Fort Walton Beach Council agenda — 06-26-2007 regular agenda — reading text

called Recommended Practices for State and Loca/ Governments by the Governments Finance Officers Association, the highest authority on good/ best practices for pension funds second to Standard and Poors or any other rating company in regards to what is the o best practice for a pension fund. She mentioned the book says that contributions should be level based on a percentage of payroll, they should be committed to and stuck with over time. The Finance Director then continued with the presentation which reported that City Council, as the Board of Trustees would set 8% or 6% contributions in the Budget document, that City Council was not advised of lower actuals, and the employees received " Employee Benefit Statements" showing 8% or 6%. The Finance Director then went over six recommendations for improvements to the General Employees Pension Plan, as follows: 1. The roles of the City Council as the Board of Trustees vs. the General Employee Pension Plan Advisory Committee should be re- evalua.ted. a. There should be increased clarification of responsibilities between City Council as the Board of Trustees and the Advisory Committee. b. There should be a clear differentiation between when City Council is taking action as the Board of Trustees or as City Council. c. City Council should appoint the members of the Advisory Committee. d. City Council should consider increasing the independence of the Advisory Committee. 2. The Advisory Committee membership' should be changed. a. The Finance Director and Human Resource Director should be removed as voting members of the Advisory Committee. b. These members should be replaced with two ( 2) non- employee members who can contribute outside expertise to the Plan. c. Members should be appointed with staggered terms, and should consider term limits. 3. A second- opinion of the Actuarial information should be obtained. a. A peer- review that includes an experience study and a check of the computer contributions and liabilities should be performed. b. A comparison of the General Employees Plan to other Plans should be performed. c. Periodic independent critique ( peer-review) should be performed every five ( 5) years. d. The amortization period used to smooth overpayments or underpayments should be reviewed. Note: A second- opinion of the current Actuarial Valuation has been recommended by the Advisory Committee. 4. City contributions should be fixed and promptly remitted. a. City contributions to the Plan should be set and remitted based on a percentage of active member payroll. b. The City contribution rate should be set on a long- term basis. A stable contribution rate should be designed to fairly allocate ( accrue) pension costs across several years. c. City contributions should be directed to investment without haste, preferably on a bi- weekly basis ( 26 times per year). d. The Plan should take measures to reduce the volatility of City contributions. e. Changes in the City contribution rate should be recommended by the Advisory Committee and require specific approval by the Board of Trustees.  19 Regula1' M~etihg 6- 12- 07 REVIEW OF. PENSION PLANS cont. I Th,e Finance Director continued with the recommendations: 5. The Plan should retain professional experts who act in a fiduciary capacity. a. A competitive selection process should be used for all external service providers. b. Cost of services should be reviewed and 'specifically approved by the Board of Trustees. c. The Plan's current directed brokerage program should be reviewed. I 6. Continuing education for the Advisory Committee and/ or Board of Trustees should be made a priority. . j a. Travel to public retirement trustees seminars should be encouraged. She reported as a vision for the future that swift action for change in Advisory Committee and Board of Trustees policy is needed and three years will be needed to see the results of changes. and is needed. In conclusion she reported the General Employees Plan can be improved change Mr. Minich commented that the Finance Director had commented three weeks ago the report was done and wished to know why it was not turned in to anyone but staff until last Friday after the agenda was distributed. The Finance Director stated the reasons were she wanted to go over all the recommendations she was making with the Pension Plan Attorney and the external auditors before she proceeded to make sure they blessed off on what she was proposed. She stated she did as fast as humanly possible, it was completed as of Friday and she provided it to the City Manager for review and when the City Manager did not get back to her on Monday she went ahead and sent it out because she did not want to wait any longer. Mr. Minich asked if the briefing was shared with anyone else. The Finance Director replied no. Mr. Minich received confirmation, for the record; that the Finance Director sent it via email to the City Manager around 2: 30 Friday afternoon and she had until 11 : 30 Monday to respond, and that is when the Finance Director sent it to Council at 11 : 23 .a. m. Mr. Minich asked if the Finance Director had consulted with anyone else, any City Councilman, when preparing the report as it was said that Mr. Miller pointed something out her. The Finance Director replied that Mr. Miller, on his own behalf, looked at the Pension minutes and pointed out there was a period of time where the City Manager had been sitting on the Board and reporting to the Board. Mr. Miller stated as a matter of-record he asked the City Clerk for a list of information about the pension funds going back to November 2006 and she provided that information to him and in reviewing that it came to his attention. Mr. Garvie wished to know where the 19% contribution came about. The Finance Director replied that amount is the required actuarial contribution, ARC, which is expressed in the annual actuarial valuation each year. Mr. Garvie received confirmation that in the past prior to the 19% figure that the actuarial numbers lower than the 6% or 8% then all of a sudden it jumped to 19%. provided Dr. Pullen asked if there were anything that would prevent the Finance Director from talking with individual Council members whenever she wanted. The Finance Director deferred comment on the question. Dr. Pullen asked if the reports were given to the employees that the City had contributed more to their retirement than what was actually given. The Finance Director replied in the affirmative. Or. Pullen commented then that the employees were led to expect something that was never there. The Finance Director a report goes out to the employees in January that is penned by the explained Human Resource Director that gives an explanation of the employee benefits and the cost to the City for that year. She described a situation where an employee buying back service in the Plan had brought to her his statements which did not make sense, which caused her to stumble into the past Dr. Pullen stated he was briefed on it yesterday afternoon at 4: 00 for the first time. history. Mr. Reeves commented there are some legitimate things that might be reasonable to make changes to, that there is a $ 1. 6 million shortfall and possibly $ 1. 8 million next year and possibly $ 2 million past that and something needs to change because it is a burden on the City. 20 Regular Meeting 6- 12- 07 RECESS The meeting recessed at 9: 20 p. m. RECONVENE The meeting reconvened at 9: 30 p. m. REVIEW OF PENSION PLANS cont. o Mr. Garvie wished to know if the fund would be better off if it was 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 and 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 given to him tonight so he will be 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 contributing the 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 is that that pays. He said different Cities have different ways of contributing but what the law requires 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 Pension 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