Fort Walton Beach Council minutes — 03-25-08 workshop minutes — reading text

65 MINUTES OF THE COUNCIL WORKSHOP MEETING GENERAL, POLICE AND FIRE PENSION PLANS OF THE CITY OF FORT WALTON BEACH, FLORIDA MARCH 25, 2008 INTRODUCTION A Council Workshop Meeting of the City Council of Fort Walton Beach, Florida, was held on Tuesday, March 25, 2008, at 5: 30 p. m. in the Council Chambers of City Hall with the following members present: Mayor Mike Anderson Councilmen: Mike Holmes, Virgil Miller, Dennis Reeves, Bill Garvie, Dr. Wayne Pullen, Jim Hartwell, and Mike Minich, Mayor Pro Tem Also Present: Joyce Shanahan, City Manager; Helen Spencer, City Clerk; Finance Director Position vacant); Toni Craig, City Attorney; Department Directors PURPOSE OF MEETING Review of General Employees', Police Officers' and Firefighters' Pension Plans. Mr. Jim Linn from Lewis, Longman & Walker, legal counsel for General Employees' Plan, Mr. Lee Dehner, from Christianson & Dehner, legal counsel for Police and Fire Plans, and a representative from Foster & Foster, actuary for Police and Fire Plans, will be in attendance. CALL TO ORDER The Mayor called the meeting to order. PLEDGE OF ALLEGIANCE The Mayor led in the Pledge of Allegiance. GENERAL, POLICE, FIRE PENSION PLANS The Mayor introduced Lee Dehner, Christianson & Dehner; Brad Heinrichs, Foster & Foster, Actuarial Consulting; Jim Linn, and Glenn Thomas, Lewis Longman & Walker. Lee Dehner of Christianson & Dehner, legal counsel for the Police and Fire Plans, discussed the distinctions between the Police Officers' Pension Board and the Firefighters' Pension Board with the General Employees Fund. He noted the Police Officers' and Firefighters' Pension Boards do have the same fiduciary responsibility as the General Employees Pension Fund but, unlike the General Fund where there is a Pension Board of Advisors, they are the Board of Trustees and they are charged with the final authority of administering the Firefighters' and Police Officers' Pension Plan. He mentioned another u significant difference between the Police, Fire and General Employees Plans relates to funding of the Plans. He noted the funding of all three Plans occur through member contributions, as well as City contributions as the City is responsible under Florida Statutes 112 to fund the Plans to actuarial soundness by the amount determined by the Actuary for each of the Plans. He mentioned there is a funding source enjoyed by the Police Officers' and the Firefighters' Pension Plans that is not enjoyed by the General Employees Plan. He explained in the 1930' s the Legislature determined that because of the nature of the work performed by the firefighters and police officers that they should be provided an opportunity to retire at an earlier age and be provided with funding to enable them to do that, which resulted in the Insurance Premium Tax Rebate Program. 66 Council Workshop 3- 25- 08 PENSION PLANS cont. Mr. Dehner explained in the case of the firefighters, every resident of the City pays a 1. 85% premium tax on property insurance policy; and in the case of the police officers a 850/0 tax on casualty insurance is paid. He said if each of those Plan complies with minimum requirements per Florida Statutes, Chapter 175 for Firefighters and Chapter 185 for Police Officers, then they are eligible to receive those monies back as a funding source to the retirement plans. n Brad Heinrichs, Foster and Foster, Actuary for the Police Officers' and Firefighters' Plans, advised his main role is to ensure the Plans are funded to actuarial soundness. He lJ st explained in order to do that they collect census data every October 1 and perform an actuarial evaluation to help develop a contribution amount that for the fiscal year that will be sufficient, if made as a level percentage of payroll, to pay for the each retirees benefit for as long as they live so that, theoretically, if something were to happen to the City and it no longer existed, there would still be enough money in the trust to take care of the retirees. He said it is important to understand, their job is to try to fund those programs as a level percentage of payroll so that if everything works the way they anticipate, the cost will be stable and predictable. He mentioned looking at this year vs. last year, the total required contribution for the Firefighters' Fund was 23. 9% of payroll and went down by .4% of payroll; and for the Police Officers' it was constant at 25.70/0 of payroll. He said that is telling them that the Pension Boards are doing a very good job of making actual assumptions and in helping fund the programs. He said the Plans are well funded and in both cases if they were to shut down the programs today and give every member a lump sum value of what they have accrued as of October 1 st, they would have enough money in each fund to fully accomplish that task, those Plans are fully funded on an accrued basis. He also said that both funds, in terms of a contribution requirement to the City with 14. 60/0 of payroll for the fiscal year ending 2009 for Police and 10. 20/ 0 of payroll for the Fire, that relative to neighbor and other peers in the State it is a relatively light amount in terms of the requirement. Jim Linn, Lewis, Longman & Walker, pointed out the matrix that gives a summary overview of the benefit structure of all three Plans. He noted the Plans are very similar in most respects in terms of the benefits being provided to the employees with the major difference between the Police, Fire, and General Plans being the normal retirement date. He explained by Statute they the Police can retire at age 55 and Fire can retire at age 52 with 25 years of service, but with General it is at age 62. He pointed out Mr. Tierney' s most recent valuation for the General Fund shows the City' s contributions for the General Plan have been relatively stable for the past two years and looking ahead to next year Mr. Tierney has projected a slight decrease in the contribution requirement of the City in terms of percent of payroll, with about 15. 80/0 for this year going down to 14. 80/0 next year. t t" Mr. Miller advised his reason for requesting this meeting was to obtain a better understanding of the working of the pension plans. He expressed concern that after so that people are allowed to many years there is no requirement to pay into the fund and work without paying into the pension fund, and expressed concern that the retirees may be receiving a largerCOLA than given the present employees, which he personally did not think was fair. He mentioned the upcoming budget cycle where Council will be looking at efficiencies and tightening of belts, and thought Council may need to have more control over those areas.  67 Council Workshop 3- 25- 08 PENSION PLANS cont. Mr. Dehner addressed the concern regarding a reduction in member contributions in the Police Officers Plan and the reason. He noted the police officers have a 75% cap on the amount of benefit they can receive; the firefighters' had that cap but it was eliminated several years ago. He said the vast majority of the Plans in the State for General Employees, Police Officers, and Firefighters have 1000/0 of average final compensation cap, which is provided for in Florida Statutes Chapter 112. He explained when the cap was put into the Plan the member contribution was eliminated then Chapter 185 was amended in 1999 to provide that there had to be at least a % of 1 % member contribution to the Plan; so the member contribution rate decreases to % of 1 % once the accrued benefit reaches the cap. He noted it is important to know that they cannot accrue for additional years of credited service; the benefit formula is determined by years of credited service times the average final compensation times the benefit rate and once they hit that cap, since it' s based on average final compensation, the only additional benefit they accrue would be derived from salary increases. Mr. Miller expressed his further concern that it seems like the City was encouraging people to stay on the job when they were eligible to retire and then people wanted the City to issue an early out and pay them to retire. Mr. Dehner expressed the Police Officers' would like to see the cap removed and continue to make the higher contribution and be able to accrue a greater benefit based on additional years of service. He expressed, on behalf of the Police Pension Board, they would appreciate it if Council would revisit that issue. Mr. Dehner addressed the COLA in the Police Pension Plan and explained there is a cost of living adjustment tied into the index with a maximum adjustment of 3%. He said a proposal will come forward for Council' s consideration to just provide a 3% COLA and not tie it into an index. He explained one reason is because the Florida Retirement System enjoys a 30k COLA; and second, the current structure with tying it into an index with a maximum of 30/ 0, that the actuary has to fund it as though it is going to be the maximum for each year for conservatism. Mr. Heinrichs added when they develop the funding requirements for the fund they have to make an assumption what the increase will be each year and they assume a 3% cost of living adjustment. He said instead of asking them to make the adjustments each year based on CPI, the Board is interested in making it a flat 3% because that is what they are funding. Mr. Linn mentioned both proposals, eliminating the maximum cap on benefits and a flat 3% COLA, are benefit increases which would result in increased costs to the Plan. He said with Police and Fire premium tax funding source and because of the way the State J interprets Chapters 175 and 185 it is applied in a flat dollar amount, and they get premium tax revenues that the City is able to use in funding the Plan. He said if they were to increase benefits and even though they could use the additional premium tax monies not being used to pay for them, over time an increasing portion of the cost gets shifted to the City. Discussion ensued regarding a " fully funded plan," with Mr. Heinrichs explaining if the City were to shut downentirely or no longer exist, funds would be available for everyone who is retired or for those participating in the police/fire plans at that time, until the end of their lives. 68 Council Workshop 3- 25- 08 PENSION PLANS cont. The Mayor asked for public input. Officer Eric Boyd, Fort Walton Beach Police Department, expressed his concern that it