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11/18/1991 TRUSTEES OF THE EMPLOYEES' PENSION FUND MEETING November 18, 1991 The City Commission, meeting as the Board of Trustees of the Employees Pension Fund, met in regular session at City Hall, Monday, November 18, 1991 at 9:07 A.M., with the following members present: Rita Garvey Chairperson Lee Regulski Trustee William Nunamaker Trustee Richard Fitzgerald Trustee Sue Berfield Trustee Also Present were: Michael J. Wright City Manager Milton A. Galbraith, Jr. City Attorney Cynthia E. Goudeau City Clerk ITEM #2 - Minutes: Trustee Berfield moved to approve the minutes of the October 14, 1991, meeting. The motion was duly seconded and carried unanimously. ITEM #3 - Request for Acceptance into Membership: The City Manager presented the recommendation of the Pension Advisory Committee to approve membership for the employee(s) listed below: a) William Taggart, Jr. b) Edward Stiers c) Michael Olesh d) Kenneth Castelli e) James Donovan f) Paul Chute g) Dixie Fenwick h) Carolyn Parady i) Thomas Tague j) Virginia Larcom k) Brian Stettler Trustee Regulski moved to accept the recommendation of the Pension Advisory Committee. The motion was duly seconded and carried unanimously. ITEM #4 - Request for Pension: The City Manager presented the recommendation of the Pension Advisory Committee that Arthur Carpentieri be granted a regular pension under Section 26.34 and/or 26.37 of the Employees' Pension Plan. Trustee Regulski moved to accept the recommendation of the Pension Advisory Committee. The motion was duly seconded and carried unanimously. ITEM #5 - Appointment of Kalish & Ward, P.A. to assist in modifying the Pension Plan as necessary to achieve IRS "Qualification" and "Employer Pick-Up" of employee contributions at an estimated fee of $15,000 plus expenses Recently, a committee consisting of representatives of all four bargaining units, SAMP employees, and City management was formed to review the provisions of the Pension Plan. One consensus reached by the committee was to investigate adoption of an "Employer Pick-Up" of employee contributions under the provisions of Section 414(h) of the Internal Revenue Code. The advantage of such a provision is that employee contributions, currently made with after-tax dollars, become tax deferred along with the employer contributions. For employees who are in the 28% tax bracket (taxable income of at least $32,450 married or $19,450 single), this would increase take home pay by 2.24% (28% of 8%) of gross pay. For those employees in the next lower (15%) tax bracket, take home pay would increase by 1.2% of gross pay (15% of 8%). In return for this tax deferral, the employee would no longer be allowed to exclude his or her own contributions from taxation upon retirement. The savings achieved could either be retained by the employees in the form of a "no cost" salary increase, or returned to the plan to purchase additional benefits, subject to subsequent collective bargaining agreements. Adoption of the "Employer Pick-Up" under Section 414(h) first requires that the plan itself be "qualified" by the IRS. This will necessitate modifications to the plan language to limit pensions to 100% of final average salary, to provide for age 70 retirement, and other modifications yet to be determined. Any such modifications would, of course, need to be bargained with the unions, approved by the Trustees, and approved by the voters at a subsequent referendum. With the endorsement of the committee, city staff solicited proposals to provide technical assistance with this project from five firms suggested by individual committee members. The lowest fee proposal was from Kalish & Ward, and their representative, Roger Rovell, was invited to attend the committee meeting of October 11th to discuss the proposed project. The committee was impressed with Mr. Rovell's credentials and expertise in this area, and endorsed his appointment as consultant to assist the Pension Plan in this process. Staff anticipates the required redrafting of the Pension Ordinance will take about six months, at which time the final version, including the necessary "Employer Pick-Up" language, will be presented to the Trustees and the unions for approval. If both parties agree with the changes, the revised ordinance will be submitted to the IRS for an official "determination letter". It is likely the IRS will require additional changes which must also be approved by the unions and Trustees. This process could take an additional eight months to complete. Following final IRS approval, the new ordinance will be submitted to the voters for approval at a referendum. If approved, the "Employer Pick-Up" and the favorable tax treatment would begin immediately. If the referendum is defeated, the Plan would continue in force as it is today, without changes and without the favorable tax treatment for employee contributions. The referendum process could take up to four additional months, extending the estimated completion time for the entire project to eighteen months. The committee believes the potential benefits to the employees, with no corresponding additional cost to the City, make this project worthy of the time and effort required, and recommend approval to proceed as indicated. Dan Deignan, Finance Director, reviewed the changes to the Pension Plan that will be necessary in order to accomplish the "qualification" and "Employer Pick-Up". He stated other changes will probably be needed and a consultant is needed to assist the City in determining them. In response to a question, it was indicated that capping pension at 100% of the last five year average salary had been discussed in the past but never acted upon. Kathy Rice, Deputy City Manager, stated staff is working toward having the changes on the 1993 ballot. In response to a question, it was stated the proposed fee of $15,000 would be for the whole process and the Pension Fund would be used to fund this expense. Trustee Nunamaker moved to approve the appointment of Kalish & Ward, P.A. to assist the City in modifying the Pension Plan as necessary to achieve IRS "Qualification" and "Employer Pick-Up" of employee contributions at an estimated fee of $15,000 plus expenses. The motion was duly seconded and carried unanimously. ITEM #6 - Other Business: None. ITEM #7 - Adjournment: The meeting adjourned at 9:15 a.m.