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06/17/1996 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, 1996 at 9:10 A.M., with the following members present: Rita Garvey Chairperson J. B. Johnson Trustee Robert Clark Trustee Ed Hooper Trustee Karen Seel Trustee Also Present were: Elizabeth M. Deptula City Manager Pamela K. Akin City Attorney Cynthia E. Goudeau City Clerk ITEM #2 - Minutes: 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 1996 in spite of the increase 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 determining the 1996 funding requirement. This means that over the next four years, ¼ 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 $ 865,313 1/1/92 $ 925,885 1/1/93 $3,865,373 1/1/94 $4,894,904 1/1/95 $5,304,094 1/1/96 $4,801,302 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. 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. 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 plan 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. Staff has been satisfied with the services provided by Wittner and Company. Funding is available in the Employees’ Pension Fund. 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. 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.