09/15/2008PENSION TRUSTEES AGENDA
Location: Council Chambers - City Hall
Date: 9/15/2008- 1:30 PM
1. Call to Order
2. Approval of Minutes
2.1 Approve the minutes of the August 18 2008 Pension Trustee Meeting as submitted in written summation
by the City Clerk.
1B Attachments
3. Pension Trustee Items
3.1 Discuss the Klausner and Kaufman review of Retirement Options and Analysis of Defined Benefit-
Defined Contribution Issues.
1B Attachments
3.2 Employees listed below be accepted into membership in the City of Clearwater's Employee's Pension Plan
as approved by the Pension Advisory Committee.
10 Attachments
3.3 Dennis Olmstead, Public Service Technician I, Public Services Department; Thomas Chaplinsky, Senior
Plans Examiner, Development & Neighborhood Services Department; and Philip Jackson, Police Officer,
Police 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.
10 Attachments
4. Other Business
5. Adjourn
Pension Trustees Agenda
Council Chambers - City Hall
Meeting Date:9/15/2008
SUBJECT / RECOMMENDATION:
Approve the minutes of the August 18 2008 Pension Trustee 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 3
TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING MINUTES
CITY OF CLEARWATER
August 18, 2008
Present: Frank Hibbard Chair
ohn Doran Trustee
orge N. Cretekos Trustee
Gibson Trustee
nt:
Willi
Jill
RA
P
To prOVENTO ntinuity
necessarily discussed in tha
2 - Approval of Minutes,
etersen Trustee
A
Horne, II City Manager
erboard Assistant City Manager
Assistant City Manager
Akin City Attorney
E. Goudeau City Clerk
is O. Sullivan Board Reporter
ng to t 2:46 p.m. at City Hall.
lhklre in agenda order although not
Trustee Gibson moved to appq f the Pen
14, 2008, as recorded and submitted en su y the
The motion was duly seconded and c unanimou
3 - Pension Trustee Items
3.1. Discuss Dresentation by Klausner & Kau Ian
Human Resources Director Joe Roseto sai Pension P
be continued as the Pension Plan attorney was unab to attendA
inclement weather.
Trustee Doran moved to continue Item 3.1 to Septem
seconded and carried unanimously.
3.2. EmDlovees listed below be accented into the Citv of Cleo
as approved by the Pension Advisory Committee.
Pension Trustees 2008-08-18
stees meeting of July
;rk to each TLweWmih.,
m ,
r that
eeting due
5, 2008. Th
E
s duly
' Pension PI
1
Item # 1
Attachment number 1
Page 2 of 3
Name. Job Class. & Deat./Div
Pension
Eligible
Hire Date Date
Richard Ottin Waste Equipment Oper./Solid Waste 06/09/08 06/09/08
David Marl /Fire 06/09/08 06/09/08
Greg Ke M 06/09/08 06/09/08
Sara ire Me 06/09/08 06/09/08
Tr r, Police Ca e 06/16/08 06/16/08
stee Cretekos moved ept the listed employees into membership in the City of
ter's Employees' Pension The motion was duly seconded and carried
mously.
ted regular
?ved by the
nsion
und?llllllllllllllllllllll11Ifon(s) 2.393 and 2.397 of the EMDlovees' Pension Plan as
roller, P pa
22, 1 ervice cr
Septembe ased on an
past five years, the formula for regu
100% Joint & Survivor Annui ension will
Raymond Boler t Public Services
employed by the City h 17, 1975 and his pe
September 22, 1975. HlVpension will be effective Ju
the
approximately $76,395 per year over
pensions, and Mr. Boler's selection of
approximate $67,679 annually.
These pensions were approve e PE
Section 2.393 provides for normal retir lig
and completed twenty years of credited s
or has reached age 65 and completed ten ye
under the 20 years of service and age 55 criteria
service criteria.
Services Department, was
,redit is effective on
ky, on an average salary of
r computing regular
this pension will
mitteel
r pant ha
thirtyears
Frvicervice.y
Ms.
r qualifies
Trustee Gibbson moved that Christina Keenan, Police
Public Services Department, be granted regular pensions u
the Employees' Pension Plan as approved by the Pension A
was duly seconded and carried unanimously.
age ool
rvice,
s
+ve
30 ge
nt, and Ray
;tion(s) 2.393 ron Committee under Sections 2.397 and 2.398 of the Em to ees' Pension Plan as a b the Pension
Advisory Committee.
Pension Trustees 2008-08-18
rtment, was employed by the City on August
on that date. Her pension will be effective
pproximately $63,594 per year over the
ions, and Ms. Keenan's selection of the
roximate te $34,242 annually.
2
Item # 1
Attachment number 1
Page 3 of 3
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 Empl sion Plan provides that should an employee cease to be an
employee of t ater or change status from full-time to part-time after completing
ten or more re ervice (pension participation), such employee shall acquire a
vested in e retire nefits. Vested pension payments commence on the first of
the mo ing the mont h the employee normally would have been eligible for
retir ection 2.393 (p) p for normal retirement eligibility when a participant has
r e 55 and completed ears of credited service, has completed 30 years of
service, or has reached a and completed ten years of credited service. Mr.
on would have completed a 20 years of service and reached age 55 on September
2011. His pension will be eff October 1, 2011. This pension was approved by the
ension Advisory Committee o 0, 2008.
Trustee Doran m
Mg vest his pence
The meeting a
Pension Trustees 2008-08-18
16ary Johnson, Solid Waste/General Services Department, be
Section 2.397 and 2.398 of the Employees' Pension Plan
ory C jjjWe. The motion was duly seconded and carried
Item # 1
Pension Trustees Agenda
Council Chambers - City Hall
Meeting Date:9/15/2008
SUBJECT / RECOMMENDATION:
Discuss the Klausner and Kaufman review of Retirement Options and Analysis of Defined Benefit-Defined Contribution Issues.
SUMMARY:
Review Approval: 1) Clerk
Cover Memo
Item # 2
Page 1 of 22
Klausner r? Kaufinan
PROFESS IOKALASSOC A'T10?:
NI-1 ORNEYS AT LAZY
MEMORANDUM
TO: Honorable Mayor and City Council
City of Clearwater
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 summarize 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 defined contribution plan.
Emerging trends over the past decade will also be discussed.
The City of Clearwater has been cominitted 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 corresponding disadvantage for the other plan, depending on
one's perspective. In the final analysis, counsel believes that maintenance of the current
defined benefit system is the optimum means of providing a meaningful retirement to the
10059 NORTHWEST 18T COURT, PLANTATION, FLORIDA 33324
PHONE: (954) 9 ] 6-1202 • FAX: (954) 915-1232 Item # 2
www.robertdklausner.com
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 defined 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/defined 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 from 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 monthly 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 contribution stability they provide for employers and the portability
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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 contribution 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 current 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 terminations, 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:
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Page 4 of 22
DEFINED BENEFIT AND DEFINED CONTRIBUTION PLAN
CHARACTERISTICS'
Cbaracteristies Defined Benert Plans Defined Contribution Plans
Guaranteed post-retirement Yes No. Annuity purchase options are
income expensive
Financial liability Rests on plan sponsor; actuarially funded Rests with participant, no actuarial
over 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 are lower, but large
variation results from individual
investment choices
Investment Fees Lower overall fees Higher 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
Plan 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 Attracts shorter tenured/younger
employees
Plan Closing Legacy issues and continuing funding Relatively simple
obligations are complex
Defined Benefit and Defined Contribution Plans: A Histog, Market Overview and Comparative Anal}isis,
Stephen P. McCourt, Benefits & Compensation Digest, February 2006, Exhibit "1 "• I+am if *?
_4?
Page 5 of 22
Background
Defined benefit plans (DB) specify the monthly benefit that vested employees will
receive upon reaching normal or early retirement eligibility. The monthly benefit is
generally based on a mathematical fonnula 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.'
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 minitrtum benefit standards, the City receives inoney 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 defined
contribution plan. These monies are the sole contributions to the supplemental plans.
Defined 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.
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Item # 2
Page 6 of 22
younger workers when an employer considers converting a DB plan into a Cash
Balance/Hybrid 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 government employees participate in DB
plans as their primary retirement benefit.' 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 401(k) plan, or no retirement plan
at all.'
3
4
Consistent with federal law, workers who are covered by hybrid plans are deemed to be members of a DB
plan, and are included in the 90% figure. Overview of Plan Types and Their Use Among Statewide
Retirement S)Ysterns, NASRA, April 2007, Exhibit "2".
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, 2006National Compensation Survey: Employee
Benefits in Private Industry in the United States. The Pension Protection Act of 2006 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 2001. Recent Changes in U.S.
Family Finances: Evidence from the 2001 and 2004 Sun+ey of Consumer Finances, The Federal Reserve
Bulletin, 2006, Composite Exhibit "3".
-G-
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Page 7 of 22
The National Association of State Retirement Administrators' and the National
Conference on Public Employee Retirement Systems' 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 defined 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."'
This approach is in keeping with the conventional wisdom that the ideal mix of retirement
income can be described as a "three-legged stool."' Under this metaphor, one leg
5
6
7
8
9
The National Association of State Retirement Administrators (NASRA) is a non-profit association whose
members are the directors of the 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.
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.
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 "W'.
tl Comparative Analysis of Defined Benefit acrd Defined Contribution Retirement Plants, Arizona State
Retirement System, September 22, 2006, Exhibit "5".
Profitable Prudence: The Case for Public Employer Defined Berteftt Plants, Gary Anderson and Keith
Brainard, Pension Resource Council, Wharton School, University of Pennsylvania, 2001, Exhibit 11611.
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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 plans1"
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
govermnental employers that do not participate in Social Security, the financial 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. " 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 ofadvantages and Disadvantages for- DB and DC Plan, GRS Research Memorandum, Sonnanstine,
Murphy and Zorn, November 17,2003; The Top Ten advantages ofMairatairring Defined Benefit Pensions,
NCPERS, May 2007, Composite Exhibit "7".
Defined Contribution Retirement Plan Study, prepared by GRS for the New Mexico Educational
Retirement Board, 2005, Exhibit "8".
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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. 1' 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.' Combined investment and administrative fees
paid by participants in smaller DC plans can exceed 2% of assets and can directly and
substantially impact retirement savings."
12
13
14
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 1% 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.
Defined Contribution Retire117071 Pla17 Study, prepared by GRS for the New Mexico Educational
Retirement Board, 2005, Exhibit "8".
Allyths and 71,fiscoMeptions of Defined Benefit and Defined Contribution Plans, National Association of
State Retirement Administrators, Whitepaper, November 2002, updated February 2005, Exhibit 'T". A
Comparative Analysis of Defined Benefit and Defined Contribution Retirement Plans, Arizona State
Retirement System, September 77, 2006, Exhibit "5".
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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 financial and retirement
planning issues for participants. Those who are not particularly interested in assuming
investment responsibility are able to rely on the DB plan's expertise and dependable
monthly income.' $
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 pen-nit 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 actuarially
calculated and DC plans 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 Case for Public Employer Defined Benefit Plays, Gary W. Anderson and Keith
Brainerd, Pension Resource Council, The Wharton School, University of Pennsylvania, 2004, Exhibit" 10".
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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 participant
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 participants 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-snaking 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 einpowennent 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 tuning, at least some DC investors will
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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 normal
cost component will remain the same, but an increasing amortization component will
-12-
Item # 2
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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 teen employees who separate prior to retirement eligibility
request direct lump sum distributions and do not take advantage of DC plan portability.
lb
Traditional Pensions: it Tried & True System that Benefits Taxpayers, NCPERS fact sheet 1; The [value of
Defined Benefit Plays, Issue Brief, The American Academy of Actuaries, July 2006, Composite Exhibit
-13-
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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 firm,
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." 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."
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
18
[Vatsonn IV)1att Says A)7rn1dti2S Will Improve DC Plan Optiorn, 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.
R'hat I,J? fl dding an Annuity to Improve Defrned Contribution Plan Options, Watson Wyatt Worldwide,
June 2007, Exhibit "13".
What Ip Addinng an,lrnnnrioy !o Improve Defitred Corztr•ibution 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 tune 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.
On Average DC Plans Generate Lanier Investment Returns and Involve the Risk of
Inadequate Savings: 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 I I% 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
20
Defined Contribution Retirement Plan .Study, prepared by GR5 for the New Mexico Educational
Retirement Board, 2005, Exhibit "8",
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.
TrPnde
Over the past several years the debate between the proponents of defined 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 .2' 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 defined 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
plans."
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
21
22
Overview of Plan Types and Their Use Aniong Slair-m4de Retirement Systems, NASRA, April 2007, Exhibit
"2"; Defined Contribution Experience in the Public Sector, Mark C. Olleman, Benefits & Compensation
Digest. February 2007, Exhibit "15".
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 PBGC. 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, governmental 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-opening 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.'' 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 alternative 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 alternative.'- After spending
$89 million to set up these DC accounts, initially fewer than five percent of eligible
23
24
The California Foundation for Fiscal Responsibility's press release, Exhibit "16", is available at
www.ealiforniapensionreform.com/initiative press release.htm; a copy of the 2007 initiative, Exhibit "17"
is available at www.ca]__iforn_iapensionrefonn.comlinitiative text.him
The FRS Investment Plan is also known 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.'-' Since 2002, the track record
has been better and more new hires have begun electing the state's DC plan.'b
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 1995, 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 2001 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-partisan research and public advocacy group which concluded:
Nearly all states use DB plans as their primary pension plans. A DB plan
is the appropriate vehicle for providing most public sector pensions. It
25
26
Florida State Board of Administration Fact sheet, Update on Choice hi the Florida Retirement System,
March 31, 2007, http://sbafla.com/pdf/news/Updatc%20on°/`20C]ioice.l)df Exhibit "18".
Florida State Board of Administration Fact Sheet, Update on Choice in the Florida Retirement Sysiem,
March 31, 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 2403 to 21% in 2006. During the first quarter of 2007, 26%
of new hires elected the FRS Investment Plan and 74% elected or defaulted into the FRS Pension Plan. Of
the total of 695,677 FRS members on March 31, 2007, 89% were participating in the FRS defined benefit
Pension Plan and I 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 fiinded DC plan, because a pension system can spread risk and
invests more effectively than most individuals, who tend to invest more
conservatively. Tlie 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 primary 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.'e
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 UAAL (unfunded actuarial
accrued liability) amount. Thus, employer contributions to the UAAL will be paid out as
a percentage of salary for a declining group, resulting in a higher employer amortization
payment.'' Additionally, offering a DC and DB option may increase costs due to adverse
selection. Informed employees should opt for the program they anticipate will best snatch
27 Public Employee Retirement, Time far Change. Public Affairs Research Council of Louisiana, Analysis No.
306,13aton Rouge, La. 2005, http;l/www.la-par.org/Publications/PDF/RetirementReporL005.pdf
28
NCPERS fact sheet 1, Traditional Pensions: A Tried & True System that Benefits Taxpayers, Exhibit "1 I"
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.30
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 2028.3' The first
annual savings would not occur until 201912020. 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 performed 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 Clearwater Plan is
professionally managed with returns at least equal to their assumed actuarial needs. The
30
31
32
33
Studyp of Retirement Plain Designs for the State of Colorado Office of the State Auditor, Buck Consultants,
November 2001, Exhibit "20".
NCPERS fact sheet 1, Traditional Pensions: A Tried & True System that Benefits Ta: pa),ers, Exhibit"I I"
The Milliman study is set forth in a letter to Marsha Richter, Chief Executive Officer for the Los Angeles
County Employees Retirement Association (LACERA) dated March 2, 2005, Exhibit "19".
Plan Design: 4 Review of Current Public Pension Issues, Kansas Public Employees Retirement System,
January 2000, Exhibit "21 ".
-20-
Item # 2
Page 21 of 22
Plan has vigorously pursued alternative 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 immediate loss of substantial revenues from the State of
Florida. The comparative analysis from 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 working lifetime of the closed group. It would be tantamount to shortening the
period of one's mortgage. The result is immediately 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 Pahn 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 terminated plan finding it had a constitutional and statutory duty to
honor its retirement obligations. See, Board of Trustees v. Town of Lake Park, 966 So.2d
448 (Fla. 4'!' DCA 2007). Similar results have been reached in courts throughout the
country.
The primary 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 Thnes, 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 diminishing personnel pool
to seek employment in other communities. Aging public safety workforces have created a
similar 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
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 comuritted 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 team programs are disruptive and ultimately diminish the likelihood
of economic success in those plans.
Counsel believes that abandonment or radical curtailment of the defined benefit
retirement program is directly contrary to sound employment practices. It will assuredly
result in the drainatic 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 quickly 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 info-nation requested.
Item # 2
Pension Trustees Agenda
Council Chambers - City Hall
Meeting Date:9/15/2008
SUBJECT / RECOMMENDATION:
Employees listed below be accepted into membership in the City of Clearwater's Employee's Pension Plan as approved by the Pension
Advisory Committee.
SUMMARY:
Pension
Name, Job Classification, & Department/Division Hire Date Elig Date
Kimberly Pierce, Police Com. Operator Trainee/Police 7/7/08 7/7/08
Christopher Mears, Solid Waste Equip. Oper./Solid Waste 7/7/08 7/7/08
Peter Puffer, Solid Waste Equip. Oper./Solid Waste 7/7/08 7/7/08
Louis Cobb, Solid Waste Worker/Solid Waste 7/21/08 7/21/08
Todd Deerwester, Solid Waste Worker/Solid Waste 7/21/08 7/21/08
Maria Roldan, Customer Service Rep./Customer Service 7/2/08 7/2/08
Review Approval: 1) Office of Management and Budget 2) Legal 3) Clerk 4) Clerk
Cover Memo
Item # 3
Pension Trustees Agenda
Council Chambers - City Hall
SUBJECT / RECOMMENDATION:
Meeting Date:9/15/2008
Dennis Olmstead, Public Service Technician I, Public Services Department; Thomas Chaplinsky, Senior Plans Examiner, Development
& Neighborhood Services Department; and Philip Jackson, Police Officer, Police 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:
Dennis Olmstead, Public Services Technician I, Public Services Department, was employed by the City on July 6, 1981, and his
pension service credit is effective on that date. His pension will be effective September 1, 2008.
Based on an average salary of approximately $51,886 per year over the past five years, the formula for computing regular pensions, and
Mr. Olmstead's selection of the Joint & Survivor Annuity, this pension will approximate $38,735 annually.
Thomas Chaplinsky, Senior Plans Examiner, Development & Neighborhood Department, was employed by the City on June 10,
1974, and his pension service credit is effective on that date. His pension will be effective October 1, 2008.
Based on an average salary of approximately $60,884 per year over the past five years, the formula for computing regular pensions, and
Mr. Chaplinsky's selection of the 100% Joint & Survivor Annuity, this pension will approximate $55,163 annually.
Philip Jackson, Police Officer, Police Department, was employed by the City on September 1, 1986, and his pension service credit is
effective on that date. His pension will be effective October 1, 2008.
Based on an average salary of approximately $68,325 per year over the past five years, the formula for computing regular pensions, and
Mr. Jackson's selection of the 100% Joint & Survivor Annuity, this pension will approximate $40,809 annually.
These pensions were approved by the Pension Advisory Committee on August 14, 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. Section 2.393 also provides for normal retirement eligibility
when a participant has completed twenty years of credited service or has reached age 55 and completed ten years of credited service in a
type of employment described as "hazardous duty" and further defines service as a Police Officer as meeting the hazardous duty
criteria. Mr. Olmstead qualifies under the 20 years of service and age 55 criteria. Mr. Chaplinsky qualifies under the 30 years of service
criteria. Mr. Jackson qualifies under the hazardous duty criteria.
Review Approval: 1) Clerk
Cover Memo
Item # 4