Fort Walton Beach Council agenda — 02-22-11 regular — reading text

The definition of "Salary" is amended to conform to Internal Revenue Code and IRS regulations related to compensation limits. While the plan is not required to include the precise language contained in the proposed amendment, the plan is required to be administered in a manner consistent with the provisions expressed in the proposed language. Therefore the language proposed, while not required, accurately reflects applicable federal law. Finances and fund management) Section 4 The ordinance would revise investment powers and authority of the pension board by increasing the maximum investment in foreign securities from 10% to 25% of plan assets, on a market value basis. The revision is required under recent changes to Chapters 175 and 185, Florida Statutes. The proposed language would also remove certain restrictions on bond classifications. This is not required by state or federal law. Another recently adopted requirement applicable to all plans under Chapters 175 and 185 is a provision requiring divestiture of plan assets in companies doing business with Sudan and Iran. See sections 175. 019( 8) and 185. 06( 7), Florida Statutes ( 2009). The statutes require that the divestiture of such assets be completed by September 30, 2010. There is no divestiture provision included in the proposed ordinance or the current plan. However, although many police and firefighter pension plans have been amended to include a divestiture provision that tracks the statutory language, we do not read the statute as requiring this, as long as the pension board complies with the divestiture requirement. We recommend that the City obtain confirmation September 23, 2010 Page 3 from the board of trustees that they are aware of the divestiture requirement and are taking appropriate steps to comply with it. Contributions) Section 5 Subsection 3 of the current plan requires the City to contribute an amount equal to the difference between the total member contributions, plus state contributions and the total cost for the year as shown in the most recent actuarial valuation. The total cost is defined as the total normal cost plus the additional amount sufficient to amortize the unfunded past service liability, as provided in Chapter 112, Florida Statutes. The current plan language complies with Section 112. 63, Florida Statutes, and is entirely appropriate. The proposed revision would state that the City is required to contribute the required amount as determined by the plan actuary in the applicable actuarial valuation. This change is not required by federal or state law. Benefit Amounts and Eligibility) Section 6 A new subsection has been added to both plans to comply with Internal Revenue Service minimum distribution rules. Required Minimum Distributions ( RMDs) generally are minimum amounts that a retirement plan participant must withdraw annually starting with the year that he or she reaches 70'/ 2 years of age or, if later, the year in which he or she retires. The proposed addition accurately reflects the current IRS rules and is acceptable. Disability) Section 8 The revision removes language to clarify provisions concerning recovery from disability. Under the current plan language, the last disability payment will be paid to a member if he recovers from a disability prior to his normal retirement date. Under the proposed amendment, disability payments would stop when a retiree recovers from the disability, regardless of whether he had attained his normal retirement date. The proposed language mirrors the language in section 175. 191, Florida Statutes, and is therefore appropriate. Vesting) Section 9 While the ordinance summary states that this section is being revised to prevent conflict with the proposed section on reemployment, there do not appear to be any changes. Optional Forms of Benefits) Section 10 A few minor changes are proposed for this section, including a citation to an appropriate Treasury Regulation in subsection I. B. The revision is appropriate. Subsection 2 pertains to the designation of a joint pensioner. It permits a member to substitute a new joint pensioner for a deceased joint pensioner. The following additional language is proposed: " In the absence of proof of good health of the joint pensioner being replaced, the actuary will assume that the joint pensioner has deceased for purposes of calculating the new payment." While the proposed September 23, 2010 Page 4 language is neither required nor prohibited under state or federal law, it would appear to have no negative effect on the plan. A new subsection 5. E has been included to address the IRS minimum distribution rules discussed above. The change is appropriate. A new Subsection 7 has been included to address automatic Generally, if a plan is making a mandatory distribution that is over $ 1, 000 and the rollover rules. member does not elect between a lump sum distribution and a direct rollover, the mandatory distribution must be paid in a direct rollover to an IRA. In such a situation, the plan administrator must designate an IRA into which the funds will be rolled over. By decreasing the mandatory rollover amount to $ 1, 000, the plan avoids the effect of the rule, which can be burdensome. The revision is therefore appropriate. Beneficiaries) Section 11 This section is revised to permit retired members to change their beneficiary. Under the current language a member may designate a beneficiary to receive a death benefit and that designation may be revoked or changed by such Member. The proposed revision would permit retirees to designate and change beneficiaries in the same manner as active members. This revision is not required by federal or state law. Claims Procedures) Section 12 This section has been revised to remove the claims procedures from the plan and grant the pension board the authority to develop administrative claims procedures by rule. It also purports to grant the board the " power to subpoena" witnesses. The board legally has no power to enforce a subpoena, although the refusal of claimants to comply could affect the outcome of their claim before the board. The changes are not required under federal or state law. Reports to Division of Retirement) Section 13 This section has been revised to incorporate by reference reporting requirements under Chapter 175, Florida Statutes. This revision is appropriate. Maximum Pension) Section 15 This section has been entirely rewritten to comply with Section 415 of the Internal Revenue Code and regulations promulgated thereunder. The proposed changes are appropriate. Minimum Distribution of Benefits) Section 18 These sections have been revised in accordance with rules promulgated to implement the Pension Protection Act of 2006, requiring plans to adopt a good faith interpretation of Section 401( a)( 9) of the Internal Revenue Code as well as other Code changes. The changes are September 23, 2010 Page 5 technical in nature, and much of the language conforms to the manner in which the plan has been administered. Although many of the proposed changes could be incorporated by reference, the proposed language is appropriate. Miscellaneous Provisions) Section 19 The proposed changes to Section 19 provide for several technical changes to comply with state and federal law. The proposed language accurately reflects the manner in which the plan is required to operate and is therefore appropriate. Repeal or Termination of System) Section 20 The proposed amendment would incorporate recent revisions to Chapters 175 and 185, Florida o Statutes concerning the distribution of plan assets upon plan termination. See sections 175. 351 T 4th and 185. 37, Florida Statutes ( 2009). These recent changes codify the decision of the District Court of Appeal in the Town of Lake Park case ( 966 So. 2d 448), which held that the employer is responsible for funding any deficiency in a police or firefighter pension plan upon termination of the plan. The proposed revision complies with the current statutes. .. 0 Domestic relations orders; retiree directed payments; 77 exemption from execution; monassignability) Section 21 0 As a general rule, governmental pension plans in Florida are not required to recognize QDROs that pertain to the division of marital assets, unless the plan specifically provides otherwise. The effect of this amendment would be to place the responsibility on the member to submit a proposed domestic relations order to the pension board so that the board may assess its Although not required by Florida law, this provision could benefit both the board applicability. and plan members by providing a process for advance review of proposed domestic relations orders. The proposed revision also permits the withholding of funds from retirement benefits to pay insurance premiums and child support or alimony payments. This change is non -substantive and is permitted by Chapters 175 and 185, Florida Statutes. Military Service Prior to Employment) Section 22 This provision would be revised to eliminate the minimum amount of military service earned prior to employment that could be purchased. Currently the plan allows purchases of one year or more. The proposed revision would permit the purchase of smaller increments of service. This change is not required by state or federal law. Credited Service -Special Provisions) Section 23 This section would be deleted and the topics covered by other sections. September 23, 2010 Page 6 Prior Fire Service) ( New) Section 23 Prior Fire Service would be covered under a new section 23. The current language is retained The first would eliminate the minimum amount of service that could be except for two revisions. purchased. Currently the plan allows purchases of one year or more. The proposed revision would permit the purchase of smaller increments of service. It is not required by state or federal law. Another revision would permit the purchase of federal, other state, county or municipal fire service. This provision is permissible under Chapter 175, but is not required. Forfeiture of Pension) Section 24 The proposed amendment includes a recent change to the Florida public pension forfeiture statute. The current provision tracks the language in section 112. 3173, Florida Statutes. Because pension forfeitures under section 112. 3173 are mandatory, regardless of whether the plan provides for forfeitures, it is not necessary to include forfeiture language in the plan. However, to prevent confusion we would recommend either including this provision in the plan language as proposed; incorporating section 112. 3173, Florida Statutes by reference ( as