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01/12/2015Monday, January 12, 2015 1:00 PM City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 Pension Trustees Meeting Agenda January 12, 2015Pension Trustees Meeting Agenda 1. Call To Order 2. Approval of Minutes 2.1 Approve the minutes of the November 17, 2014 Pension Trustees meeting as submitted in written summation by the City Clerk. 3. Citizens to be Heard Regarding Items Not on the Agenda 4. New Business Items 4.1 Approve the new hires for acceptance into the Pension Plan as listed. 4.2 Approve the following request of employees Betsy Clement, Public Communications Department; Theron Johnson, Solid Waste General Services Department; John Scott, Customer Service Department; and Keith Shive, Fire Department, for a regular pension as provided by Sections 2.416 and 2.424 of the Employees’ Pension Plan. 4.3 Approve the following request of employee James Stanley, Solid Waste General Services Department, to vest his pension as provided by Section 2.419 of the Employees’ Pension Plan. 4.4 Adopt the Actuarial Funding Policy for the City of Clearwater Employees’ Pension Plan. 5. Adjourn Page 2 City of Clearwater Printed on 1/8/2015 Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#14-872 Agenda Date: 1/12/2015 Status: Agenda ReadyVersion: 1 File Type: MinutesIn Control: Pension Trustees Agenda Number: 2.1 SUBJECT/RECOMMENDATION: Approve the minutes of the November 17, 2014 Pension Trustees meeting as submitted in written summation by the City Clerk. SUMMARY: APPROPRIATION CODE AND AMOUNT: USE OF RESERVE FUNDS: Page 1 City of Clearwater Printed on 1/8/2015 Pension Trustees Meeting Minutes November 17, 2014 City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 Meeting Minutes Monday, November 17, 2014 1:00 PM Council Chambers Pension Trustees Page 1 City of Clearwater Draft Pension Trustees Meeting Minutes November 17, 2014 Roll Call Present 5 - Chair George N. Cretekos, Trustee Doreen Hock-DiPolito, Trustee Jay E. Polglaze, Trustee Bill Jonson, and Trustee Hoyt Hamilton Also Present William B. Horne II - City Manager, Jill S. Silverboard - Assistant City Manager, Rod Irwin - Assistant City Manager, Pamela K. Akin – City Attorney, Rosemarie Call - City Clerk, Nicole Sprague - Official Records and Legislative Services Coordinator To provide continuity for research, items are listed in agenda order although not necessarily discussed in that order. Unapproved 1. Call To Order The meeting was called to order at 1:07 p.m. at City Hall. 2. Approval of Minutes 2.1 Approve the minutes of the October 13, 2014 Pension Trustees meeting as submitted in written summation by the City Clerk. Trustee Hock-DiPolito moved to approve the minutes of the October 13, 2014 Pension Trustees meeting as submitted in written summation by the City Clerk. The motion was duly seconded and carried unanimously. 3. Citizens to be Heard Regarding Items Not on the Agenda – None. 4. New Business Items 4.1 Approve the new hires for acceptance into the Pension Plan as listed. Body: SUMMARY: Pension Name, Job. Class, & Dept./Div. Elig. Date Kyia Price, Police Comm Operator Trainee, Police Dept 9/8/2014 Jacqueline Armstead, Comm Operator Trainee, Police Dept 9/8/2014 Wendy Ferlanie, Comm Operator Trainee, Police Department 9/8/2014 JaQuay Young, Police Comm Operator Trainee, Police Dept 9/8/2014 Lorraine Young, Accounting Clerk, Finance Department 9/8/2014 Valerie Hunter, Service Dispatcher, Gas Department 9/8/2014 Nikolas Papadopoulos, Traffic Signal Tech, Engineering Dept 9/8/2014 Patrick Competelli, Fire Inspector II, Fire Department 9/22/2014 Shawn Brown, Parking Enforcement Spec, Engineering Dept 9/22/2014 Page 2 City of Clearwater Draft Pension Trustees Meeting Minutes November 17, 2014 Sonja Cooper, Library Assistant, Library Department 9/22/2014 Trustee Polglaze moved to approve the new hires for acceptance into the Pension Plan as listed. The motion was duly seconded and carried unanimously. 4.2 Approve the following request of employees Stephen Coward, Fire Department and Kathy LaBelle, Solid Waste General Services Department, to vest their pensions as provided by Section 2.419 of the Employees’ Pension Plan. Stephen Coward, Fire Lieutenant, Fire Department, was employed by the City on March 4, 1996, and began participating in the Pension Plan on that date. Mr. Coward terminated from City employment on September 9, 2014. Kathy LaBelle, Administrative Analyst, Solid Waste General Services Department, was employed by the City on July 6, 1999 and began participating in the Pension Plan on that date. Ms. LaBelle terminated from City employment on September 16, 2014. The Employees’ Pension Plan provides that should an employee cease to be an employee of the City of Clearwater or change status from full-time to part-time after completing ten or more years of creditable service (pension participation), such employee shall acquire a vested interest in the retirement benefits. Vested pension payments commence on the first of the month following the month in which the employee normally would have been eligible for retirement. Section 2.416 provides for normal retirement eligibility for non-hazardous duty employees hired prior to the effective date of this reinstatement (January 1, 2013), a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of fifty-five years and completed twenty years of credited service; the date on which a participant has reached age sixty-five years and completed ten years of credited service; or the date on which a member has completed thirty years of service regardless of age. For non-hazardous duty employees hired on or after the effective date of this restatement, a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of sixty years and completed twenty-five years of credited service; or the date on which a participant has reached the age of sixty-five years and completed ten years of credited service. Ms. LaBelle will meet the non-hazardous duty criteria and begin collecting a pension in June 2019. Section 2.416 provides for normal retirement eligibility for hazardous duty Page 3 City of Clearwater Draft Pension Trustees Meeting Minutes November 17, 2014 employees, a member shall be eligible for retirement following the earlier of the date on which the participant has completed twenty years of credited service regardless of age, or the date on which the participant has reached fifty-five years and completed ten years of credited service. Mr. Coward will meet the hazardous duty criteria and begin collecting pension in April 2016. Trustee Hamilton moved to approve the following request of employees Stephen Coward, Fire Department and Kathy LaBelle, Solid Waste General Services Department, to vest their pensions as provided by Section 2.419 of the Employees’ Pension Plan. The motion was duly seconded and carried unanimously. 4.3 Approve the following request of employees Mark Behring, Information Technology Department; Thomas Bracalento, Police Department; Randy Cline, Marine and Aviation Department; Diane Fitzgerald, Public Communications Department; Gregory Pippins, Solid Waste General Services Department; and William Tedder, Finance Department, for a regular pension as provided by Sections 2.416 and 2.424 of the Employees’ Pension Plan. Mark Behring, Senior Systems Programmer, Information Technology Department, was employed by the City on June 4, 1984 and his pension service credit is effective on that date. His pension will be effective October 1, 2014. Based on an average salary of approximately $75,392.35 over the past five years, the formula for computing regular pensions and Mr. Behring’s selection of the 100% Joint and Survivor Annuity, this pension benefit will be approximately $60,744.36 annually. Thomas Bracalento, Police Officer, Police Department, was employed by the City on June 21, 1989 and his pension service credit is effective on that date. His pension will be effective October 1, 2014. Based on an average salary of approximately $82,717.21 over the past five years, the formula for computing regular pensions and Mr. Bracalento’s selection of the 50% Joint and Survivor Annuity, this pension benefit will be approximately $55,544.40 annually. Randy Cline, Marine Supervisor, Marine and Aviation Department, was employed by the City on April 29, 1985 and his pension service credit is effective on that date. His pension will be effective October 1, 2014. Based on an average salary of approximately $52,050.98 over the past five years, the formula for computing regular pensions and Mr. Cline’s selection of the Single Life Annuity, this pension benefit will be approximately $42,234.36 annually. Page 4 City of Clearwater Draft Pension Trustees Meeting Minutes November 17, 2014 Diane Fitzgerald, Public Information Coordinator, Public Communications Department, was employed by the City on April 20, 1988 and her pension service credit is effective on that date. Her pension will be effective October 1, 2014. Based on an average salary of approximately $59,174.32 over the past five years, the formula for computing regular pensions and Ms. Fitzgerald’s selection of the Single Life Annuity, this pension benefit will be approximately $43,037.40 annually. Gregory Pippins, Transfer Station Scales Operator, Solid Waste General Services Department, was employed by the City on December 28, 1987 and his pension service credit is effective on that date. His pension will be effective October 1, 2014. Based on an average salary of approximately $43,577.90 over the past five years, the formula for computing regular pensions and Mr. Pippins’ selection of the 66 2/3% Joint and Survivor Annuity, this pension benefit will be approximately $23,819.04 annually. William Tedder, Accountant, Finance Department, was employed by the City on February 19, 1988 and his pension service credit is effective on that date. His pension will be effective October 1, 2014. Based on an average salary of approximately $47,716.09 over the past five years, the formula for computing regular pensions and Mr. Tedder’s selection of the 50% Joint and Survivor Annuity, this pension benefit will be approximately $32,435.16 annually. Section 2.416 provides for normal retirement eligibility for non-hazardous duty employees hired prior to the effective date of this reinstatement (January 1, 2013), a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of fifty-five years and completed twenty years of credited service; the date on which a participant has reached age sixty-five years and completed ten years of credited service; or the date on which a member has completed thirty years of service regardless of age. For non-hazardous duty employees hired on or after the effective date of this restatement, a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of sixty years and completed twenty-five years of credited service; or the date on which a participant has reached the age of sixty-five years and completed ten years of credited service. Mr. Behring, Mr. Cline, Ms. Fitzgerald, Mr. Pippins and Mr. Tedder have met the non-hazardous duty criteria. Section 2.416 provides for normal retirement eligibility for hazardous duty employees, a member shall be eligible for retirement following the earlier of the date on which the participant has completed twenty years of credited service regardless of age, or the date on which the participant has reached fifty-five years and completed ten years of credited service. Mr. Bracalento has met the hazardous duty criteria. Page 5 City of Clearwater Draft Pension Trustees Meeting Minutes November 17, 2014 Trustee Jonson moved to approve the following request of employees Mark Behring, Information Technology Department; Thomas Bracalento, Police Department; Randy Cline, Marine and Aviation Department; Diane Fitzgerald, Public Communications Department; Gregory Pippins, Solid Waste General Services Department; and William Tedder, Finance Department, for a regular pension as provided by Sections 2.416 and 2.424 of the Employees’ Pension Plan. The motion was duly seconded and carried unanimously. 4.4 Approve the recommended pension plan expenditures for fiscal year 2015, totaling $309,000. The Employees’ Pension Plan does not have a legally required budget. However, the Trustees must approve all expenditures. The following are routine expenditures that staff is requesting approval of for administrative efficiency. The recommended expenditures for fiscal year 2015 reflect a $12,000, or 3.7% decrease from the fiscal 2014 expenditures. This decrease is primarily due to decreased administrative support charges from the Human Resources Department, along with a $5,000 decrease in estimated costs of post-employment physicals. Training and travel are the estimated costs of pension training and related travel, including fiduciary training for the Trustees and Pension Advisory Committee (PAC) members. This is a not-to-exceed amount given uncertainty regarding the number of Trustees and PAC members that may elect to pursue training. Reimbursements to the General Fund and Central Insurance Fund are for the cost of oversight and administration of the Plan. The reimbursements are for services provided by Human Resources, Payroll, and Finance personnel. The firm of Klausner, Kaufman, Jensen and Levinson currently serves as the Plan’s pension attorneys. Annual attorney fees also include medical bills for medical services authorized by the PAC. Money manager, performance measurement consulting, safekeeping, and actuary fees are all governed by contracts separately approved by the Trustees, and are not included in this agenda item total. APPROPRIATION CODE AND AMOUNT: 0646-xxxxx-5xxxxx (various pension plan expenditure codes) Page 6 City of Clearwater Draft Pension Trustees Meeting Minutes November 17, 2014 Trustee Hock-DiPolito moved to approve the recommended pension plan expenditures for fiscal year 2015, totaling $309,000. The motion was duly seconded and carried unanimously. 4.5 Approve a change in the Pension Plan’s actuarial cost method used for funding purposes, from the current Frozen Entry Age (FEA) method to the Entry Age Normal (EAN) actuarial cost method. The required implementation of Governmental Accounting Standards Board Statements 67 and 68 requires the City use the EAN actuarial cost method for financial reporting. It is not required for funding purposes. The EAN method is the most common method used throughout the State of Florida, and is also used by the Florida Retirement System. The Plan’s actuary recommends changing to the EAN method for funding purposes at this time. Per the actuary, the EAN method more accurately aligns plan funding with the accrual of benefits over the course of each participant’s expected period of employment with the City. Staff recommends changing to the EAN method for funding purposes, to follow the actuary’s recommendation, to aid in comparability to other plan’s, and for consistency with the financial reporting method required under GASB 67 and 68. In response to questions, Finance Director Jay Ravins said the unamortized gains under the EAN method are improving the City’s funded level, versus the current frozen entry age method. Actuary Pete Strong said the FEA method takes the current frozen unfunded liability that has been amortized over time as a fixed level amount and adds to that the recognized gains/losses. The EAN liability method takes a true actuarial liability calculation as it recognizes the accumulated benefits from year to year. A new mortality table was released approximately three weeks ago, which is not being recommended yet because it considers only the experience for private sector pensions plans and does not consider data from public sector employees like police and fire. Mr. Strong said a mortality table that considers public safety employees is expected to follow. The City’s pension plan is 97% funded. Page 7 City of Clearwater Draft Pension Trustees Meeting Minutes November 17, 2014 Trustee Polglaze moved to approve a change in the Pension Plan’s actuarial cost method used for funding purposes, from the current Frozen Entry Age (FEA) method to the Entry Age Normal (EAN) actuarial cost method. The motion was duly seconded and carried unanimously. 4.6 Provide guidance regarding proposed actuarial funding policy for the Plan. It is recommended that all defined benefit pension plans have a formal funding policy. A formal funding policy provides a long-term road map for plan funding and demonstrates prudent financial management of the plan. The Pension Funding Task Force 2013, including GFOA, ICMA, National League of Cities, and various other national organizations, recommended that all defined benefit pension plans adopt a formal funding policy. The City’s actuary has developed a draft funding policy for the Plan, per Appendix A of the report. Staff recommends adopting the proposed funding policy with the following changes: • Adopt the Entry Age Normal actuarial cost method and delete references to Frozen Entry Age method. • Amend the amortization periods to be 25 years, rather than 30 years, for changes in actuarial assumptions or methods. Also, amend the amortization period for plan benefit changes/amendments to be no longer than the average future working period of affected employees (determined at the time a benefit change/amendment is made). These periods are consistent with recent guidance from the Conference of Consulting Actuaries (White Paper on Public Sector Pension Funding issued September 2014). • Amend the Funding Target from “the funding objective is to achieve 100% funding” to “the funding objective is to achieve and maintain at least 100% funding”. • Amend language indicating Board “may” request studies of actuarial assumptions every six years to “must” request studies at least every six years, consistent with the pension ordinance requirement. • Staff is seeking guidance on any changes or additions the Trustees would like to the proposed funding policy. Staff intends to bring a final funding policy to the Trustees for approval at the December Trustees Page 8 City of Clearwater Draft Pension Trustees Meeting Minutes November 17, 2014 meeting. In response to questions, Actuary Pete Strong said the funding policy is a new concept and considered a good practice. A 100% funding target is a typical funding policy that provides more flexibility for the future than a funding target range (i.e., 95% - 120%) that would allow the ability to return funds to participants in the form of benefits. Finance Director Jay Ravins said based on the volatility of the plan and other occurrences (i.e., assumption changes, new mortality tables, etc.), it may be determined that a 125%-130% funding target range be appropriate and would not constitute overfunding. Mr. Strong said the 25-year amortization period is shorter than the current 30-year period. The 30-year period extends the liability from the current generation of taxpayers to the next. Trustee Hock-DiPolito moved to approve Item 4.6 as suggested. The motion was duly seconded and carried unanimously. 5. Adjourn The meeting adjourned at 1:32 p.m. Chair Employees’ Pension Plan Trustees Attest City Clerk Page 9 City of Clearwater Draft Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#14-767 Agenda Date: 1/12/2015 Status: Agenda ReadyVersion: 2 File Type: Action ItemIn Control: Pension Trustees Agenda Number: 4.1 SUBJECT/RECOMMENDATION: Approve the new hires for acceptance into the Pension Plan as listed. SUMMARY: Name, Job. Class, & Dept./Div.Pension Elig. Date Kelly Violante, Accounting Clerk, General Services Dept 11/17/2014 Deanna Foster, Recreation Program Support Tech, Parks and Rec Dept 11/17/2014 Delbert Foster, Solid Waste Worker, Solid Waste Department 11/17/2014 Jeffery Long, Solid Waste Worker, Solid Waste Department 11/17/2014 Deborah Svitak, Senior Accountant, Finance Department 11/17/2014 Norman Runkles, Police Aide, Police Department 11/17/2014 William Smith, Public Utilities Technician I, Public Utilities Department 12/1/2014 Jeffrey Gow, Accounting Technician, Solid Waste Department 12/1/2014 APPROPRIATION CODE AND AMOUNT: N/A USE OF RESERVE FUNDS: N/A Page 1 City of Clearwater Printed on 1/8/2015 BLANK INTENTIONALLY Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#14-757 Agenda Date: 1/12/2015 Status: Agenda ReadyVersion: 2 File Type: Action ItemIn Control: Pension Trustees Agenda Number: 4.2 SUBJECT/RECOMMENDATION: Approve the following request of employees Betsy Clement, Public Communications Department; Theron Johnson, Solid Waste General Services Department; John Scott, Customer Service Department; and Keith Shive, Fire Department, for a regular pension as provided by Sections 2.416 and 2.424 of the Employees’ Pension Plan. SUMMARY: Betsey Clement, Public Information Specialist, Public Communications Department, was employed by the City on August 1, 1990 and her pension service credit is effective on that date. Her pension will be effective February 1, 2015. Based on an average salary of approximately $56,679.15 over the past five years, the formula for computing regular pensions, and Ms. Clement’s selection of the 66 2/3% Joint and Survivor Annuity, this pension benefit will be approximately $38,616 annually. Theron Johnson, Solid Waste Service Coordinator, Solid Waste General Services Department, was employed by the City on October 15, 1984 and his pension service credit is effective on that date. His pension will be effective December 1, 2014. Based on an average salary of approximately $59,492.51 over the past five years, the formula for computing regular pensions and Mr. Johnson’s selection of the Single Life Annuity, this pension benefit will be approximately $55,468.32 annually. John Scott, Customer Service Director, Customer Service Department, was employed by the City on January 8, 1990 and his pension service credit is effective on that date. His pension will be effective February 1, 2015. Based on an average salary of approximately $92,237.68 over the past five years, the formula for computing regular pensions, and Mr. Scott’s selection of the 100% Joint and Survivor Annuity, this pension benefit will be approximately $59,938.32 annually. Keith Shive, Fire Medic, Fire Department, was employed by the City on January 15, 1990 and his pension service credit is effective on that date. His pension will be effective February 1, 2015. Based on an average salary of approximately $74,537.96 over the past five years, the formula for computing regular pensions, and Mr. Shive’s selection of the Single Life Annuity with a 10% partial lump sum distribution, this pension benefit will be approximately $46,755 annually. Section 2.416 provides for normal retirement eligibility for non -hazardous duty employees hired prior to the effective date of this reinstatement (January 1, 2013), a member shall be eligible for retirement following the earlier of the date on which a participant has reached the Page 1 City of Clearwater Printed on 1/8/2015 File Number: ID#14-757 age of fifty-five years and completed twenty years of credited service; the date on which a participant has reached age sixty -five years and completed ten years of credited service; or the date on which a member has completed thirty years of service regardless of age. For non-hazardous duty employees hired on or after the effective date of this restatement, a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of sixty years and completed twenty -five years of credited service; or the date on which a participant has reached the age of sixty -five years and completed ten years of credited service. Ms. Clement, Mr. Johnson and Mr. Scott have met the non -hazardous duty criteria. Section 2.416 provides for normal retirement eligibility for hazardous duty employees, a member shall be eligible for retirement following the earlier of the date on which the participant has completed twenty years of credited service regardless of age, or the date on which the participant has reached fifty -five years and completed ten years of credited service. Mr. Shive has met the hazardous duty criteria. APPROPRIATION CODE AND AMOUNT: N/A USE OF RESERVE FUNDS: N/A Page 2 City of Clearwater Printed on 1/8/2015 Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#14-758 Agenda Date: 1/12/2015 Status: Agenda ReadyVersion: 2 File Type: Action ItemIn Control: Pension Trustees Agenda Number: 4.3 SUBJECT/RECOMMENDATION: Approve the following request of employee James Stanley, Solid Waste General Services Department, to vest his pension as provided by Section 2.419 of the Employees’ Pension Plan. SUMMARY: James Stanley, Communications Technician, Solid Waste General Services Department, was employed by the City on November 1, 2004 and began participating in the Pension Plan on that date. Mr. Stanley terminated from City employment on November 15, 2014. The Employees’ Pension Plan provides that should an employee cease to be an employee of the City of Clearwater or change status from full -time to part-time after completing ten or more years of creditable service (pension participation ), such employee shall acquire a vested interest in the retirement benefits. Vested pension payments commence on the first of the month following the month in which the employee normally would have been eligible for retirement. Section 2.416 provides for normal retirement eligibility for non -hazardous duty employees hired prior to the effective date of this reinstatement (January 1, 2013), a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of fifty-five years and completed twenty years of credited service; the date on which a participant has reached age sixty -five years and completed ten years of credited service; or the date on which a member has completed thirty years of service regardless of age. For non-hazardous duty employees hired on or after the effective date of this restatement, a member shall be eligible for retirement following the earlier of the date on which a participant has reached the age of sixty years and completed twenty -five years of credited service; or the date on which a participant has reached the age of sixty -five years and completed ten years of credited service. Mr. Stanley will meet the non-hazardous duty criteria and begin collecting a pension in January 2019. Section 2.416 provides for normal retirement eligibility for hazardous duty employees, a member shall be eligible for retirement following the earlier of the date on which the participant has completed twenty years of credited service regardless of age, or the date on which the participant has reached fifty-five years and completed ten years of credited service. APPROPRIATION CODE AND AMOUNT: N/A Page 1 City of Clearwater Printed on 1/8/2015 File Number: ID#14-758 USE OF RESERVE FUNDS: N/A Page 2 City of Clearwater Printed on 1/8/2015 Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#14-849 Agenda Date: 1/12/2015 Status: Agenda ReadyVersion: 1 File Type: Action ItemIn Control: Pension Trustees Agenda Number: 4.4 SUBJECT/RECOMMENDATION: Adopt the Actuarial Funding Policy for the City of Clearwater Employees’ Pension Plan. SUMMARY: The Pension Funding Task Force 2013, including GFOA, ICMA, National League of Cities, and various other national organizations, recently recommended that all defined benefit pension plans adopt a formal funding policy. A formal funding policy provides a long -term road map for plan funding and is a component of prudent financial management of the plan The City’s actuary has developed a funding policy for the City of Clearwater Employees’ Pension Plan. The Trustees reviewed a draft funding policy at the November 2014 Trustees meeting and all Trustee recommendations have been incorporated into the policy for adoption. APPROPRIATION CODE AND AMOUNT: N/A USE OF RESERVE FUNDS: N/A Page 1 City of Clearwater Printed on 1/8/2015 City of Clearwater Employees’ Pension Plan Actuarial Funding Policy Adopted: January 12, 2015 - 1 - FUNDING OBJECTIVES The main funding objective for the defined benefit provisions of the City of Clearwater Employees’ Pension Plan (Plan) is to establish and receive employer (City and State, if any) contributions, expressed as a percentage of active member payroll, which will remain approximately level from year to year and will not have to be increased for future generations of citizens in the absence of benefit changes. This objective is stated in the Plan’s Ordinance and meets the requirements of Part VII, Chapter 112, Florida Statutes, Chapter 175, Florida Statutes, and Chapter 185, Florida Statutes. The employer contributions along with member contributions are to be used for funding the long- term costs of benefits, provided by the Ordinance and collective bargaining agreements, for Plan members and beneficiaries. Additionally, the City is responsible for contributing administrative expenses. From the perspective of the members and beneficiaries, the funding objective is for assets and actuarially determined contributions to be sufficient to pay all benefits provided by Plan when due. From the perspective of the contributing plan sponsors and taxpayers, there are additional funding objectives of keeping the actuarially determined contribution rates relatively stable as a percentage of active member payroll and equitably allocating the costs over the active members’ periods of active service. For pension funding, the payment of benefits is supported in part by income earned on investment assets. This actuarial funding policy meets these objectives. It is stipulated by state law and collective bargaining agreements and is implemented through the application of Board adopted governance policies. Statutory Pension Funding Policy – Ordinance The Ordinance for the Plan sets forth some portions of the actuarial funding policy for the Plan. Ordinance Excerpts: Sec. 2.413. Plan administration. (i) Actuarial valuation; actuarial standards. (1) At least once in each six (6) year period, the trustees shall cause an actuarial investigation to be made into the mortality, service and compensation experience of the members of the retirement plan. Taking into account the result of such investigation, the trustees shall adopt for the retirement plan such mortality, service and other tables as are necessary and proper. On the basis of these tables, an annual actuarial valuation of the assets and liabilities of the retirement plan shall be made. (2) Actuarial assumptions based on the six (6) year experience analysis may be modified by the trustees at such times as they deem appropriate. City of Clearwater Employees’ Pension Plan Actuarial Funding Policy Adopted: January 12, 2015 - 2 - Sec. 2.415. Contributions to the plan. (b) Employer contributions. (1) For each plan year, the employer shall make contributions to the plan in an amount equal to a. Seven percent of the compensation of all employees participating in the plan; plus b. Such additional amounts as may be required to satisfy the plan's funding requirements for the plan year and the cost of administering the plan, as determined by the actuary employed by the trustees. (2) The amount described in subparagraph (b)(1)b. above may be reduced by any available credit balance in accordance with applicable Florida Statutes. Statutory Pension Funding Policy – Florida Statutes Chapter 112, Florida Statutes sets forth some portions of the actuarial funding policy for the Plan. Chapter 112 Excerpts: 112.63 Actuarial reports and statements of actuarial impact; review. (1) Each retirement system or plan subject to the provisions of this act shall have regularly scheduled actuarial reports prepared and certified by an enrolled actuary. The actuarial report shall consist of, but shall not be limited to, the following: (a) Adequacy of employer and employee contribution rates in meeting levels of employee benefits provided in the system and changes, if any, needed in such rates to achieve or preserve a level of funding deemed adequate to enable payment through the indefinite future of the benefit amounts prescribed by the system, which shall include a valuation of present assets, based on statement value, and prospective assets and liabilities of the system and the extent of unfunded accrued liabilities, if any. (b) A plan to amortize any unfunded liability pursuant to s. 112.64 and a description of actions taken to reduce the unfunded liability. (2) The frequency of actuarial reports must be at least every 3 years commencing from the last actuarial report of the plan or system or October 1, 1980, if no actuarial report has been issued within the 3-year period prior to October 1, 1979. The results of each actuarial report shall be filed with the plan administrator within 60 days of certification. Thereafter, the results of each actuarial report shall be made available for inspection upon request. Additionally, each City of Clearwater Employees’ Pension Plan Actuarial Funding Policy Adopted: January 12, 2015 - 3 - retirement system or plan covered by this act which is not administered directly by the Department of Management Services shall furnish a copy of each actuarial report to the Department of Management Services within 60 days after receipt from the actuary. The requirements of this section are supplemental to actuarial valuations necessary to comply with the requirements of s. 218.39. (3) No unit of local government shall agree to a proposed change in retirement benefits unless the administrator of the system, prior to adoption of the change by the governing body, and prior to the last public hearing thereon, has issued a statement of the actuarial impact of the proposed change upon the local retirement system, consistent with the actuarial review, and has furnished a copy of such statement to the division. Such statement shall also indicate whether the proposed changes are in compliance with s. 14, Art. X of the State Constitution and with s. 112.64. 112.64 Administration of funds; amortization of unfunded liability. (1) Employee contributions shall be deposited in the retirement system or plan at least monthly. Employer contributions shall be deposited at least quarterly; however, any revenues received from any source by an employer which are specifically collected for the purpose of allocation for deposit into a retirement system or plan shall be so deposited within 30 days of receipt by the employer. All employers and employees participating in the Florida Retirement System and other existing retirement systems which are administered by the Department of Management Services shall continue to make contributions at least monthly. (2) From and after October 1, 1980, for those plans in existence on October 1, 1980, the total contributions to the retirement system or plan shall be sufficient to meet the normal cost of the retirement system or plan and to amortize the unfunded liability, if any, within 40 years; however, nothing contained in this subsection permits any retirement system or plan to amortize its unfunded liabilities over a period longer than that which remains under its current amortization schedule. (3) For a retirement system or plan which comes into existence after October 1, 1980, the unfunded liability, if any, shall be amortized within 40 years of the first plan year. < The reference to 40 years is historical. All current and future unfunded liabilities shall be amortized within 30 years. > (4) The net increase, if any, in unfunded liability under the plan arising from significant plan amendments adopted, changes in actuarial assumptions, changes in funding methods, or actuarial gains or losses shall be amortized within 30 plan years. (5) (a) If the amortization schedule for unfunded liability is to be based on a contribution derived in whole or in part from a percentage of the payroll of the system or plan membership, the assumption as to payroll growth shall not exceed the average payroll growth for the 10 years prior to the latest actuarial valuation of the system or plan unless a transfer, merger, City of Clearwater Employees’ Pension Plan Actuarial Funding Policy Adopted: January 12, 2015 - 4 - or consolidation of government functions or services occurs, in which case the assumptions for payroll growth may be adjusted and may be based on the membership of the retirement plan or system subsequent to such transfer, merger, or consolidation. (b) An unfunded liability amortization schedule that includes a payroll growth assumption and is in existence on September 30, 1996, or is established thereafter, may be continued using the same payroll growth assumption, or one not exceeding the payroll growth assumption established at the start of the schedule, regardless of the actual 10-year average payroll growth rate, provided that: 1. The assumptions underlying the payroll growth rate are consistent with the actuarial assumptions used to determine unfunded liabilities, including, but not limited to, the inflation assumption; and 2. The payroll growth rate is reasonable and consistent with future expectations of payroll growth. (c) An unfunded liability amortization schedule that does not include a payroll growth assumption and is in existence on September 30, 1996, or is established thereafter, may be continued or modified to include a payroll growth assumption, provided that such assumption does not exceed the 10-year average payroll growth rate as of the actuarial valuation date such change in the amortization schedule commences. Such schedule may be continued thereafter, subject to the reasonable and consistent requirements in paragraph (b). (6) Nothing contained in this section shall result in the allocation of chapter 175 or chapter 185 premium tax funds to any other retirement system or plan or for any other use than the exclusive purpose of providing retirement benefits for firefighters or police officers. 112.66 General provisions. (13) A local government sponsor of a retirement system or plan may not reduce contributions required to fund the normal cost. This subsection does not apply to state-administered retirement systems or plans. City of Clearwater Employees’ Pension Plan Actuarial Funding Policy Adopted: January 12, 2015 - 5 - Portions of Funding Policy Established By Board of Pension Trustees: Actuarial Cost Method The Board of Pension Trustees has adopted the use of the Entry Age Normal actuarial cost method to determine annual contribution requirements for the Pension Plan. Entry Age Normal Under the Entry Age Normal Actuarial Cost Method, an annual level normal cost is calculated for each individual active member, payable from the date of employment to the date of retirement, that is sufficient to accumulate to the value of the member’s benefit at the time of decrement/retirement. Each annual normal cost is calculated as a constant percentage of that member’s year by year projected covered pay. Under this method, actuarial experience gains (losses) are explicitly recognized each year as they occur. They reduce (increase) the Unfunded Actuarial Accrued Liability, and they are amortized separately. The initial Unfunded Actuarial Accrued Liability (UAAL) is amortized over a period of time. Subsequent changes in the UAAL due to actuarial experience gains and losses, amendments, and changes in actuarial assumptions or methods are recognized in the UAAL and amortized over a reasonable period of future years. Asset Valuation Method The Actuarial Value of Assets is based on the market value with investment gains and losses smoothed over five years. The Actuarial Value of Assets will not consistently be above or below the Market Value and is expected to converge to the Market Value in a relatively short period of time. At any time it may be either greater or less than Market Value. During periods when investment performance exceeds the assumed rate, the Actuarial Value of Assets will tend to be less than Market Value. During periods when investment performance is less than the assumed rate, the Actuarial Value of Assets will tend to be greater than Market Value. If assumed rates are exactly realized for five consecutive years, the Actuarial Value will become equal to Market Value. The Actuarial Value is limited to a 20% corridor around the Market Value. This means that if the preliminary development of the Actuarial Value results in an amount that is greater than 120% of the Market Value (or less than 80% of the Market Value), the final Actuarial Value is limited to 120% (or 80%) of the Market Value. Any gains or losses on the Market Value outside of the 20% corridor are therefore recognized immediately. City of Clearwater Employees’ Pension Plan Actuarial Funding Policy Adopted: January 12, 2015 - 6 - Amortization Method Amortization periods of up to 30 years or the maximum period allowed by standards adopted by the Government Accounting Standards Board (GASB), whichever is less. Under GASB Statements Nos. 25 and 27, the GASB accounting standards provided broad guidelines on plan funding. The GASB Statements Nos. 67 and 68 do not address plan funding and only address financial reporting. This Actuarial Funding Policy does not attempt to comply directly with promulgations of GASB. The annual actuarial valuation determining the City contribution rates shall use 25-year closed amortization periods for changes in actuarial assumptions or methods and 15-year closed amortization periods for actuarial experience gains and losses. For amendments that apply to active members, the amortization period shall be determined based on the average expected future service of the active members affected by the amendment. For amendments that apply to inactive members, the amortization period shall be determined based on the average expected remaining lifetime of the inactive members affected by the amendment. Amortization bases will be combined, in accordance with the methodology described for combining and offsetting amortization bases under Internal Revenue Code Section 412(b), if the sum of the outstanding bases is positive while the sum of the amortization payments is negative, or vice versa. Amortization bases may also be combined to reduce volatility in the required employer contributions if adopted by the Board of Pension Trustees based upon the advice and recommendation of the Plan’s actuary. Actuarial Assumptions The actuarial assumptions used will be those last adopted by the Board based upon the advice and recommendation of the Plan’s actuary. The City Ordinance requires the actuary to perform an actuarial investigation into the experience of the Plan every six years to form the basis for recommendations for changes in the actuarial assumptions. Funding Target The funding objective is to achieve and maintain at least 100% funding. For this purpose, “100% funding” means that the Actuarial Value of Assets equals the Actuarial Accrued Liability. The amortization method allows up to 25 years to achieve this objective. Risk Management The main financial objective of this actuarial funding policy is to fund the long-term costs of benefits to plan members and beneficiaries. There are numerous risks that the Plan faces in trying to achieve this objective including funding risk, demographic risk, investment risk, and benefit risk. The Board policies for managing these risks are outlined in this section. City of Clearwater Employees’ Pension Plan Actuarial Funding Policy Adopted: January 12, 2015 - 7 - Funding Risk Frequency of Actuarial Valuations Regular valuations manage funding risk by allowing employer contribution rates to reflect actual experience as it emerges. Funding valuations are performed every year as of January 1 to determine employer contribution amounts for the fiscal year beginning nine months later. Separate valuations are required for financial reporting under GASB 67 and 68. Demographic and Investment Risk Process for Reviewing and Updating Actuarial Assumptions The Board adopts actuarial assumptions based on recommendations of the Plan’s actuary. Demographic and investment risks may be managed in part by having regular reviews of the actuarial assumptions. The City Ordinance requires the actuary to perform an actuarial investigation into the experience of the Plan every six years. Once in receipt of the experience study report, the Board will adopt actuarial assumptions and methods as necessary. If circumstances warrant, the Board may change assumptions more frequently after conferring with the actuary and when investment risks are involved, the investment consultant. The experience study report shall include, but not necessarily be limited to, analysis of and recommendations regarding the following assumptions: i. Pre-retirement withdrawal rates ii. Retirement rates iii. Disability rates iv. Pay increase rates v. Mortality rates both before and after retirement vi. Investment returns considering both real return and inflation, which must be consistent with the investment policy The actuary shall assume no change in the active member population unless there is compelling evidence to support the expectation of a significant increase or decrease in the workforce covered by the Plan. The experience study report will serve as the basis for determinations by the Board regarding whether or not demographic or economic assumptions should be modified for future valuations. City of Clearwater Employees’ Pension Plan Actuarial Funding Policy Adopted: January 12, 2015 - 8 - Chapter 112.661 (9), Florida Statutes specifies the investment policy adopted by the Board must include a requirement that the Board shall determine the total expected annual rate of return for the current year, for each of the next several years, and for the long term thereafter. This determination must be filed promptly with the Department of Management Services and with the plan’s sponsor and the consulting actuary. Responding to Favorable/Unfavorable Investment Experience Investment risk is addressed in the investment consultant’s quarterly reports. Annual investment experience other than assumed is reflected in the valuation asset method described above. Asset Liability Studies The Board adopts an asset allocation based on recommendations from the investment consultant. The asset allocation approved by the Board may reflect the results of periodic Asset Liability Studies, if performed. Risk Measures In order to quantify the risks outlined in this actuarial funding policy, the following metrics will be included in annual actuarial valuation reports. These metrics provide quantifiable measurements of risk and its movement over time: i. Funded ratio (Actuarial Value of Assets divided by Actuarial Accrued Liability). − Measures progress towards the funding objective of the 100% target funded ratio. ii. Total Unfunded Actuarial Accrued Liability (UAAL) divided by Total Payroll − Measures the risk associated with contribution decreases relative impact on the ability to fund the UAAL. A decrease in this measure indicates a decrease in contribution rate risk. iii. Total Actuarial Accrued Liability (AAL) divided by Total Payroll − Measures the risk associated with the ability to respond to liability experience through adjustments in contributions. A decrease in this measure indicates a decrease in liability experience risk. This also provides a long-term measure of the asset risk in situations where the Plan has a funded ratio below 100%. iv. Total Actuarial Value of Assets divided by Total Payroll − Measures the risk associated with the ability to respond to asset experience through adjustments in contributions. A decrease in this measure indicates a decrease in asset experience risk. City of Clearwater Employees’ Pension Plan Actuarial Funding Policy Adopted: January 12, 2015 - 9 - Benefit Risk Benefit risk may be managed as follows: The Board shall review proposals and legislative changes for the potential legal, administrative, Internal Revenue Code compliance, and funding impact on the Fund. If a proposal has the potential for a meaningful impact on plan funding, the Board shall consult with the actuary to estimate the actuarial impact to the Plan. The Board does not establish the benefit provisions; it administers them. Miscellaneous Matters Associated with Funding: Overall Conformance with Professional Standards of Practice By law, the actuary shall be an Enrolled Actuary and either a Member of the American Academy of Actuaries or an Associate or a Fellow of the Society of Actuaries. The work of the actuary in connection with this policy shall conform to Actuarial Standards of Practice for public employee retirement plans promulgated by the Actuarial Standards Board and shall satisfy the requirements of the Governmental Accounting Standards Board with respect to the development of information needed by the Fund and by the City for financial reporting purposes.