12/06/2010
CITY COUNCIL SPECIAL WORKSESSION MINUTES
PENSION PLAN CHANGES
CITY OF CLEARWATER
December 6, 2010
Present: Frank Hibbard Mayor
John Doran Vice-Mayor
George N. Cretekos Councilmember
Paul Gibson Councilmember
Bill Jonson Councilmember
Also present: William B. Horne II City Manager
Jill S. Silverboard Assistant City Manager
Rod Irwin Assistant City Manager
Robert Klausner Pension Plan Attorney
Pamela K. Akin City Attorney
Rosemarie Call City Clerk
Patricia O. Sullivan Board Reporter
The Mayor called the meeting to order at 1:00 p.m. at City Hall.
To provide continuity for research, items are in agenda order although not
necessarily discussed in that order.
1 – Opening Remarks by Mayor
The Mayor requested the City Council amend its rules so that the CDB (Community
Development Board) can plan its annual holiday luncheon that benefits charity.
Consensus was to so amend Council rules.
The Mayor said increasing costs spurred Council discussion regarding the need to make
Pension Plan changes. This is the first step in a measured process. Proposed changes will be
presented to voters in November 2012, following union bargaining and State approval.
2 – Introductions
– Joe Roseto, Human Resources Director
Human Resources Director Joe Roseto said while the Pension Plan is in good financial
shape, the current economic climate and investment losses have increased city mandated
contributions from 7% of pay to 24%. The City is compelled to explore options to control costs.
3 – Gabriel Roeder Smith & Co. Presentation
– J. Stephen Palmquist, ASA, MAAA
Actuary Stephen Palmquist, of Gabriel Roeder Smith and Co., provided a PowerPoint
presentation on the Plan Design Study of the City’s Pension Plan. Cost comparisons project
30-year funding requirements under various scenarios based on census, asset and overtime
pay data. Should the plan be maintained with current provisions, annual costs are projected to
increase for a few years due to poor asset performance in 2008 and then begin to decrease.
Council Special Work Session 2010-12-06 1
Mr. Palmquist reviewed suggested changes to the Plan and resulting savings: 1) change
normal form of benefit to life annuity for non-hazardous duty employees and 10-year certain and
life annuity for hazardous duty employees; 2) eliminate overtime pay from pensionable wages;
3) decrease multiplier to 2.5% for non-hazardous duty members; 4) decrease multiplier for
future service from 2.75% to 2.5% for all members; 5) increase employee contribution
requirement from 8% to 9% for non-hazardous duty members; 6) increase employee
contribution requirement from 8% to 9% for all members; 7) replace hazardous duty normal
retirement eligibility option of 20 years of service regardless of age with age 52 and 25 years of
service; 8) eliminate non-hazardous duty normal retirement eligibility option of 30 years of
service regardless of age; 9) change non-hazardous duty normal retirement eligibility option of
age 55 and 20 years to age 60 and 20 years; 10) reduce annual cost of living adjustment
(COLA) from 1.5% to 1.25%; 11) require five-year wait after retirement for 1.5% COLA to begin;
12) change line of duty disability from not less than 66 2/3% of final average pay to 42%; 13)
close Plan for new non-hazardous duty members and provide a defined contribution plan with
an 8% contribution by the City; 14) close Plan for new non-hazardous duty members and
provide a defined contribution plan with an 8% contribution by the City; freeze benefits of
existing non-hazardous duty members and provide defined contribution; 15) Lower maximum
benefit to 75% of final average pay; and 16) lower maximum benefit to fixed dollar amount of
$80,000.
Mr. Palmquist said a two-tier system would provide a more gradual reduction in savings.
Should more than one change be adopted, anticipated savings would need to be recalculated.
He recommended considering total retirement benefits; the current plan is adequate for those
who retire with considerable service to the City. Funding requirements are based on
assumptions such as annual investment returns of 7.5%, salary increases and mortality,
turnover, and retirement rates.
In response to questions, Pension Trustees Attorney Robert Klausner said the Pension
Plan currently is 11% of the City’s budget and anticipated 65% to 70% of Pension Plan costs will
come from investment gains, with the remainder from taxpayer and employee contributions.
Police Officer overtime cannot be limited to less than 300 hours a year. Mr. Palmquist said that
requirement would reduce estimated savings. The average retiree works for 22 to 23 years.
Mr. Klausner said people now work longer due to the need for health insurance benefits and a
shortage of jobs; a national shortage of Police Officers and Paramedics exists. Mr. Palmquist
said retired police and fire employees only need six additional years to vest in the Florida
retirement system and gain a second pension. The later a pension is paid, the longer funds are
collected to pay the benefit. Social security disability awards are difficult to secure.
Mr. Klausner said there is no rush in the public sector to convert to defined contribution
plans; 93% of public employees are covered by defined benefit plans. The City probably could
not regain its Social Security exemption if it cancels the current plan. Due to the lack of an
outside source of income, he said Minneapolis’ costs to cover its previous retirement plan
increased substantially after it joined the State plan. He will report if the City could retain its
exemption if it enrolls new employees in a defined contribution plan. Mr. Palmquist said a
defined contribution plan would affect city opportunities to make future investments. He said
defined benefit plans outperform defined contribution plans as most employees are not savvy
investors, do not have professional money management, and do not qualify for lower fees and
some lack discipline.
Council Special Work Session 2010-12-06 2
In response to questions, Mr. Klausner said closing the plan would provide no immediate
cost savings as earned benefits need to be paid for at least 40 years. Mr. Palmquist said State
law does not address the size of retirement account contributions; most public sector
contributions are 8% for low to mid level employees, in addition to 6.5% Social Security
contribution. He said the approximately $2 million annual contribution from the State would be
lost if Police and Fire staff are moved to a defined contribution plan.
4 – Council Discussion
It was questioned if estimates could include the cost of each scenario to employees with
concern expressed that that those costs could surpass savings. A 2008 study was referenced
that determined Clearwater benefits are not excessive and are less than provided by the Florida
Retirement System. It was felt while efficiencies can be found, the current plan is fair and
attractive and has retained employees at all levels.
Discussion ensued with comments that the City compares itself to the private sector but
competes in the public sector and government pension plans are designed to retain a well-
trained work force. It was noted that Louisiana retained its defined benefit plan following Katrina
to encourage the return of its workforce.
Regarding the proposal to limit benefits to a dollar amount, it was recommended that the
amount needs to be indexed for inflation.
Mr. Palmquist said changing the survivor benefit would provide significant savings and
requested input regarding which combinations of changes Council wishes him to cost analyze.
The City Council recessed from 2:38 to 2:49 p.m.
In response to questions, Mr. Klausner opposed a recent push for mandatory
participation in Social Security for governments as the risk is high. The 1986 Windfall
Elimination Provision significantly reduces the amount of earned Social Security benefits that
City retirees receive.
Additional information was requested regarding the following combinations: 1) exclude
overtime pay from pensionable earnings, replace 20-year service provision for hazardous duty
members with normal retirement eligibility at age 52 with 25 years of service, eliminate 30-year
service provision for non-hazardous duty members, change normal retirement for non-
hazardous duty members from age 55 with 20 years of service to age 60 with 20 years of
service; 2) change normal form of benefit to a life annuity for non-hazardous duty members,
exclude overtime pay from pensionable earnings, delay annual COLA five years after the benefit
commencement date, lower minimum duty disability benefit from 66 2/3% to 42% of final
average pay; 3) change normal form of benefit to a life annuity for non-hazardous duty
members, exclude overtime pay from pensionable earnings, replace 20-year service provision
for hazardous duty members with normal retirement eligibility at age 52 with 25 years of service,
eliminate 30-year service provision for non-hazardous duty members, change normal retirement
for non-hazardous duty members from age 55 with 20 years of service to age 60 with 20 years
of service, delay annual COLA five years after the benefit commencement date, lower minimum
duty disability benefit from 66 2/3% to 42% of final average pay and 4) change normal form of
benefit to life annuity for non-hazardous duty members, exclude overtime pay from pensionable
Council Special Work Session 2010-12-06 3
earnings, replace 20-year service provision for hazardous duty members with normal retirement
eligibility at age 52 with 25 years of service, delay annual COLA five years after the benefit
commencement date.
It was noted that most items represent savings of less than 10%. Support was
expressed for retaining the defined benefit plan. Opposition was expressed to capping benefits.
5 – Next Steps
Another Work Session on this issue will be scheduled after discussions at an Executive
Session.
6 - Adjourn
The Work Session adjourned at 3:11 p.m.
Council Special Work Session 2010-12-06 4