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HomeMy WebLinkAboutMinutes BOC 072006BUDGET OVERSIGHT COMMITTEE July 20, 2006 MINUTES The Budget Oversight Committee met on July 20, 2006 in the Council Chambers of the Municipal Complex, located at 10500 North Military Trail, Palm Beach Gardens, Florida. The meeting was called to order by the Chairperson, John Chaplik, at 8:36 AM. I. Roll Call Members Present: John Chaplik - Chairperson Harvey Goldberg - Vice Chairperson Martin Cohen - Committee member Also Present: Hal Valeche - Council Liaison Allan Owens - Finance Administrator /Staff Liaison Mary Anderson- Pickle - Deputy Finance Administrator Christine Tatum - City Attorney Jim Linn - Pension Attorney - Lewis, Longman & Walker Bob Bolton - Actuary - did actuary reports and analyzed the pension II. Approval of Minutes The Committee approved the minutes from the June 22, 2006 meeting. Martin Cohen requested a correction on the Actuaries Report showing the City Auditor as the single auditor to be utilized on all of the retirement plans. Having a single auditor will fix responsibility and improve disclosure. John Chaplik posed a question before the Committee regarding the Committee members and their titles; it was decided that members and their titles should be extended. Allan Owens stated that prior applications submitted two years ago from local persons have been contacted to see if they still have an interest in becoming committee members. Everyone contacted displayed an interest except for one person who had moved out of the area. The applications have been sent along with a cover letter to the City Clerk's office. The Oversight Committee, presently composed of three members, is supposed to have five members. Since the terms expire on October 1, 2006, the Council should have the other two members selected by the second meeting in September. John Chaplik Yes Harvey Goldberg Yes Martin Cohen Yes III. Actuary Report Florida Retirement System (FRS) Allan Owens introduced Jim Linn and Bob Bolton to the Committee. They are assisting the staff with the development of the Florida Retirement System plan for the City and with the transition from the present 401 K plan over to the Florida Retirement System. All Minutes: Budget Oversight 072006 Page governmental employees, by state law, are entitled to belong. Employees must pay the full cost; the employer does not have to supplement. The Committee brainstormed questions to present to the Florida Retirement System representative. Four main areas of concern were posed: • Compulsory Participation — Should local government join the Florida Retirement System as one entity, or separately as Police, Fire and General Employees? • Past Service benefits - What is the City obligated to provide? The City will have to make a decision to purchase past service. Since Florida Retirement System states that if an employee gets any benefit from a past plan (401K), they would not be eligible for the Florida Retirement System. Each employee will have to make an individual decision and consult with their own financial advisor to see what is best for them. New members will not have a choice between 401K and Florida Retirement System; they may only join the Florida Retirement System program. An employee must be employed six years to be vested, and must waive the employer -paid portion of the 401K to benefit from Florida Retirement System. The City may choose to pay for past service years out of the funds reverted back to them from the employees; however, the City will probably not put itself in the position to make that assurance. • Present Pension Plan — How will it dovetail and switch to the new plan? Unfunded Liabilities — Will require a change in the law; at present is it irrevocable? Recorded conference call began between Committee and Joyce Morgan, Florida Retirement System Division of Enrollment: Also on the conference call with Joyce Morgan were Minnie Watson and Ashley Garrett. The Committee asked Joyce Morgan to provide a list of cities that are making this type of transition. There are other cities that have made a transition from their old system over to the Florida Retirement System. Joyce Morgan will e -mail information on two of the last cities so the Budget Oversight Committee can speak with them. Jim Linn asked for the requirements for employees converting to the new system and how long would they have to work in order to be vested. Joyce Morgan replied that a member who presently has the 401K plan must waive all employer accrued benefits and let those funds revert back to the city; after one year working under the Florida Retirement System they would be vested and they may use their contribution or their own personal funds to purchase past service. If they leave before their one year passes, they will lose what they bought as past service unless they went to work for another agency that offers the Florida Retirement System program. New employees would work for six years before they were vested. A case -by -case basis is to be used when counseling individual employees in making their election. Each employee will receive a ballot to select which program they wish to belong to. This decision is irrevocable. When monies are reverted back to the City those funds can be used uniformly across the board to purchase past service for the employees. Information should be provided to each Minutes: Budget Oversight 072006 Page 2 employee so they will know the amount they will be reverting and how much the City will be using from those funds to purchase past service on a month -by -month basis. Employees will then have to choose if they wish to purchase past service from their own funds. Regular rate runs between 10% up to 17 %; special risk runs up to 22 %. Joyce Morgan will also research those rates and e -mail the exact amounts to Allan Owens. She stated that the current retirement plan will determine if the City may revert funds back to the employees to purchase past service. Health insurance subsidy is not tied to a particular retirement plan, and typically runs $5.00 for each year of service. For example, ten years times $5.00 would give a $50.00 health insurance subsidy. Employees have to apply separately for this subsidy. Action items resulting from conference call: Survivor and disability benefits information will be provided to Allan Owens. Minnie will provide the list of cities that have joined recently. Trish Schumacher will call Allan Owens and relate the 175 and 185 simple resolution packages so the Police and Fire defined benefit plan contribution rates can be figured. The Committee members thanked the Florida Retirement System team for their participation. The conference call was then terminated. Following the conference call, the Committee discussed the 175 and 185 plans, and determined the decision has to be made whether the plan will be terminated, or kept open for present members but closed to new members. Three separate resolutions must be made and adopted for the General Employees, Police and Fire pension plans. When the transfer is made, the Division of Retirement could take the position that the City needs to make up any unfunded liability so that the pension board could cash out the previous plan. That position is in litigation in Palm Beach County at the present time. A settlement rate is usually set out in the plan. Past service benefits for the Police and Fire plans is not paid out because they received a cash out figure; they can only purchase up to a 3% past service plan. On the non -union defined contribution plan for General Employees it is different; the City must fund the plan for everyone until they have made their decision on which plan they want to use, how they want to proceed, and until they are vested. It is an economic liability issue. The impact on the City cannot be determined until the decisions have been made; currently the City is paying the 14% rate for the 401 K plan; the Florida Retirement System defined benefit plan contribution would be at a 9% funding rate. A policy statement needs to be developed and released to the employees explaining what the rates are and how the rates would relate to them. The defined benefit plan for the Florida Retirement System is determined by the Legislature, and therefore is beyond the control of the City. Over the life of the plan, historically there have been spikes over the last ten years, but they have averaged out. Administrative costs and management costs would be better if the Florida Retirement System was utilized. The decision needs to be made whether to go with the defined benefit (DB) or the defined contribution (DC) system. Difference being, that one plan has the employee's contribution. The Florida Retirement System plan has been ranked as the number one plan. Switching the Police and Fire systems over would relieve the City of long term liabilities. Relating to General Minutes: Budget Oversight 072006 Page 3 Employees, next month a representative from the Florida Retirement System will be invited to speak to them regarding the plan. This information will be taken to Council. From a financial standpoint, it would be better for present General Employees to stay with the 401K plan. There is not political pressure; however, there is an investment risk. The 1.6% contribution rate has not varied over the past few years. It is probable that this 1.6% rate will increase due to the issue of increasing teacher numbers. By using the Florida Retirement System plan, rates will be determined by the Legislature; pensions for special risk go up to a 3% rate; monies are to come from the surplus funds. Calculation formulas are found within the Statues. Average length of employment for city employees runs about 7 or 8 years. The total experience of Florida Retirement System is that less than 10% of employees opt for the defined benefit plan. Discussion revealed that General Employees should be brought on board first, and then action should be taken to encourage the Police and Fire employee participation. From an employee relations view, it would be a commitment from management to equalize the types of benefits. A Motion was made, seconded and passed that the Committee develop a draft Resolution to the City to motivate the general employees to make a transition to the Florida Retirement System. After the Council makes the decision, it takes approximately 60 -days to formulate the budget, however, including the time it takes for the sign -up procedure, getting the ballots collected, and arranging for individual counseling, it will be approximately 90 days total. During discussion, Committee asked to review the financial impact by looking at a 20 -year history of costs and surplus amounts. The Florida Retirement System is providing some additional materials for the Committee to review that will also be helpful. At present the Budget Oversight Committee is planning on an 8% budget; mechanically it would be hard to get this accomplished by the end of the year. A retroactive target date not tied in to the budget would be October 1, 2006. IV. Proposed Budget An informative memo was distributed by Allan Owens to update the Committee on the budget process. Final property evaluation from the County is $9.2 billion, current proposed operating rate of 5.7 mills equals $881,000 to be added to reserves. The budget is to be presented to Council on August 17, 2006 and it will have a recommendation that the maximum millage rate be levied at 5.86 mills, 5.7 operating plus .16 debt rate. Prior to the first meeting in September, the City Manager will bring forth the plan. Reserve balance should be recommended to be brought up to 17% because of storms and values. This is influenced by existing home sales and assessments. A Motion was made, seconded, and passed. An additional comment was made by Allan Owens to increase the reserves. Allan Owens distributed a handout to the Committee for their consideration from the City Manager about the ideology to push a formula- driven budget, which shows how it had been tried in Colorado and other areas and that it was not successful. Minutes: Budget Oversight 072006 Page 4 Interim Report: Allan Owens is scheduled to attend the upcoming Police and Fire meetings in regard to the actuarial assumptions. John Chaplik and Harvey Goldberg will work on drafting a concise Interim Report to be forward via e -mail to Allan Owens. John Chaplik recommended the City Auditor be utilized for all of the pension plans. It is a material part of the City's financial structure. If necessary, Council can amend Ordinances to make this happen. Actual Operating and Capital expenses were about 3.14 %, 3.14% total expenditures less reserves, then less capital is 11.87 %. Minutes: Budget Oversight 072006 Page V. Adjournment With no further business to discuss the meeting adjourned at 11:29 a.m. Approved: ql J hn Chapli , Chairperson &�� ('s Z�77� 1 Harvey 0oldberg, Vice Chairp n /t— Martin Cohen, Committee Member Attest: Ray Ellis, Deputy Cit Clerk NOTE: These summary minutes are prepared in compliance with 286.011 F.S. and are not verbatim transcripts of the meeting. A verbatim audio recording is available from the Office of the City Clerk. Minutes: Budget Oversight 072006 Page 6