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06/13/2002PENSION ADVISORY COMMITTEE MEETING CITY OF CLEARWATER June 13, 2002 Present: Whitney Gray Acting Chair/Commissioner Hoyt P. Hamilton Committee Member/Commissioner Frank Hibbard Committee Member/Commissioner John Lee Committee Member John Schmalzbauer Committee Member Tom Jensen Committee Member Also Present: Rick Ebelke Interim Human Resources Director Scott Christiansen Pension Advisory Committee Attorney Margie Simmons Finance Director Deborah Ford Human Resources Analyst Brenda Moses Board Reporter The Acting Chair called the meeting to order at 9:00 a.m. at City Hall. To provide continuity for research, items are in agenda order although not necessarily discussed in that order. ITEM #2 – Selection of Seventh Member Member Jensen moved to appoint Joseph Egger as the seventh member of the PAC (Pension Advisory Committee). The motion was duly seconded and upon the vote being taken, Members Hamilton, Lee, Jensen and Schmalzbauer and Acting Chair Gray voted “aye”; Member Hibbard voted “nay”. Motion carried. ITEM #3 – Approval of Minutes of May 9, 2002 Member Hamilton moved to approve the minutes of the regular meeting of May 9, 2002, as recorded and submitted in written summation to each board member. The motion was duly seconded and carried unanimously. ITEM #4 – Employees to be Heard – None. ITEM #5 – Action Items Review and Action on Employee Requests for Years of Service Pension: Benjamin Sturgis, Police Member Lee moved to approve the Employee Request for Years of Service Pension for Benjamin Sturgis. The motion was duly seconded and carried unanimously. Review and Action on Employee Requests to Vest Pension: Donald Beckman, Solid Waste/General Services Member Schmalzbauer moved to approve the Employee Request to Vest Pension for Donald Beckman. The motion was duly seconded and carried unanimously. Approval of New Hires as Plan Members: As of June 6, 2002, the City had 1709.35 out of 1834.7 budgeted positions. Joanne Bunton was originally hired as permanent part-time; promoted to full-time and pension eligible as of April 29, 2002. Mary Anne Fetuuaho was originally hired as permanent part-time; status changed to full-time and pension eligible as of April 20, 2002. In response to a question, Human Resources Analyst Debbie Ford said newly hired Firefighter Schwartz would be on the next list, as his medical examination has not been received. Member Hamilton moved to accept these employees into membership in the Pension Plan: Pension Elig. Name, Job, Class, & Dept./Div. Hire Date Date Delaney Mulholland, Gas Tech I/Gas 4/29/02 4/29/02 Joanne Bunton, Library Assistant/Library 4/23/01 4/29/02 Mary Anne Fetuuaho, Library Assistant/Library 7/30/01 4/20/02 Itay Seigel, Utilities Chemist/Public Utilities 5/6/02 5/6/02 Theresa Irby, Police Comm. Operator Trainee/Police 5/6/02 5/6/02 Jim Halios, Rec. Program Support Tech/Parks & Rec. 5/6/02 5/6/02 Joey Sprecher, Accounting Clerk/Gas 5/20/02 5/20/02 Debey David, Police Communications Operator/Police 5/6/02 5/6/02 Juan Santos, TV Prod. Specialist/Public Comm. 5/20/02 5/20/02 Brent Peters, Sys. Programmer/Information Technology 5/20/02 5/20/02 Alex Rakita, Solid Waste Worker/Solid Waste 5/20/02 5/20/02 Simon George, Electro-Mechanical Tech/Pub. Utilities 5/20/02 5/20/02 Christopher Varnis, Mtce Worker II/Bldg. & Mtce. 5/18/02 5/18/02 Daniel Holcomb, Solid Waste Worker/Solid Waste 5/20/02 5/20/02 John Klinefelter, Firefighter/Fire 6/3/02 6/3/02 Anthony Gomillion, Firefighter/Fire 6/3/02 6/3/02 Kevin White, Firefighter/Fire 6/3/02 6/3/02 ITEM #6 – Pending/New Business Edward Kutta – Set Hearing on Job-connected Disability Request Discussion ensued regarding Members’ schedules and the length of the July 11, 2002, PAC meeting. Human Resources Analyst Debbie Ford said the City is not contesting the request, therefore, the hearing is not anticipated to be lengthy. Consensus was to schedule the hearing on Edward Kutta’s job-connected disability request for the July 11, 2002, meeting. Acceptance of the Actuary’s Report The January 1, 2002, actuarial report for the Employees’ Pension Plan indicates that a 3% City contribution is required ($1,766,058). This is an increase from the 2001 valuation, which required no City contribution. However, the City Ordinance governing the pension plan requires that the City contribute at least 7% of the compensation of all employees participating in the plan (estimated at $4,125,071). The minimum City contribution was affected by the following factors: 1) Changes in actuarial assumptions (this reduced the actuarial required contribution from 4.5% to 3%); 2) actuarial investment return of 7.4% in comparison to an assumed rate of 7% for plan year 2001 (2000 actuarial investment return was 12.42%); 3) actual salary increases of 5.9% in comparison to an assumed rate of 5% for plan year 2001 (2000 actual salary increases were 5.8%); 4) amortization of the plans initial unfunded liability was reduced due to the final partial year payment towards this liability; and 5) actual expenses for the plan year were $239,578 more than expected. The difference between the ordinance required contribution of $4,125,071 and the actuarial determined contribution of $1,766,058 will increase the existing credit balance, which is currently $21,360,525. This credit balance can be used to pay additional actuarial required City contribution above the ordinance required 7%. The Plan uses a phase-in approach of prior asset gains (losses) through a rolling five-year average used to “smooth” investment performance. The market value basis performance for the last five years (1997, 1998, 1999, 2000, and 2001, respectively) has been 17.49%, 16.74%, 18.61%, (3.43)%, and (5.16)%. As a result of the last 2 years’ poor investment market performance, the actuarial value of the assets of the plan exceeds the market value by almost $50 million. This deficit will be included in the actuarial value and will gradually increase the funding requirements. This is expected to result in the City required contributions exceeding the current 7% required in the next 4 to 6 years, even after taking advantage of the credit balance. The funded status of the plan (ratio of assets at market value to the actuarial present value of accumulated plan benefits) decreased from 162% at 1/1/00 to 148% at 1/1/01 to 137% at 1/1/02, primarily due to the poor plan investment performance for calendar years 2000 and 2001. The plan experienced a negative 3.43% investment return in 2000 and a negative 5.16% in 2001 due to the downturn in the stock market. Steve Metz, City actuary with Price Waterhouse Coopers, reviewed the Actuary’s Report for the City of Clearwater Employees’ Pension Plan for the Plan Year January 1, 2002 – December 31, 2002 in order to determine the contribution requirements for the 2002 - 2003 fiscal year. Since the last actuarial valuation of the Plan on January 1, 2001, there have been no changes in the Plan provisions or the actuarial cost method. The actuarial assumptions were changed in several respects: 1) The investment return was increased from 7% to 7.5%; 2) the salary scale was increased from 5% to 6%; 3) employee turnover rates were revised for male and female employees and separate rates were adopted for hazardous duty employees; 4) the mortality table was changed from the 1983 Group Annuity Mortality Table to the 1994 Group Annuity Reserving Table; and 5) the retirement age assumption was changed from 100% retirement at first eligibility for unreduced benefits to a table of decrements at different ages. The minimum required City contribution pursuant to Florida Statutes for the 2002 Plan year is $1,766,058 (excluding the credit balance of $21,360,525) compared to $0 for 2001. Prior to the changes in actuarial assumptions, the minimum for 2002 was $2,641,788. Although State law does not require any contributions for this fiscal year, the City ordinance establishing the Plan requires the City to contribute at least 7% of payroll. The minimum required contribution was affected by the following factors: 1) Changes in the actuarial assumptions; 2) an actuarial investment return of 7.40% in comparison to an assumed rate of 7% (for the 2001 Plan year); 3) actual salary increases of 5.9% in comparison to an assumed rate of 5% (for the 2001 Plan year); 4) amortization of the Plan’s initial unfunded liability was reduced due to the final partial year payment towards this liability; and 5) actual expenses for the year were $239,578 more than expected. The Plan’s credit balance is currently equal to $21,360,525, providing a cushion against future contributions. On the negative side, however, the actuarial value of assets of the Plan exceeds the market value by almost $50 million. Over the next four years, this deficit will be included in the actuarial value and will gradually increase the funding requirements. The funded status of the Plan decreased compared to the prior year, primarily due to less than expected returns on the market value of assets. The ratio of assets at market value to the actuarial present value of accumulated Plan benefits decreased from 148% at January 1, 2001, to 137% at January 1, 2002. The employer contribution is assumed to be made uniformly during the first two quarters of the fiscal year beginning on October 1, 2002. Differences in the investment return due to contributions actually being made at any other time will be recognized as an actuarial gain or less in the following valuation. The minimum required contribution represents a funding level, which will satisfy the minimum funding requirements under part VII, Chapter 112, Florida Statutes. Mr. Metz said Clearwater’s Employee Pension Plan is in better shape than most other cities’ pension plans. In response to a question, Mr. Metz said the intent to change the 7% funding level to 7.5% was made after discussions with an investment consulting firm used by Price Waterhouse Cooper, the City’s investment Committee, and review of all assumptions. Ms. Simmons said this is a long-term assumption. If, over the next two to three years, it appears returns would be bleak, it may be necessary to review these assumptions again. Mr. Metz explained how salary scales and investment return ratios are derived. In response to a question, Finance Director Margie Simmons said the Fireman’s Relief Pension Fund would require approximately four to five more years of funding, as it was originally under-funded. There are no active employees in that plan, just beneficiaries. Mr. Metz summarized the highlights of the actuary report, explained how excess funds are kept in the Plan as a credit balance, which is co-mingled into the asset value, and responded to questions. He said the Pension Plan is operated on a calendar year; the City operates on a fiscal year. It was requested that staff provide detailed expenses for calendar years 2000 and 2001. Member Hibbard moved to accept the Actuary Report as submitted. The motion was duly seconded and carried unanimously. Discussion of Pension Changes Interim Human Resources Director Rich Ebelke said the City is in negotiations with labor unions regarding pension changes. He presented and reviewed proposed changes to the plan and items under consideration. In response to a question, Pension Advisory Committee Attorney Scott Christiansen said his firm suggested some changes be made based upon discussion from union representatives and the City administration. The goal was to make the Plan more understandable and user-friendly. The normal retirement benefit and the joint annuity survivor benefit have been changed. Mr. Ebelke reviewed: 1) Timeline of events that may occur through a City referendum from May 7, 2002 to January 1, 2003; 2) goals of the Plan; 3) re-employment provisions; 4) membership provisions; 5) Board of Trustees; 6) average final compensation; 7) retirement benefit multiplier; 8) cost of living increase; 9) pre-retirement death benefit; 10) normal retirement benefit; 11) current benefit comparison between married and single members; 12) 15-year certain & life benefit comparison between married and single members; 13) extra duty assignment; 14) vesting; 15) comparing public and private vesting periods; 16) benchmark agencies vesting periods; 17) pension refund; 18) optional form of benefits; 19)conditions for false, misleading, or fraudulent statements; 20) prior governmental service including prior police, fire, or military service; 21) prior service buy-back; 22) deferred retirement option plan (DROP); and 23) public pension plan governance and structure by plan type. Mr. Christiansen noted those items that are currently in the Plan and those that are required by the State. Mr. Ebelke, Mr. Christiansen, and Ms. Simmons responded to questions from the PAC. The meeting recessed from 10:44 to 10:56 a.m. Discussion continued regarding the presentation. Ms. Simmons said she would bring back a request for increased cost for Mr. Metz’s services, as any reiterations of the plan requires payment. ITEM #7 – Director’s Reports – None. ITEM #8 – Committee Members to be Heard Member Lee requested that Mr. Householder’s case be heard as quickly as possible in order to prevent a no-pay status. Ms. Ford said staff is working on that case. Member Jensen requested that new Member Egger be provided with all pertinent PAC information, including today’s presentation materials. Ms. Simmons will brief Mr. Egger on these issues. Discussion ensued regarding the seventh member. Mr. Christiansen said that member could have been another City Commissioner or a citizen. It was remarked that 3 of the PAC members are to be elected; 3 appointed; and 1 selected by the other 6 PAC members. Everyone shared their reasons for voting for Mr. Egger as the seventh member. Mr. Christiansen said the PAC’s responsibility is to all the Pension Plan members; not the City or the unions. ITEM #9 – Adjournment The meeting adjourned at 11:53 a.m.