assumed all the risks. He said jf the City did not want to assume the risks, then they need to have a Plan where the employees assume the risk. Mr. Hartwell commented he was just wondering if the City had the right vehicle for their Plan in today' s market. Mr. Tierney replied that is a very good question and deserves its own attention at its own meeting. He said a lot of people are asking that question and he has done numerous studies in the last two years on that question for other Cities, and there is no easy answer. The Mayor commented Council does not have enough information to make a decision tonight and J recommended Council look at it and not make a decision tonight. Mr. MiJler mentioned the City has a 15 year amortization schedule and wished to know if a 30 year schedule would be better. Mr. Tierney did not think so but stated that is another question because it involves the philosophy of which generation of taxpayers should be charged and it depends on how Council wants to handle the financing of the Plan over the long term. Mr. Tierney addressed the question posed earlier on if the contribution requirement made the Plan fully funded. He replied the answer in this case is no, but maybe the answer is yes; it would not make it fully funded on the financial statement measure of funded status but it would make it fully funded on an accrued benefit what people have earned to date funded basis, so the answer is yes and no. 22