06/17/1996 (2)
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. PENSION
(TRUSTEES)
Board of Trustees of the Employees'
Pension Fund
Minutes
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Date
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ACTION AGENDA
Board of Trustees of the Employees' Pension Fund
June 17, 1996
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TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING
June 17, 1996
The City Commission, meeting as the Board of Trustees of the Employees' Pension
Fund, met in regular session at City Hall, Monday, June 17, 1 996 at 9: 1 0 A, M" with the
following members present: '
Rita Garvey
J. B. Johnson'
Robert Clark
Ed Hooper
Karen Seel
Chairperson
Trustee
Trustee
Trustee
Trustee
Also Present were:
Elizabeth M. Deptula
Pamela K. Akin
Cynthia E. Goudeau
ITEM #2 - Minutes:
City Manager
City Attorney
City Clerk
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Trustee Clark moved to approve the minutes of the June 3, 1996, meeting. The
motion was dUly seconded and carried unanimously.
ITEM #3 - Accept Actuary's Report for Employees' Pension Plan for plan year beginning
1/1/96 which requires city contribution of at least 6% (est. $2,652,538) of compensation
of all employees participating in the plan with the difference between the Florida Statutes
required contribution of $4,960,244 and the ,amount contributed by the City being
deducted from the existing credit balance of the plan (currently $4,801,302)
The actuarial valuation and report as of January 1, 1996 calls for a total required
contribution of $8,496,961. Employees are currently contributing 8% of salary,
anticipated to be $3,536,717. The difference to be contributed by the City of $4,960,244
is an increase of $1,218,340 from last year. This increase is primarily due to changes in
plan provisions effective January 1, 1996. Benefits payable under the Plan were increased
from 2.5% of average compensation per year of service to 2.75%. The plan's experience
in 1995 was very favorable, largely due to its investment performance, As a result, the
funded status of accumulated plan benefits increased from 131 % in 1995 to 140% in
1 996 in spite of the in'crease in benefits.
The Plan had a return of over 23% in 1995. Since the City uses a smoothing
approach to asset valuation, the difference between the actual return of 23% and the
assumed rate of 7% is spread over 5 years. Based upon this method, the actuarial return
for 1995 was 9.14% and $22,000,000 of existing investments are not recognized in
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determining the 1 996 funding requirement, This means thnt over the next four years, * of
this $22,000,000 will be recognized each year in addition to the Plan's ordinary investment
return. If this $22,000,000 were included in determining the 1996 funding requirement, it
would reduce the City's funding requirement from $4,960,000 to $2,202,000.
Having a credit balance is not a normal occurrence in a pension plan. The pension
fund credit balance was first established in 1991 when actual contributions were in excess
of those determined to be required. Excess contributions occur when the Florida Statute
required contribution is less than the plan required contribution. The credit balance
continued to increase in 1992 and 1993. In 1994 and 1995, due to increased contribution
requirements, approximately $250,000 and $1.2 million, respectively was deducted from
the credit balance. The current pension fund credit balance is approximately $4,801,302.
Interest earnings on the credit balance are added to the balance each year. The history of
the amount of the credit balance is as follows:
1/1/91
1/1/92
1/1/93
1/1194
111/95
1/1/96
$ 865,313
$ 925,885
$3,865,373
$4,894,904
$5,304,094
$4,801,302
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Steve Metz, the City's actuary, explained the averaging technique, the purpose of
which, is to even out the "bumps" in the required contributions. In response to questions,
Mr. Metz indicated the 7% assumption is moderately conservative and the required
contribution is partly due to unfunded liability. He emphasized that an unfunded liability is
not bad and most plans have one.
Discussion ensued regarding how payments are made by the City to the fund.
Concerns were expressed that the timing of the payments requires an additional 7%
surcharge and the City is not making 7% by holding the money. Van Horton, President
IAFF, expressed concern regarding this method of payment. Staff will investigate this
issue and come back with information regarding the most favorable method of payment.
Trustee Johnson moved to accept the Actuary's Report for the Employees' Pension
Plan for the plan year beginning 1/1/96 which requires city contribution of at least 6 % (est.
$2,652,538) of compensation of all employees participating in the plan with the difference
between the Florida Statutes required contribution of $4,960,244 and the amount
contributed by the City being deducted from the existing credit balance of the plan
(currently $4,801,302). The motion was duly seconded and carried unanimously.
ITEM #4 - Approve expenditure of $6.000 for Wittner & Company to revise & analyze a
RFP for pension administration services; prepare a recommendation to staff & Commission;
'and coordinate transition & implementation of the outsourcing
Changes to the Employees' Pension Plan that went into effect in the current year
change the plan to an IRS qualified plan which can be quite complicated to administer.
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Staff has determined the services of a Third Party Administrator will be required. As stated
in the Scope of Services letter submitted by Wittner & Company, they will provide the
services regarding the preparation and review of the RFP and coordinate the transition for a
price of $6,000. Staff has decided not to proceed with the cost analysis for in-house
pension administration, mentioned in the letter, at this time.
Staff has been satisfied with the services provided by Wittner and Company.
Funding is available in the Employees' Pension Fund.
Wittner & Company was hired in October of last year to prepare this same RFP for a
cost of $8,000. Unfortunately, due to lack of time between the approval of the plan and
the beginning of the next calendar year (needed to hire a firm by 1/1/96) only 2 bids were
received, and neither was acceptable to staff. It was decided at that time staff would self
administer the pian for 1996. Wittner & Company was paid only a portion ($4,500) of the
$8,000 fee for the work actually done. They were not paid the balance since no
implementation was required.
Ms. Rice indicated the payroll division currently does all the calculations. There are
complicated tax implications to be reviewed. People considering retirement also want
some investment advise as there are now 4 or 5 options versus only one. In response to a
question, Ms. Rice indicated she believed the cost for the administrator in the previous
response was around $25,000.
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Concerns were expressed regarding the City's liability in giving investment advise.
It was stated the employees need someone to turn to and the ramifications of each option
need to be explained.
Trustee Hooper moved to approve the expenditure of $6,000 for Wittner &
Company to revise and analyze a RFP for pension administration services; prepare a
recommendation to staff and Commission; and coordinate transition and implementation of
the outsourcing. The motion was duly seconded and carried unanimously.
ITEM #5 - Other Business:
Ms. Rice reported in the past no budget has been set for the administration of the
pension plan. Within the next couple of months the Trustees will be asked to approve a
budget in order to allow expenditures without each one having to come to the Trustees for
approval.
ITEM #6 - Adjournment; - 9:40 a.m.
ATTEST:~ Z. )j~.. .G...
, City Clerk
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