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08/18/2008 PENSION TRUSTEES AGENDA Location: Council Chambers - City Hall Date: 8/18/2008- 1 :30 PM 1. Call to Order 2. Approval of Minutes 2.1 Approve the minutes of the July 14, 2008 Pension Trustees meeting as submitted in written summation by the City Clerk. ~ Attachments 3. Pension Trustee Items 3.1 Discuss the attached presentation by Klausner & Kaufman, our Pension Plan attoruey. ~ Attachments 3.2 Employees listed below be accepted into the City of Clearwater's Employees' Pension Plan as approved by the Pension Advisory Committee. ~ Attachments 3.3 Christina Keenan, Police Department, and Raymond Boler, Public Services Department, be granted regular pensions under Section( s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory Committee. ~ Attachments 3.4 Gary Johnson, Solid Waste/General Services Department, be allowed to vest his pension under Section(s) 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory Committee. I@l Attachments 4. Other Business 5. Adjourn Meeting Date:8/18/2008 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Approve the minutes of the July 14,2008 Pension Trustees meeting as submitted in written summation by the City Clerk. SUMMARY: Review Approval: 1) Clerk Cover Memo Item # 1 Attachment number 1 Page 1 of 4 TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING MINUTES CITY OF CLEARWATER July 14, 2008 Present: Frank Hibbard Carlen Petersen ohn Doran orge N. Cretekos Gibson Chair Trustee Trustee Trustee Trustee City Manager Assistant City Manager Assistant City Manager City Attorney City Clerk Board Reporter ems are in agenda order although not n Trustees meeting of City Clerk to each 3 - Pension Trustees Items 3.1 Em Name, Job Class, and Department/Division Christopher Hages, Cust. Wkr./Marine & Aviation Michele Curtis, Police Com. Oper. Trainee/Police Margaret Hasty, Pol. Com. Oper. Trainee/Police Michael Hasty, Pol. Com. Oper. Trainee/Police Craig Corlis, Pol. Com. Oper. Trainee/Police Dawn Lucier, Pol. Com. Oper. Trainee/Police 4 8 4/14/08 4/14/08 4/28/08 4/28/0 4/28/08 Christopher Hages was originally hired as part-time on 1/19/08; trans and pension eligible as of April 26, 2008. Pension Trustees 2008-07-14 Hem # 1 Attachment number 1 Page 2 of 4 Trustee Doran moved to accept the listed employees into membership in the City of Clearwater's Employees' Pension Plan. The motion was duly seconded and carried unanimously. rvice Representative, Customer Service Department, was 76, and her pension service credit is effective on June 3, y 1, 2008. Based on an average salary of approximately rs, the formula for computing regular pensions, and Ms. Survivor Annuity, this pension will approximate er-Operator, Fire Department, was employed by the City service credit is effective on that date. His pension will an average salary of approximately $63,769 per year over r compu . regular pensions, and Mr. Scanlon's selection of uity, this will approximate $47,690 annually. Trustee Cretekos moved that pensions under Sections(s) 2.393 an the Pension Advisory Committee. The 3.3 A The Asset Allocation Study that the pensio allocation of 5% of the pension plan's assets to the cap grow plan has an allocation of 9.74% to this asset class divided bet Artisan. As the plan averages in to the asset classes/new emerging markets), the City needs to reduce the allocation t recommended 5%. The following is a summary of the two managers respective three performance, which we use as a performance benchmark. Period Ended Denver Artisan 3/08 57th 43rd Pension Trustees 2008-07-14 item # 1 Attachment number 1 Page 3 of 4 12/07 9/07 6/07 3/07 12/06 9/06 6/06 3/06 12/05 76th 62nd 69th 7ih th 43rd 42nd 47th 54th 39th 3ih 55th 68th 64th heir performance by calendar year: Artisan ending that Denver Investment Advisors portfolio and fund new asset Trustee Gibson motion was duly seco nver Investment Advisors. The Michael Hurley, Building Cons Services Department, was employed b the Pension Plan on that date. Mr. Hurle Karen Backus, Police Communications Op the City on April 3, 1989, and began participating i terminated from City employment on April 1 0, 2006. The Employees' Pension Plan provides that should employee of the City of Clearwater or change status from ful to part-time ten or more years of creditable service (pension participation), such employe vested interest in the retirement benefits. Vested pension payments com the month following the month in which the employee normally would ha retirement. pleting cquire a the first of eligible for Section 2.393 (p) provides for normal retirement eligibility when a pa ant has reached age 55 and completed twenty years of credited service, has completed 30 years of credited service, or has reached age 65 and completed ten years of credited service. Mr. Hurley would have completed at least 20 years of service and reached age 55 on December 3, Pension Trustees 2008-07-14 item # 1 Attachment number 1 Page 4 of 4 2010. His pension will be effective January 1, 2011. Ms. Backus would have completed 30 years of service on April 3, 2019. Her pension will be effective May 1, 2019. These pensions were approved by the Pension Advisory Committee on June 12, 2008. Trustee Pet pensions under Pension Advis moved to allow Michael Hurley and Karen Backus to vest their .397 and 2.398 of the Employees' Pension Plan as approved by the The motion was duly seconded and carried unanimously. Chair Employee's Pension Plan Trustees Pension Trustees 2008-07-14 <item # 1 Meeting Date:8/18/2008 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Discuss the attached presentation by Klausner & Kaufman, our Pension Plan attorney. SUMMARY: See attached. Review Approval: 1) Office of Management and Budget 2) Legal 3) Clerk 4) Assistant City Manager 5) Clerk 6) City Manager 7) Clerk Cover Memo Item # 2 Page 1 of 22 ~I Klausner r@)) Kaufman PROfE5SID~AL ASSOClAllO~ AnORNEYS AT LA\\' MEMORANDUM TO: Honorable Mayor and City Council City of Cleanvater FROM: Klausner & Kaufman, P.A. RE: Review of Retirement Options Analysis of Defined Benefit - Defined Contribution Issues DATE: August, 2008 Purpose The objective of this memorandum is to smmnarize issues raised relating to retirement in the City of Clearwater. This memo reviews the academic literature comparing Defined Benefit (DB) plans with Defined Contribution (DC) plans and to provide a summary on the implications of moving from a defined benefit plan to a defmed contribution plan. Emerging trends over the past decade will also be discussed. The City of Clearwater has been cOlmnitted to the sound administration of the defined benefit pension program. This memo addresses a review of the retirement plan currently provided by the City as well as other benefit options, such as defined contribution plans. In an effort to provide an even-handed comparison of the various plan types, this memorandum will avoid an overly simplistic view of which is a "better" plan structure. The memorandum will instead focus on the advantages and disadvantages of both approaches and will set forth both practical considerations and theoretical arguments. As will be illustrated below, the evaluation of an advantage/disadvantage can vary depending on one's philosophical, political, employment, or fiscal outlook. The advantage for one plan usually results in a conesponding disadvantage for the other plan, depending on one's perspective. In the final analysis, counsel believes that maintenance of the CUlTent defined benefit system is the optimum means of providing a meaningful retirement to the 10059 NORTHWEST I ST COURT, PLANTATION, FLORJDA 33324 PHONE: (954) 916-1202 · FAX: (954) 916-1232 www.robertdklausner.com Item # 2 ~ Page 2 of 22 City's valued employees and represents the most effective tool to insure a stable, well- trained, dedicated workforce. Executive Summary While the City of Clearwater benefits are competitive, they are not excessive when compared with the relevant marketplace. There are two broad categories of retirement plans. Each presents relative advantages and corresponding disadvantages. There is no single best solution for all situations. Rather, each feature of both types of plans should be evaluated in the context of the specific plan objective(s). While there is no single best plan for all employees or employers, counsel has concluded that for the welfare of the City and it's employees, the maintenance of the current defmed benefit retirement plan is the best alternative. Counsel believes that abandonment or radical curtailment of the defined benefit retirement program is directly contrary to sound employment practices. The Analysis Defined benefit plans pay guaranteed monthly retirement benefits based on a fixed/defmed fonnula. Generally, benefits are calculated based on a specified accrual rate per year of service. DB plans are actuarially funded by the plan sponsor taking into account actuarial experience which will vary fimn year to year. As a result, employer contribution and funding requirements will fluctuate from year to year. Employers bear the investment risk, but DB plans provide stable lifetime montWy retirement income for retirees. DB plans also have the possibility, through good investment return, to pay for themselves over time. In contrast, defined contribution plans specify the employer contribution rather than any particular monthly income at retirement. Employer contributions are limited to a specified percentage of payroll/employee earnings. DC plans do not guarantee any specified benefit at retirement, other than the accumulated balance of employer and employee contributions, plus investment earnings. DC plans typically provide a lump sum account balance at retirement. Unlike a DB plan, in a DC plan the employee bears the investment risk. The eventual DC benefit is dependent on the amount of accumulated assets and the number of years that the retiree draws down the account balance. Simplified even further, in a DB plan the employer assumes the investment and mortality risk. In a DC plan, the employee bears these risks. Arguably the strongest advantage of DC plans is the contTibution stability they provide for employers and the portability -2- Item # 2 Page 3 of 22 offered to employees. Arguably, the strongest advantage of DB plans is guaranteed retirement income which is made available by the economies of scale and actuarial funding of DB plans. Approximately ninety percent of state and local government employees participate in DB plans as their primary retirement benefit. DC plans serve as the primary plans for the remaining ten percent. Texas employs a cash balance plan for more than 1000 of its municipal and county governments. That program uses both elements of defined benefit and defined contributioJ! plans. The features which compare to the Clearwater plan require a comparable contribution. The debate between the proponents of DB plans and DC plans remains and is fueled in large part by concerns over shrinking tax revenues brought about by tax reform legislation and the CUlTent economic conditions. The federal Pension Protection Act of 2006 has focused attention on retirement security and savings. Over the past ten years, several statewide retirement systems have switched from DB to DC for new employees, or added separate DC options. Yet, at the same time, examples can be found of closed statewide DB plans being reopened, as well as the creation of hybrid plans established alongside existing DC plans. Since 2001, eligible state and local employees in Florida, Ohio, South Carolina, Montana, and Colorado now have the option of choosing between a DB and a DC plan. Participation in those elective programs remains relatively low and they are favored most frequently by professional workers with relatively short tenure. In the corporate, private sector environment, a clear trend of DB plan closings has emerged. It is unclear whether or not this trend will similarly play out in the public sector. To the extent that a trend can be identified in the public sector, DC alternatives are being created within and alongside existing DB plans. When given the choice, public employees have selected DB plans by wide margins over DC plans. Other options include DB plan temlinations, creating tiered DB plans for new employees, lowering DB accrual rates for future service, and establishing hybrid/cash balance plans. The following chart, which is a compilation of all of the sources used and cited in the footnotes in this report, summarizes essential characteristics and concerns of defined benefit and defined contribution plans: -3- Item # 2 Page 4 of 22 DEFINED BENEFIT AND DEFINED CONTRIBUTION PLAN CHARACTERISTICS' Characteristics Dcfincd Bcnefit Plans Dcfined Contribution Plans Guaranteed post-retirement Yes No. Annuity purchase options [lfC income expensive Financial liability Rests on plan sponsor; actuarially funded Rests with purticipant, no actuarial ovcr a period not to exceed 30 years liability Investment risk Rests on plan sponsor Rests with participant Responsibility placed on employee Little Significant - employee makes voluntary (empowerment) contributions and investment decisions Employer fiduciary responsibility Significant Significant Investment results On average returns are higher On average returns [lfe lower, but large variation results from individual investment choices Investment Fees Lower overall fees 1-1 igh er overall fees Aggregate retirement savings Significantly increases retirement savings rate Less average savings, depending on with forced savings feature participant Personal retirement savings Maximizes savings for retirement Allows withdrawals and loans before retirement, depleting retirement savings Plnn Sponsor's Generally higher fees Generally lower depending on education, Administrative Fees planning and service provided to employees Administrative complexity Generally high Significantly lower Flexibility More flexible; disability, retirement Simple design based on employer and incentives, outside service credit employee contributions Portability Not typical Yes Employee retention Favored by longer tenured/older employees A ttracts shorter tenured/younger employees Plan Closing Legacy issues and continuing funding Relatively simple obligations are complex Defined Benefit and Defined Contribution Plans: A HistOlJI, Market Overview and Comparative Analysis, Stephen P. McCourt, Benefits & Compensation Digest. February 2006, Exhibit "I". Item # 2 -4- Page 5 of 22 Bacliground Defined benefit plans (DB) specify the monthly benefit that vested employees will receive upon reaching nOllnal or early retirement eligibility. The monthly benefit is generally based on a mathematical fOllTIula utilizing a benefit accrual factor for each year of service multiplied by final average compensation earned prior to retirement. In theory, because the benefit is "defined," an employee is able to anticipate his or her monthly retirement benefit prior to retirement eligibility. As a general rule, the monthly benefit will continue for the member's entire lifetime, regardless of the positive or negative investment performance of the underlying assets in the plan. Under Florida law, public employers are required to annually fund their DB plan on an actuarially detennined basis.2 Municipal governments that maintain defined benefit plans for police officers and/or firefighters, are entitled to receive a rebate of a state tax on insurance policies. This tax, authorized by Florida Statutes, Chapters 175 and 185, pays a portion of the City required contribution. The tax is collected from insurance companies by the State. By meeting certain minimum benefit standards, the City receives money under this program which otherwise would inure to the benefit of the State. In Clearwater, these monies are received by the police and fire supplemental plans, which are really fonns of a defmed contribution plan. These monies are the sole contributions to the supplemental plans. Defmed contribution (DC) plans usually specify the employer contribution rather than a specified benefit available at retirement. For each pay period the employer contributes a certain percentage of an employee's earnings into the DC plan. DC plans do not guarantee any particular benefit at retirement, other than the accumulated balance of contributions, plus investment earnings. The final value of a retiree's accumulated DC account is not guaranteed and is generally not known until retirement. Stated another way, in a DB plan the pension benefit is certain and the contribution necessary to fund the benefit is not. In a DC plan, the contribution is certain while the future benefit amount is not. Simplified further, in a DB plan the employer assumes the investment and longevity/mortality risk. In a DC plan, the employee bears these risks. As a general rule, the pattern of benefit accrual over an employee's career is different between DB and DC plans. In a typical DC plan, benefits accrue at a higher rate in an employee's early years but at a lower rate compared to the later stages of the employee's career in a DB plan. This relationship explains the controversy between older and 2 Section 112.64 Florida Statutes requires the amortization of plan liabilities over a period not to exceed 30 years. Shorter funding periods are required for closed plans. -5- Item # 2 Page 6 of 22 younger workers when an employer considers converting a DB plan into a Cash BalancetHybrid plan. Over the past several years increasing interest has been shown in corporate cash balance plans, a variation on the traditional DB plan. Cash balance retirement benefits accrue at an even, steady pace during an employee's career. For purposes of this memorandum, cash balance plans calculate benefits in a manner similar to a DC plan. For various reasons, less interest has been focused on cash balance plans and cash balance conversions in the public sector. The primary exceptions are the Texas Municipal Retirement System and the Texas District and County Retirement System. These are primarily multi-employer cash balance plans, with certain elective features mirroring traditional defined benefit plans. A clear trend has emerged in the public sector to offer both DB and DC options, permitting employee choice on which type of plan to join. Approximately ninety percent of state and local govermnent employees participate in DB plans as their primary retirement benefit.3 DC plans serve as the primary plans for the remaining ten percent of state and local government employees. Most private sector employers provide only a DC plan, most commonly a 40 1 (k) plan, or no retirement plan at all.4 3 Consistent with federal law, workers who are covered by hybrid plans are deemed to be members ofa DB plan, and are included in the 90% figure. Overview of Plan Types and Their Use Among Statewide Retirement Systems, NASRA, April 2007, Exhibit "2". 4 The percentage of private sector employees participating in a DB plan decreased from 38% in 1977 to less than 20% in recent years. U.S. Bureau of Labor Statistics, 2006 National Compensation SW11ey: Employee Benefits in Private IndustlJ' in the United States. The Pension Protection Act of2006 may be accelerating this trend with corporate employers. Nationally, 47.9% of workers under age 65 participated in employer- sponsored retirement plans, both DB and DC, in 2004 down from 49.6% in 200]. Recent Changes in U.S. Family Finances: Evidel7cefrom the 2001 and 2004 Survey of Consumer Finances, The Federal Reserve Bulletin, 2006, Composite Exhibit "3". -6- Item # 2 Page 7 of 22 The National Association of State Retirement Administrators5 and the National Conference on Public Employee Retirement Systems6 both have expressed the view that defined benefit plans should serve as the primary benefit for all public employees and should be supplemented with a voluntary defmed contribution plan.? An exhaustive comparative analysis by the Arizona State Retirement System in 2006 similarly recommended this approach. According to the Arizona analysis, which was admittedly prepared by a DB plan, if the choice between DB versus DC plans is not mutually exclusive, "it appears that the most appropriate strategy may be to provide a balanced approach with a defined benefit plan as the primary income replacement vehicle and a defined contribution option such as a 457, 403 (b), or Supplemental Retirement Savings Plan, to provide an additional but discretionary option for additional pre-tax retirement savings with no additional cost requirements for the employer."g This approach is in keeping with the conventional wisdom that the ideal mix of retirement income can be described as a "three-legged stoo1.,,9 Under this metaphor, one leg 5 The National Association of State Retirement Administrators (NASRA) is a non-profit association whose members are the directors ofthe nation's state, territorial, and largest statewide public retirement systems. NASRA members oversee retirement systems that hold more than $2.0 trillion in assets and that provide pension and other benefits to more than two-thirds of all state and local government employees. 6 The National Conference on Public Employee Retirement Systems (NCPERS) is the largest trade association for public sector pension funds, representing more than 500 public funds throughout the United States. NCPERS members collectively oversee nearly $3 trillion in retirement funds managed on behalf of six million retirees and 14 million active public servants. 7 The NASRA resolution states that it "supports the prevailing system of retirement benefits in the public sector, namely, a defined benefit program to provide a guaranteed benefit and a voluntary defined contribution plan to serve as a means for employees to supplement their retirement savings." The Resolution further states that NASRA "supports progressive changes within this prevailing system of retirement benefits in the public sector, either within the defined benefit plan or through supplementary plans, that accommodate a changing workforce and better provide many of the features advanced by defined contribution advocates." NASRA Resolution 2003-8, August 6,2003, Exhibit "4". 8 A Comparative Analysis of Defined Benefit and Defined Contribution Retirement Plans, Arizona State Retirement System, September 22, 2006, Exhibit "5". 9 Profitable Prudence: The Case for Public Employer Defined Benefit Plans, Gary Anderson and Keith Brainard, Pension Resource Council, Wharton School, University of Pennsylvania, 2004, Exhibit "6". -7- Item # 2 Page 8 of 22 represents Social Security; another leg represents employer-funded pensions; and the third leg is based on individual savings. For a governmental employer like Clearwater, which does not participate in Social Security for most employees, the fIrst leg of the stool is absent. The loss of guaranteed retirement income provided by a DB plan would thus have more of an impact in Clearwater. Whether or not the conventional wisdom of the "three-legged stool" will need to adapt to changes in demographics, labor mobility trends, or amendments to Social Security remains to be seen. Advantages of DB plans10 Guaranteed Post-Retirement Income Stability: DB plans provide guaranteed monthly income during retirement. A retiree will not outlive his or her lifetime defined benefit annuity. By definition, a DB retiree who is receiving a lifetime annuity is entitled to rely on a monthly check from a properly funded plan. If the DB plan does not contain a cost of living (COLA) provision, the retiree who lives a long life will face the risk of inflation gradually and inevitably diminishing the purchasing power of the monthly benefIt. For governmental employers that do not participate in Social Security, the fmancial security provided by a DB plan is particularly important. Investment Efficiencies, Expertise, Diversification and Economies of Scale Enhance Investment Returns which Empirically are Superior for DB plans: According to the academic literature, on a per-dollar-of-benefIt-paid basis, it is less expensive to provide benefits through a DB plan than through a DC plan. 11 There are several reasons why this makes sense. DB plans employ professional money managers and consultants who are able to invest with longer time horizons and utilize asset allocation models and efficient frontier analysis based on modern portfolio theory. DC plan participants are not expected to have this degree of expertise. Additionally, larger DB plans are generally able to invest in asset classes that are not available to DC plan participants. Private real estate, private equity, commodities, venture capital and other alternative investment strategies that are available to promote 10 List of Advantages and Disadvantagesfor DB and DC Plan, GRS Research Memorandum, Sonnanstine, Murphy and Zorn, November 17,2003; The Top Ten Advantages of Maintaining Defined Benefit Pensions, NCPERS, May 2007, Composite Exhibit "7". I ] Difined Contribution Retirement Plan Study, prepared by GRS for the New Mexico Educational Retirement Board, 2005, Exhibit "8". -8- Item # 2 Page 9 of 22 diversification and minimize risk are not realistic or readily available for the average DC plan participant. DB plans aggregate the funds of all participants and are able to receive significant reductions in investment-related costs through their economies of scale. For this reason, total investment management fees are typically lower than in a DC plan.12 Participants in a DC plan as a rule should invest more conservatively as they approach retirement and grow older after retirement. An active DB plan with a stable workforce is not required to alter its investment mix over time and is able to spread mortality risks over the group as a whole. Both DB and DC plans involve administrative costs, including operating overhead, accounting, recordkeeping, custody, education and information dissemination expenses. In a DB plan these services are typically provided by a combination of public employees and private contractors. In a DC plan these services are ordinarily outsourced to private firms and mutual funds. Because individual accounts and investment choice is a feature of DC plans, account information is usually updated daily and made available to the participant on a regular basis. This degree of communication, education and planning by and with DB plan participants is less important and less expensive than in a DC plan. Total administrative and investment costs for DC plans can be more than four times higher than for similar size DB plans.]3 Combined investment and administrative fees paid by pmticipants in smaller DC plans can exceed 2% of assets and can directly and substantially impact retirement savings. 14 12 DB investment expenses will vary with plan size and asset allocation. DC assets are ordinarily invested in mutual funds with typical expense ratios of approximately 1.25% to I % of assets for stock mutual funds and .75% to .50% of assets for bond funds. Institutional products are available within larger DC plans. Both DB and DC plans can lower investment expenses by using index products. 13 Defined Contribution Retirement Plan Study, prepared by GRS for the New Mexico Educational Retirement Board, 2005, Exhibit "8". 14 Myths and Misconceptions of Defined Benrifit and Defined Contribution Plans, National Association of State Retirement Administrators, Whitepaper, November 2002, updated February 2005, Exhibit "9". A Comparative Analysis ofDrifined Benefit and Defined Contribution Retirement Plans, Arizona State Retirement System, September 22,2006, Exhibit "5". -9- Item # 2 Page 10 of 22 Easier Retirement and Financial Planning Results from the Delegation of Investment Responsibilities to DB Plan Professionals and Trustees: Based on their more stable post- retirement income levels, DB plans present less complex fmancial and retirement planning issues for participants. Those who are not pm1icularly interested in assuming investment responsibility are able to rely on the DB plan's expertise and dependable monthly income. 15 Flexibility to Provide Disability Benefits, Early Retirement Incentives, and Recognition of Outside Service Credit: DB plans routinely provide duty and non-duty disability benefits. DC plan design does not protect participants against disability risks, but DC employers are able to separately provide disability insurance protection. In addition to disability provisions, DB plans also commonly pennit the purchase of prior service credit, including military service. DB proponents would argue that the ability to purchase such service is a useful recruiting and retention tool. Early retirement incentive programs can be implemented within a DB plan, in contrast to DC plans which are less flexible for this purpose. Advantages of DC plans Investment Risks Rest with the Employee Resulting in a Stable and Predictable Employer Contribution Rate: Employer contributions are easy to calculate, understand and predict based on the predetermined flat employer contribution rate set forth in the DC plan document. Unless the employer amends the plan, the employer contribution rate will remain constant and will be entirely transparent. DC contributions are not actuarialIy calculated and DC plmls do not carry unfunded liabilities. DC proponents argue in favor of "pay-as-you-go" budgeting and spending of tax dollars. Portability of DC Account Balances Is Desirable for Younger and Non-Career Employees: DC plans enable participants to transfer their accumulated account balance when an employee changes jobs and moves to another employer. Mobility within the U.S. workforce has increased over time and the average employee is no longer expected to work a full career with a single employer. In a DC plan, all employee contributions, and most, if not all, employer contributions (subject to vesting requirements), along with all investment earnings, may be rolled over into a new employer's qualified plan or into a rollover IRA. In the case of highly trained law enforcement personnel, pension 15 Profitable Prudence: The Casefo/' Public Employe/' Defined Benefit Plans, Gal)' W. Anderson and Keith Brainerd, Pension Resource Council, The Wharton School, University of Pennsylvania, 2004, Exhibit" 10". -10- Item # 2 Page 11 of 22 portability often disserve the smaller employer whose officers may be lured away by advancement and other opportunities in larger agencies. The hesitation that occurs because a vested defined benefit participant is les likely to leave, a DC plan paliicipant suffers no loss by changing employers. By contrast, in a DB plan the non-vested employee is not entitled to any employer contributions. On balance, a younger employee who separates from service will generally be entitled to a larger distribution from a DC plan than from a DB plan. To the extent that employees fail to rollover their DC balances, the employee risks the loss of critical tax qualified retirement savings. Inherently Simpler Plan Design and Structure Results in Lower Plan Sponsor Administrative Costs Which Can Offset Higher Investment Expenses: In contrast to DB plans, DC plans are less complicated to administer and are easier to understand. The obligation to DC palticipants ends when the employee tenninates employment and receives their account balance. Unlike DB plans, DC plans are not required to administer benefits for terminated members and retirees. Empowerment: DC plans rely on active participation and engagement by plan members. Many have argued that DC participants feel a greater sense of empowennent and involvement with their future financial security and retirement planning. DB plans operate independently from the members and do not require much or any employee decision-malting until the member becomes eligible to retire and selects a monthly payment option. Since DC contributions are allocated directly into individual accounts, employees can identify, monitor and appreciate the contributions made on their behalf. Account information is usually updated daily and made available to the participant on a regular basis. It should be noted that financial empowennent and employee control carries both risks and potential rewards for members who properly plan, save and invest. The corollary is that employees who fail to do so are threatened with retirement insecurity. This is particularly so in times of economic uncertainty. Possibility of Superior Returns and Intergenerational Transfer of Retirement Assets: If a DC participant is a skilled investor or is willing to assume greater investment risk, it is possible to achieve better than average investment returns. Regardless of the participant's investment acuity, by virtue of market cycles and timing, at least some DC investors will -11- Item # 2 Page 12 of 22 be able to accumulate substantial account balances. Retirees who prudently spend down their DC lump sum balance may transfer the remaining balance to their families or estate. Funding: DC administrative and investment expenses ordinarily are regularly paid on a current basis directly from the DC plan. Mutual fund and related fees are deducted out of mutual fund daily net asset values and account balances. DC plans do not carry unfunded liabilities and are easy to terminate or close. In contrast, DB plan closings present complex funding and legacy issues. Disadvantages of DB plans Investment and Actuarial Risks Rest on the Employer Resulting in Fluctuating Employer Contribution Rates: DB plans are designed to pass the investment and mortality risk onto the employer, whereas DC plan structure requires the employee to assume these risks. As a result, DB employer contribution rates will fluctuate over time with actuarial experience and investment performance. If a DB plan experiences several back-to-back years of poor actuarial experience or lower than assumed investment returns, employer contributions can fluctuate dramatically. DB plans can partially mitigate contribution rate fluctuations by using various tools including actuarial smoothing methods, adjusting and monitoring assumptions, and carefully managing asset allocations. DB plan sponsors were criticized during the 1990's for substantially reducing required minimum contributions based on unusually strong investment experience during the market bubble at the turn of the century. DB advocates have recommended adding contribution floors to maintain certain minimum employer contributions in years with consistent positive actuarial experience. Actuarial and Structural Complexity: DB plans are funded based on actuarial experience, calculated using fairly sophisticated actuarial methodologies. DB plans utilize and are required to periodically adjust assumptions, including longevity, turnover, and investment earnings assumptions. For these and other reasons, DB plans are inherently more complex than DC plans. Plan closure can be particularly complex for DB plans and raises various "residual plan management" issues. A closed DB plan will be required to allocate any accrued unfunded liability among the static or decreasing employee base. As a result, the nonnal cost component will remain the same, but an increasing amortization component will -12- Item # 2 Page 13 of 22 result in higher overall future contribution percentages for the remaining plan members. The decreasing member base will thus result in more volatile employer contributions. Another issue presented by a DB plan closing is the potential employee morale and human resources considerations that may come into play. The differences between the old and new plan may be perceived as creating differential treatment issues and disparities between old verses new employees. Less Portable and Less Advantageous for Non-Career Employees: Mobile employees who are less likely to work an entire career with a single employer will almost always receive a smaller benefit from a DB plan. Although recent federal tax amendments in 2001 and 2006 have attempted to promote portability, the fact remains that DB plans are less advantageous for short tenure employees. Disadvantages of DC plans Responsibility is Placed on Employees/Retirees Who Bear the Risk of Poor Investment Performance: Not everyone has the time, resources, experience or inclination to focus on investing or retirement planning. Some individual investors in a DC plan will win, but many will not achieve index returns and will fail to rationally allocate, rebalance and spend down their DC retirement account balance. Proponents of DB plans argue that it is unreasonable to expect individual investors to outperfonn the professional investors who manage traditional DB pension assets. In many cases, employees who move from a DB environment to a DC plan may find they have lower benefits and potentially inadequate retirement income.16 Many do not have the skills to make complex investment decisions and historically have been unwilling to spend much time on retirement planning. Of the group of employees who recognize the need to adequately plan and prepare for retirement, many nonetheless fail to do their homework or implement appropriate retirement plans. Evidence suggests that large percentages of short term employees who separate prior to retirement eligibility request direct lump sum distributions and do not take advantage of DC plan portability. 16 Traditional Pensions: A Tried & True System that Benefits Ta..payers, NCPERS fact sheet 1; The Value of Defined Benefit Plans, Issue Brief, The American Academy of Actuaries, July 2006, Composite Exhibit "11" . -13- Item # 2 Page 14 of 22 Lack of Guaranteed Post-Retirement Income Stability: DC plans do not guarantee any level of stable income. Retirees bear the financial risk of outliving accumulated assets. Half of all retirees will, to varying degrees, outlive the average life expectancy, in some cases by decades. The DC account balance can at best be projected prior to retirement, but will depend on market conditions, asset allocation and investment performance. A DC plan participant has the option of either adjusting their personal contribution and savings rate with investment performance or changing their post-retirement expectations and standard of living based on investment gains and losses. To mitigate this risk, DC plans are increasingly offering the ability to purchase insurance annuities, but this option can be expensive. Empirically, few retirees have converted DC balances into guaranteed lifetime income. As recently reported, a 2007 whitepaper by Watson Wyatt Worldwide, a leading actuarial and human resources consulting fmn, predicted that employers will begin offering new low cost annuities as an investment option within DC plans. It is anticipated that the wider availability of annuity options in DC plans will serve the objective of providing greater retirement security for DC retirees. I? Watson Wyatt recommends that retirees should consider annuitizing at least a portion of their DC account balances in an effort to provide income stability for assets they need to support basic consumption needs. Watson Wyatt further recommends that the remaining DC balance can be invested more aggressively. Watson Wyatt argues that participants are often confused about how to manage their DC lump sum balance and the difficulty of trying to stretch their assets over their lifetime. Some retirees purchase annuities on the open market, but the prices for such products are generally high and are significantly affected by interest rate fluctuations and other factors. IE At the present time, most DC retirees do not have access to annuity options in their DC plans, in contrast to all DB plans which provide lifelong monthly checks. 17 Watson Wj1att Says Annuities Will Improve DC Plan Option, Plan Sponsor. August 6, 2007, Exhibit "12". According to Watson Wyatt's white paper, employers are now looking for more affordable annuity options and a broader range of products, including a simple, institutionally priced annuity product. This new market demand should drive supply of new annuity products to better serve the expanding DC market. What If? Adding an Annuity to Improve Defined Contribution Plan Options, Watson Wyatt Worldwide, June 2007, Exhibit "13". 18 What If? Adding an Annuity to Improve Defined Contribution Plan Options, Watson Wyatt Worldwide Whitepaper, June 2007, Exhibit "13" -14- Item # 2 Page 15 of 22 Individual Financial Planning Is Emphasized: DC participants are required to self direct their investment strategy with mutual funds/brokerage account options. Due to the lack of predictable retirement income if an annuity option is not available, DC plans present financial planning issues which are less relevant for DB plans. The additional focus on retirement planning inherent in a DC plan can be costly in terms of financial planning expenses and the time commitment by participants. The recent emergence of new generation life-cycle/lifestyle mutual funds may help simplifY and reduce these concerns for some DC participants. The recent United States Supreme Court decision authorizing breach of fiduciary responsibility suits based on under performance of DC accounts has created an additional level of concern. Sovereign immunity generally insulates DB board discretionary decisions because the employee has no ownership in any identifiable asset. By contrast, DC participants own their accounts and may seek a remedy for failures of employer education or inadequate investment selection options. 011 Average DC Plans Generate Lower Investment Returns alld Illvolve the Risk of Inadequate Savillgs: According to the academic literature, DC plan investment returns, on average, are lower than DB plan returns.19 For example, a study by the actuarial firm for the Nebraska Retirement System in 2000 revealed a statistically significant difference between DB returns versus DC returns. The legislative committees studying the issue found that the DC plan did not provide adequate retirement security. From 1983-1999 the Nebraska DB plan averaged 11% and the DC plan averaged 6%.20 Individual investors often react emotionally to market events and can be criticized for "chasing returns" of overvalued assets. Many investors with long time horizons are too conservative and do not adequately diversifY outside of cash and fixed income investments. As described above, DC plans are not able to offer the same diversification tools available to larger DB plans. To the extent that DC plans generally do not require the same degree of automatic forced savings as is the case with DB plans, DB plan participants are more likely to accrue adequate retirement income than DC plan participants. Recent amendments in the Pension Protection Act which permit moderate equity default allocations and automatic, non-elective earnings deferral is expected to ease some of these concerns for private sector DC plans. 19 Defined Contribution Retirement Plan Study, prepared by GRS for the New Mexico Educational Retirement Board, 2005, Exhibit "8". 20 Benefits Review Study of the Nebraska Retirement System, Buck Consultants, August 2000 (which supported the decision to change from a DC plan to a hybrid plan in Nebraska), Exhibit "14". -15- Item # 2 Page 16 of 22 Less Flexibility for Recognizing Outside Service and Less Effective at Motivating and Retaining Employees: Without the tools available to a more complex DB plan, DC plans cannot easily recognize outside service credit. Similarly, DC plans do not provide the motivation and retention advantages built into DB plans. Trends Over the past several years the debate between the proponents of defmed benefit plans and defined contribution plans has intensified. Recent examples are provided below of retirement systems switching from DB to DC, or adding separate DC options.21 A small number of examples are provided of a closed statewide DB plan being reopened for members forced into the DC plan and the creation of hybrid plans established alongside existing DC plans. In the corporate, private sector environment, a clear trend of defmed benefit plan closing has emerged. It is unclear whether or not this trend will play out in the public sector. On balance, to the extent that a trend can be identified in the public sector, DC alternatives/hybrid and/or cash balance plans are being created within and alongside DB I?? p ans.-- In 2005, the state of Alaska closed its DB plan for all state employees hired after June 2006, leaving the Alaska Railroad Retirement Plan as the only open public employee DB retirement system in the State of Alaska. The state DB plans continued for existing members. The Municipality of Anchorage maintains a closed DB plan for its public 2] Overview of Plan Types and Their Use Among Statewide Retirement Systems, NASRA, April 2007, Exhibit "2"; Defined Contribution R'Cperience in the Public Sector, Mark C. Olleman, Benefits & Compensation Digest, February 2007, Exhibit "15". 22 It should be recognized that public sector/governmental DB plans have at least three comparative advantages over their private sector counterparts. First, private sector plans are required to participate in the Pension Benefit Guarantee Corporation (PBGC) insurance program and make insurance premium payments to the PBGe. As a result, corporate DB plans have moderately higher costs, since well managed plans are required to pay insurance premiums based on the liability of other less well managed plans. Second, governmental DB plans are not subject to the "going concern" default scenario facing private sector employers. The risk that a private employer will go out of business is a fundamentally different risk which does not exist for public DB plans. Third, governmental plans are permitted a degree of actuarial flexibility which is not available in the private sector. For example, govenunental DB plans are not forced to periodically change their liabilities based on interest rate levels, which results in greater contribution volatility for private sector plans. -16- Item # 2 Page 17 of 22 safety employees. It IS considering re-opemng this plan to enhance recruitment opportunities. In 2004, California Governor Arnold Schwarzenegger proposed closing California's DB plans in favor of the creation of a new DC system for future employees. After vocal opposition by labor and employee groups, the Governor withdrew his initiative proposal. Earlier this year, the California Foundation for Fiscal Responsibility proposed a less ambitious proposal which would leave existing DB plans intact, but impose benefit limitations and benefit caps.23 The proposals have considerable constitutional impediments. In 2004, Colorado established a DC option for new state employees beginning on January 1, 2006. In 2003, Oregon created a hybrid plan for new Oregon employees in lieu of the traditional DB plan. The hybrid plan uses a 1.5% DB multiplier (1.8% for public safety) funded by the employer, along with a mandatory employee contribution into the DC plan. In 2002, Nebraska established a hybrid cash balance plan for new state and county employees and existing DC plan participants electing to switch into the new cash balance plan. The hybrid plan was created in response to concerns that employees were not accumulating enough retirement savings in the stand-alone DC plan. In 2002, members of the Montana PERS were given the option of switching from the state's DB plan into a DC altemative during a one-year open enrollment process. Approximately 3% of eligible employees elected to transfer to the DC plan. In 2000, Florida modified its traditional DB system to give FRS participants the option to move into the newly created Florida Investment Plan, a DC aItemative.24 After spending $89 million to set up these DC accounts, initially fewer than five percent of eligible 23 The California Foundationfor Fiscal Responsibility's press release, Exhibit "16", is available at www.californiapensionrefonn.com/iniliative press release.h1m; a copy of the 2007 initiative, Exhibit "17" is available at www.californiapensionrefonn.com/initiative texLhlm 24 The FRS Investment Plan is also lmown as the Public Employee Optional Retirement Program, a 401 (a) DC plan that employees may select in lieu of membership in the traditional DB plan, the FRS Pension Plan. -17- Item # 2 Page 18 of 22 participants opted to move into the new FRS DC program.25 Since 2002, the track record has been better and more new hires have begun electing the state's DC plan?6 Beginning in 2000, South Carolina teachers and educational employees were given the option to participate in a DC plan as an alternative to the state's DB plan. The option was extended to other state and local government employees in 2002. Approximately 17% of employees elected to switch to the DC plan. In 1998, Ohio created an optional DC plan for new educational employees not yet vested in the state DB plan. Eligible employees were given three options, remain in the DB plan, or switch to a DC plan, or a hybrid plan. The options were subsequently extended to teachers in 200 I and local government employees in 2002. Approximately 95% of active employees elected the DB plan or the hybrid plan, with the vast majority electing to remain in the traditional DB plan. West Virginia closed its teachers DB plan in 1991, requiring all new teachers to join a new DC plan. According to an actuary for the West Virginia teacher retirement system, the new private account system was more expensive than the old DB pension system. The actuary for West Virginia also found that switching back to a traditional DB pension system would save taxpayers millions of dollars annually in pension contributions. As a result, West Virginia switched back to a traditional DB plan in 2005. Participants in the DC plan switched en masse to the reopened DB plan. Following the economic devastation of Hurricanes Katrina and Rita, Louisiana considered the elimination defIned benefIt programs for future employees, but ultimately rejected the idea.. The Legislature relied on a 2005 report from the Public Affairs Research Council, a non-pm1isan resem'ch and public advocacy group which concluded: Nearly all states use DB plans as their prim my pension plans. A DB plan is the appropriate vehicle for providing most public sector pensions. It 25 Florida State Board of Administration Fact Sheet, Update on Choice in the Florida Retirement System, March 31, 2007, http://sbaJla.comhJdF/news/Update1Vul00n%10Choice.odF. Exhibit "18". 26 Florida State Board of Administration Fact Sheet, Update 011 Choice in the Florida Retirement System, March 3],2007, Exhibit "18", pages 3-4. On an annual basis, the percentage of new employees electing the Florida Investment Plan has ranged from 8% in 2003 to 21 % in 2006. During the first quarter of2007, 26% of new hires elected the FRS Investment Plan and 74% elected or defaulted into the FRS Pension Plan. Of the total of695,622 FRS members on March 31,2007,89% were participating in the FRS defined benefit Pension Plan and 1 I % were participating in the defined contribution Investment Plan. -18- Item # 2 Page 19 of 22 encourages career employment and public employees are less mobile than private sector workers. The DB plan can provide better benefits than an equally funded DC plan, because a pension system can spread risk and invests more effectively than most individuals, who tend to invest more conservatively. The DB plan provides security where as a DC plan would leave employees vulnerable. Recent studies show that employees tend to cash out their DC accounts, fail to reinvest the with new employer's plan and spend lump-sum distributions, leaving them much reduced retirements. The DC plan serves well for certain short-term positions and as a supplement to a DB plan, but is inadequate as a general primmy pension plan. 27 Cost Considerations Based on NCPERS' national statistics, on average governmental employers contribute less than 26 cents for every dollar paid out in DB pension benefits. The remainder is funded by investment income and employee contributions. Most state and local workers are required to pay employee contributions into their public DB pension plans, which is not the case for corporate DB plans,28 Closing a DB plan does not result in immediate cost savings. According to Government Accounting Standards Board (GASB) accounting rules, plan sponsors are required to accelerate the funding of benefits in a closed plan. The actuarial methodology would necessarily change in a manner which accelerates the payment of plan liabilities over a shorter period, resulting in a spike in employer contribution rates. Since new employees are no longer participating in the closed DB plan, their salaries will no longer be included as a basis for making contributions to amortize the existing VAAL (unfunded actuarial accrued liability) amount. Thus, employer contributions to the VAAL will be paid out as a percentage of salary for a declining group, resulting in a higher employer amortization payment,29 Additionally, offering a DC and DB option may increase costs due to adverse selection. Infonned employees should opt for the program they anticipate will best match 27 Public Employee Retirement, Time for Change. Public Affairs Research Council of Louisiana, Analysis No. 306,Baton Rouge, La. 2005. http://www.la-par .0rglPublications/PDF /RetirementReport2005. pdf 28 NCPERS fact sheet I, Traditional Pensions: A Tried & True System that Benefits Taxpayers, Exhibit "11" 29 Milliman study for Los Angeles County, forth in March 2,2005 letter to Marsha Richter, Chief Executive Officer for the Los Angeles County Employees Retirement Association (LACERA), Exhibit "19", -19- Item # 2 Page 20 of 22 their career plans. As a result, the average entry age in the DB plan may increase while actuarial savings due to turnover may decrease.3D In 2005, when the State of California was considering closing its DB plan in favor of a DC plan for new employees, the transition cost was estimated at $7.6 billion.31 Under the most optimistic assumptions, it was projected that cost savings would not be realized for at least 10 years. In the case of Los Angeles County, a March 2005 actuarial study found that the county would not see any net savings for over 20 years, in 2028.32 The first annual savings would not occur until 2019/2020. The Los Angeles County study further found that the required County contribution rate would increase by 4.85% of pay. Stated mathematically, Benefits = Contributions + Investment Earnings - Expenses. Greater benefits can only be gained by higher contributions, greater earnings or lower expenses. According to a study perfonned by the defined benefit Kansas Public Employees Retirement System, any conversion to a DC plan needs to address the current low level of DC contributions. The assumption that superior investment returns can consistently be earned by DC participants "contains the seeds of grave danger for future Kansas retirants and taxpayers.,,33 Application of the Above Principles to the Issues Presented in the CRTO It is clear from the above analysis that the City of Clearwater is squarely within the nonn for benefit programs for employees in the relevant labor market as well as the remainder of the state and the country. The investment of plan assets is the most critical aspect of cost management for these benefit plans. Approximately 60% of the cost of all pension benefits will ultimately come from investment return. The Clearvvater Plan is professionally managed with returns at least equal to their assumed actuarial needs. The 30 Study oj Retirement Pi an Designs for the State of Colorado Office of the State A uditor, Buck Consultants, November 2001, Exhibit "20". 31 NCPERS fact sheet I, Traditional Pensions: A Tried & True System that Benefits Taxpayers, Exhibit" 11" 32 The Milliman study is set forth in a letter to Marsha Richter, Chief Executive Officer for the Los Angeles County Employees Retirement Association (LAC ERA) dated March 2, 2005, Exhibit "19". 33 Plan Design: A Review afCurrent Public PensionlsslIes, Kansas Public Employees Retirement System, January 2000, Exhibit "21". -20- Item # 2 Page 21 of 22 Plan has vigorously pursued altemative investments to enhance the asset value. Any such enhancement operates to the economic advantage of the City. The funded level of the Plan is consistent with the norm for local government plans and does not pose any likelihood of financial failure. The matters outlined in this memorandum demonstrate that attempts to close the Plan to new members would result in the ilmnediate loss of substantial revenues from the State of Florida. The comparative analysis ii'om Los Angeles indicates that plan closures also result in an acceleration of plan funding obligations, adding stress to the City budget. Specifically, the retirement plan is funded over a period of approximately 25 years. If the Plan is closed to new members, the City no longer has a 25 year time horizon to fund the program. Actuarial standards would require the funding period to be shortened to the remaining worldng lifetime of the closed group. It would be tantamount to shortening the period of one's mortgage. The result is itmnediately higher payments. At the same time, the lower cost of new employees is lost and the average salary of the working group would dramatically rise, also increasing costs. At least one Palm Beach County municipality attempted to close its defined benefit plan and avoid the unfunded liability. The Fourth District Court of Appeal required the city to fully fund the now tenninated plan finding it had a constitutional and statutory duty to honor its retirement obligations. See, Board of Trustees v. Town afLake Park, 966 Sa.2d 448 (Fla. 4th DCA 2007). Similar results have been reached in courts throughout the country . The pritnary purpose of municipal government is to provide for the safety and welfare of its citizens. More than any other level of government, the City meets the immediate needs of its citizens for the most basic security - law enforcement. To ensure the continued high level of public security Clearwater's citizens have come to expect, the City's benefit program must remain competitive. Material changes in the current program will take the City out of a competitive position in the relevant labor market and will make its workforce, particularly among less tenured employees, vulnerable to competing offers. In a recent article in the New York Times, it was reported that New York City is at its lowest manpower levels in the police department in nearly 30 years. Lower salary and benefits being offered to new recruits have caused the already ditninishing personnel pool to seek employment in other communities. Aging public safety workforces have created a sitnilar shortage in Florida The current shortage of police personnel in the local and national governmental labor pool is likely to continue for the foreseeable future. As a -21- Item # 2 Page 22 of 22 result, employers must retain benefit programs that will not only attract employees, but retain them for a career. City management has consistently been committed to the efficient administration of the Plan in accordance with expected fiduciary standards. City officials are keenly aware of the need to conduct business in a fiscally responsible manner which maximizes return with a reasonable level of risk on investments. This will, over time, lead to the decline in employer contributions without any loss of employee benefits or plan security. It is important to remember that retirement plans operate in 30 year time horizons. Short term reactions to long tenn programs are disruptive and ultimately diminish the likelihood of economic success in those plans. Counsel believes that abandonment or radical curtailment of the defmed benefit retirement program is directly contrary to sound employment practices. It will assuredly result in the dramatic loss of talented and dedicated employees to neighboring communities, especially in the public safety field. It is our belief that the City of Clearwater would be less able to attract new recruits or will become a training ground which is quicldy abandoned as employees are forced to seek competitive benefits. As a fiduciary to the Retirement System, counsel is of the opinion that the City should maintain its current standards. Counsel expresses it appreciation to the Council for its concern for the welfare of the employees of the City and the citizens they serve. We look forward to providing any additional infonnation requested. -22- Item # 2 Meeting Date:8/18/2008 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Employees listed below be accepted into the City of Clearwater's Employees' Pension Plan as approved by the Pension Advisory Committee. SUMMARY: Name, Job Classification, & Department/Division Hire Date Pension Elig. Date Richard Ottinger, Solide Waste Equp. Oper./Sol. Waste David Marlowe, Fire MedicIFire Greg Keane, Fire MedicIFire Sarah Happs, Fire MedicIFire Tracy Bekcer, Police Cadet/Police 6/9/08 6/9/08 6/9/08 6/9/08 6/16/08 6/9/08 6/9/08 6/9/08 6/9/08 6/16/08 Review Approval: 1) Clerk Cover Memo Item # 3 Meeting Date:8/18/2008 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Christina Keenan, Police Department, and Raymond Boler, Public Services Department, be granted regular pensions under Section(s) 2.393 and 2.397 of the Employees' Pension Plan as approved by the Pension Advisory Committee. SUMMARY: Christina Keenan, Controller, Police Department, was employed by the City on August 22, 1988; and, her pension service credit is effective on that date. Her pension will be effective September 1, 2008. Based on an average salary of approximately $63,594 per year over the past five years, the formula for computing regular pensions, and Ms. Keenan's selection of the 100% Joint & Survivor Annuity, this pension will approximate $34,242 annually. Raymond Boler, Assistant Public Services Director, Public Services Department, was employed by the City on March 17, 1975; and, his pension service credit is effective on September 22, 1975. His pension will be effective July 1,2008. Based on an average salary of approximately $76,395 per year over the past five years, the formula for computing regular pensions, and Mr. Boler's selection of the 100% Joint & Survivor Annuity, this pension will approximate $67,679 annually. These pensions were approved by the Pension Advisory Committee on July 10, 2008. Section 2.393 provides for normal retirement eligibility when a participant has reached age 55 and completed twenty years of credited service, has completed thirty years of credited service, or has reached age 65 and completed ten years of credited service. Ms. Keenan qualifies under the 20 years of service and age 55 criteria. Mr. Boler qualifies under the 30 years of service criteria. Review Approval: 1) Office of Management and Budget 2) Legal 3) Clerk 4) Clerk Cover Memo Item # 4 Meeting Date:8/18/2008 Pension Trustees Agenda Council Chambers - City Hall SUBJECT / RECOMMENDATION: Gary Johnson, Solid Waste/General Services Department, be allowed to vest his pension under Section(s) 2.397 and 2.398 of the Employees' Pension Plan as approved by the Pension Advisory Committee. SUMMARY: Gary Johnson, Solid Waste Equipment Operator, Solid Waste/General Services Department, was employed by the City on April 11, 1988, and began participating in the Pension Plan on that date. Mr. Johnson terminated from City employment on March 8, 2007. The Employees' Pension Plan provides that should an employee cease to be an employee of the City of Clearwater or change status from full-time to part-time after completing ten or more years of creditable service (pension participation), such employee shall acquire a vested interest in the retirement benefits. Vested pension payments commence on the first of the month following the month in which the employee normally would have been eligible for retirement. Section 2.393 (p) provides for normal retirement eligibility when a participant has reached age 55 and completed twenty years of credited service, has completed 30 years of credited service, or has reached age 65 and completed ten years of credited service. Mr. Johnson would have completed at least 20 years of service and reached age 55 on September 13, 2011. His pension will be effective October 1, 2011. This pension was approved by the Pension Advisory Committee on July 10, 2008. Review Approval: 1) Office of Management and Budget 2) Legal 3) Clerk 4) Clerk Cover Memo Item # 5