HomeMy WebLinkAboutAgenda Budget Oversight 011106CITY OF PALM BEACH GARDENS
10500 N Military Trail
Palm Beach Gardens, Fl 33410
BUDGET OVERSIGHT COMMITTEE
NOTICE OF MEETING AND AGENDA
Please take notice that the Budget Oversight Committee of the City of
Palm beach Gardens will conduct a meeting of the committee at the
above location on January 11, 2006 at 8:30 AM in Council Chambers.
I. Roll Call
II. Appoint committee Chairperson
III. Approval of minutes from the June 14, 2005 meeting
IV. Approval of minutes from the June 21, 2005 meeting
V. Review proposed Police Pension Plan benefit enhancement
(including discussion of draft reports prepared by John Chaplik
and Marty Cohen).
VI. Review budget timetable and goals for coming year
VII. Adjournment
DISABILITY INFORMATION
In accordance with the Disabilities Act and F.S.S 286.26, persons with
disabilities needing special accommodation to participate in this proceeding
should contact the Human Resource Department no later then seven days
subsequent to the proceeding at (561) 799 -4223 for assistance, if hearing
impaired, telephone the Florida Relay Service Number at 800 - 955 -8770
(voice) for assistance.
APPEAL NOTICE
If a person decides to appeal any decision made by the board, with
respect to any matter considered at such meeting or hearing, he will need to
ensure that a verbatim record of the proceedings is made, which record
includes the testimony and evidence upon which the appeal is to be based.
.,
CITY OF PALM BEACH GARDENS
MEMORANDUM
TO: Budget Oversight Committee
DATE: January 5, 2006
FROM: Allan Owens, Finance Administrator
SUBJECT: Budget Committee Meeti
Attached to the agenda for our meeting on January 11, 2006, please find the following
information related to the proposed Police Pension Plan enhancement:
• Proposed ordinance drafted by the Pension Board's attorney.
• Actuarial Impact Statement related to the proposed changes.
• Letter dated October 21, 2005 from the City Attorney requesting additional
infonnation.
• Response dated December 15, 2005 to the City Attorney's letter.
• Draft report prepared by John Chaplik regarding pension plan enhancements.
• Draft report prepared by Marty Cohen regarding employee benefit plans.
In addition, I am also distributing final copies of the FY 2005 -06 budget document
recently received from the printer.
If you have any questions regarding any of the above, or any other item on the agenda,
please let me know.
1 September 20, 2005
2 September 28, 2005
3
4 ORDINANCE 22, 2005
5
6 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF PALM BEACH
7 GARDENS, FLORIDA, AMENDING ARTICLE III OF THE CITY OF PALM
8 BEACH GARDENS CODE OF ORDINANCES, ENTITLED POLICE
► t. c��wi— _....._..__._-- .- --- -..___ - --
10 REGARDING NORMAL RETIREMENT BENEFITS; REVISING PROVISION
11 REGARDING MONTHLY SUPPLEMENTAL BENEFITS; REVISING
12 PROVISION REGARDING ANNUAL ADJUSTMENTS; PROVIDING FOR
13 CODIFICATION; AND, PROVIDING FOR AN EFFECTIVE DATE.
14
15 WHEREAS, the Board of Trustees of the Palm Beach Gardens Police Officers'
16 Retirement Trust Fund, at the request of the Participants, desires to improve the benefits
17 under the Plan by increasing the benefit multiplier;
18
19 WHEREAS, the Board of Trustees desires to amend the calculation of the Monthly
20 Supplemental Pension Benefit and the beginning date of the Annual Adjustments;
21
22 WHEREAS, the Board of Trustees of the Fund has determined that it is in the best
23 interest of the Participants and Beneficiaries of the Fund to make these changes to the
24 Palm Beach Gardens Police Officers' Retirement Trust Fund; and
25
26 WHEREAS, the City Council of the Palm Beach Gardens, Florida, desires to revise
27 its Police Officers' Pension Ordinance in order implement these changes.
28
29
30 NOW, THEREFORE, BE IT ORDAINED 19Y THE CITY COUNCIL OF THE CITY'OF
31 PALM BEACH GARDENS, FLORIDA that:
32
33 SECTION 1. Article III, Chapter 50, Section 50 -116 of the City of Palm Beach
34 Gardens Code of Ordinances is hereby amended as follows:
35
36 Sec. 50 -116. Normal retirement.
37
38 (a) Date. A member's normal retirement date shall be upon the attainment of age
39 52, provided the officer has at least ten years of service, or upon completion of 20 years
40 of service, regardless of age.
41
42 (b) Benefit. The monthly amount of normal retirement benefit payable to a police
43 officer who retires on the normal retirement date shall be an amount equal to three 3_5
44 percent multiplied by the number of years of credited service, up to a maximum of 7-5100
45 percent, multiplied by average monthly earnings. The increase in the benefit multiplier
Page 1 of 5
1 from 3% to 3.5% and the increase in the maximum benefit from 75% to 100% shall be
2 funded from the Chapter 185 funds as an "extra benefit. "In no event will the benefit paid
3 be less than two percent per year of service.
4
5 (c) Payment. A retired police officer's retirement benefit normally shall be
6 payable in the form of a monthly life annuity with 120 monthly payments guaranteed. This
7 form of annuity provides for a retirement benefit payable monthly to the retired employee
8 during their lifetimes with a guarantee that not less than 120 monthly retirement benefits
10
11 SECTION 2. . Article III, Chapter 50, Section 50 -135 of the City of Palm Beach
12 Gardens Code of Ordinances is hereby amended as follows:
13
14 Sec. 50 -135. Annual Adjustments.
15
16 (a) Subject to the conditions set forth in this section, the board of trustees shall
17 annually authorize an annual adjustment, the amount of which shall be determined as of
18 each September 30th. The amount of the annual adjustment shall be equal to the actuarial
19 present value of future pension payments to current pensioners multiplied by the positive
20 difference, if any, between the rate of investment return and eight and one -half percent.
21 The actuary shall determine whether there may be an annual adjustment based on the
22 following factors:
23
24 (1) The actuary for the pension fund shall determine the rate of investment
25 return on the pension fund assets during the 12 -month period ending each
26 September 30th. The rate determined shall be the rate reported in the most
27 recent actuarial report submitted pursuant to part VII of chapter 112, Florida
28 Statutes.
30 (2) The actuary for the pension fund shall, as of September 30, determine the
31 actuarial present value of future pension payments to current pensioners.
32 The actuarial present values shall be calculated using an interest rate of
33 eight and one half, 8_5 percent a year compounded annually, and a mortality
34 table approved by the board of trustees and as used in the most recent
35 actuarial report submitted pursuant to part VII of chapter 112, Florida
36 Statutes. This will be the pool of funds available to fund the annual
37 adjustment.
38
39 (3) If the actuary determines there may be an annual adjustment, the board of
40 trustees shall authorize such an adjustment unless the administrative
41 expenses of distribution exceed the amount available for the distribution.
42
43 (b) Annual adjustments shall wtH be made to all pensioners who have been
44 retired for at least one year on the distribution date . Annual adjustments
45 will be paid to beneficiaries who are receiving monthly benefits provided the retiree (or the
Page 2 of 5
1 retiree and the beneficiary combined) was in receipt of a pension benefit for at least one
2 year on the distribution dat .
4 (c) The annual adjustment will be made as a percentage of the benefit and the
5 percentage will be the same for all recipients. The amount of the percentage increase will
6 be determined by the Fund's actuary in accordance with the above procedure. The
7 percentage increase will be equal to the amount that can be fully funded by the pool of
8 funds available but not to exceed four percent in any year and determined by that
10 then the remainder will be placed in an annual adjustment reserve designated for future
11 annual adjustment distributions.
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
(d) The annual adjustments shall be made as of July 1 and each July 1
thereafter, provided a person was retired for at least one year on July 1.
SECTION 3. Article III, Chapter 50, Section 50 -136 of the City of Palm Beach
Gardens Code of Ordinances is hereby amended as follows:
Sec. 50 -136. Monthly supplemental benefits.
- -- - - - -- - - - - - - -
- - - -
; .:: ; : . :
- - -
: : :: : I ; -
r- 191t-1 : to r. ; ; I L.12LOr.
in
basis on
38
the fol ;.
1
39
40
41
42
Page 3 of 5
The
benefit be
35 pool.
pool shall divided eeeordihg to the tattal nYr—nVe*0 years
basis on
38
the fol ;.
1
39
40
41
42
Page 3 of 5
1
2
3
4
5
46 years of et'tlf G'6
80%
15 years of 3erviee
14 years of sei° ee
8�ir
13 years of service
pia
i2- years of service
11
12
13 The benefitdisbibution amount in any ome yea, shnil not exceed the cost of family
14 .
15
16 (d) This benefit she" be payable moMthly to the retiree o,F tiny benefi
17 part of the regulai monthly pension benefit.-The benefit shall eease upon the death�f the
18
19
20 SECTION 4. Codification of this Ordinance is hereby authorized and directed.
21
22 SECTION 5.. This Ordinance shall become effective immediately upon adoption.
23
24 (The remainder of this page left intentionally blank)
Page 4 of 5
1
2 PASSED this day of , 2005 upon first reading.
3
4 PASSED AND ADOPTED this day of , 2005, upon
5 second and final hearing.
6
7 CITY OF PALM BEACH GARDENS FOR AGAINST ABSENT
8
10 Joseph R. Russo, Mayor
11
12
13 Eric Jablin, Vice Mayor
14
15
16 David Levy, Councilmember
17
18
19 Hal R. Valeche, Councilmember
20
21
22 Jody Barnett, Councilmember
23
24
25
26
27 ATTEST:
28
29 BY:
30 Patricia Snider, CMC, City Clerk
31
32
33 APPROVED AS TO FORM AND
34 LEGAL SUFFICIENCY:
35
36
37 BY:
38 Christine P. Tatum, City Attorney
39
40 HAPBG 0003\Plan Docs\Amend\2005\2005 AMEN D.wpd
Page 5 of 5
GABRIEL, ROEDER, SMITH & COMPANY
Consultants & Actuaries
301 East Las Olas Blvd. • Suite. 200 eFt. Lauderdale, FL 33301 - 2254.954- 527 -1616 • FAX 954 -525 -0083
SEP 2 7 ?00
Bonni Jensen, Esq.
Hanson, Perry & Jensen, P.A.
400 Executive Center Drive, Suite 207
West Palm Beach, Florida 33401 -2922
Re: Palm Beach Gardens Police Officers Pension Fund
Dear Bonni:
As requested, we have prepared the enclosed Actuarial Impact Statement showing the
actuarial impact of changing the multiplier from 3% to 3.5 %, raising the cap from 75% to
100 %, and providing a supplemental monthly benefit equal to $12.50 per year of service.
Funding for the supplemental benefit will come from the difference between baseline
Chapter 185 revenue of $235,818 and this year's revenue of $411,047. This difference
is $175,229 per year.
The Statement must be filed with the Division of Retirement before the final public
hearing on the ordinance. Please have a member of the Board of Trustees sign the
Statement. Then send the Statement along with a copy of the proposed ordinance to
Tallahassee.
This report is based on data as of October 1, 2004.
Cost results are shown at the bottom of the page entitled Annual Required Contribution.
We welcome your questions and comments.
Sincerely yours,
, v �L, pu", ,
W
J. Stephen Palmquist
JSP /or
Enclosures
cc: Joe Mastrangelo
Jay Spencer
CITY OF PALM BEACH GARDENS POLICE OFFICERS' RETIREMENT FUND
Impact Statement — September 26, 2005
Description of Amendment
The proposed ordinance would increase the benefit multiplier from 3.0% to 3.5%
implement a supplemental monthly benefit equal to $12.50 per year of service.
Funding Implications of Amendment
An actuarial cost estimate is attached. The annual required contribution would
increase by $587,986, or 8.41 % of covered payroll.
Certification of Administrator
believe the amendment to be in compliance with Part VII, Chapter 112, Florida
Statutes and Section 14, Article X of the Constitution of the State of Florida.
For the Board of Trustees
as Plan Administrator
Plan
SUPPLEMENTAL ACTUARIAL VALUATION REPQRT
Palm Beach Gardens Police Officers Pension Fund
Valuation Date
October 1, 2004
Date of Report
September 26, 2005
Report Requested by
Board of Trustees
Prepared by
J. Stephen Palmquist
Group Valued
All members of the Plan
Plan Provisions Being Considered for Change
Present Provision Before Changes
(1) The pension multiplier is 3 %.
(2) Maximum pension benefit is 75% of AFC.
(3) There is no supplemental benefit
Proposed Changes
(1) The pension multiplier would be 3.5 %.
(2) Maximum pension benefit would be 100% of AFC.
(3) There would be a new supplemental monthly benefit equal to
$12.50 per year of service.
Participants Affected
(1) and (2) All members who retire or terminate employment after
adoption of the amending ordinance.
(3) Present service and disability retirees as well as future service and
disability retirees.
Actuarial Assumptions and Methods
Same as October 1, 2004 Actuarial Valuation Report with no exceptions.
Some of the key assumptions /methods are:
Investment return —
Salary increase —
Cost Method —
8.5% per year
6.0% per year
Frozen Entry Age
Amortization Period for Any Increase in Actuarial Accrued Liability
30 years
Summary of Data Used in Report
See attached page.
Actuarial Impact of Proposal(s)
-See attached page(s). . ...... — ---------
Special Risks Involved With the Proposal That the Plan Has Not Been
Exposed to Previously
None
Other Cost Considerations
None
Possible Conflicts With IRS Qualification Rules
None
A Ste hen Palmquist, &A, MAAA, FCA-
Enrolled Actuary No. 05-1560
A. Valuation Date
B. ARC to Be Paid During
Fiscal Year Ending
C. Assumed Date of Employer Contrib.
D. Annual Payment to Amortize
Unfunded Actuarial Liability
E. Employer Normal Cost
F. ARC if Paid on the Valuation Date:
D +E
G. ARC Adjusted for Frequency of
Payments
H. ARC as % of Covered Payroll
I. Assumed Rate of Increase in Covered
Payroll to Contribution Year
J. Covered Payroll for Contribution Year
K. ARC for Contribution Year: H x J
L. Estimate of State Revenue in
Contribution Year
M. Required Employer Contribution (REC)
in Contribution Year
N. ARC as % of Covered Payroll in
Contribution Year: K + J
October 1, 2004 1 October 1, 2004 1 Increase
Valuation
Multiplier from
(Decrease)
Cap from
75% to 100 %,
$12.50 Supplement
9/30/2006
9/30/2006
Quarterly
Quarterly
6 306,109
$ 587,232
$ 281,123
1,468,590
1,727,309
258,719
1,774,699 2,314,541 539,842
1,866,061 2,433,694 567,633
27.62 % 36.03 % 8.41 %
3.50 % 3.50 % -
6,991,506 6,991,506 -
1,931,054 2,519,040 587,986
235,818 407,110 171,292
1,695,236 1 2,111,930 416,694
24.25 % 30.21 % 5.96
A. Valuation Date
October 1, 2004
Valuation
October 1, 2004
Multiplier from
3% to 3.5 %,
Cap from
75% to 100 %,
$12.50 Supplement
Increase
(Decrease)
B. Actuarial resen Value of rojec e
Benefits for
1. Active Members
a. Service Retirement Benefits
$ 24,955,831
$ 30,490,489
$ 5,534,658
b. Vesting Benefits
872,437
1,077,057
204,620
c. Disability Benefits
1,879,546
2,017,210
137,664
d. Preretirement Death Benefits
380,950
438,969
58,019
e. Return of Member Contributions
36,202
36,202
-
f. Total
28,124,966
34,059,927
5,934,961
2. Inactive Members
a. Service Retirees & Beneficiaries
2,579,739
2,816,968
237,229
b. Disability Retirees
3,260,186
3,426,334
166,148
c. Terminated Vested Members
104,733
104,733
-
d. Total
5,944,658
6,348,035
403,377
3. Total for All Members
34,069,624
40,407,962
6,338,338
C. Actuarial Accrued (Past Service)
Liability per GASB No. 25
24,962,551
29,581,729
4,619,178
D. Plan Assets
1. Market Value
15,755,417
15,755,417
-
2. Actuarial Value
16,405,794
16,405,794
E. Actuarial Present Value of Projected
Covered Payroll
44,790,332
44,790,332
F. Actuarial Present Value of Projected
Member Contributions
3,851,969
3,851,969
-
A. Valuation Date October 1, 2004 October 1, 2004 Increase
Valuation Multiplier from (Decrease)
3% to 3.5 %,
Cap from
B. Actuarial Present Value of Projected
Benefits
C. Actuarial Value of Assets
D. Unfunded Actuarial Accrued Liability
E. Actuarial Present Value of Projected
Member Contributions
F. Actuarial Present Value of Projected
Employer Normal Costs: B -C -D -E
G. Actuarial Present Value of Projected
Covered Payroll
H. Employer Normal Cost Rate: F/G
I. Covered Annual Payroll
J. Employer Normal Cost: H x I
K. Assumed Amount of Administrative
Expenses
L. Total Employer Normal Cost: J +K
M. Employer Normal Cost as % of
Covered Payroll
$ 34,069,624 $ 40,407,962 $ 6,338,338
16,405,794 16,405,794 -
4,573,607 9,192,785 4,619,178
3,851,969 1 3,851,969 -
9,238,254 10,957,414 1,719,160
44, 790, 332 44, 790, 332 -
20.63 % 24.46 % 3.83 %
6,755,078 6,755,078 -
1,393,573 1,652,292 258,719
75,017 1 75,017 1 -
1,468,590 1,727,309 258,719
21.74 %1 25.57 %1 3.83
October 1, 2004 I October 1, 2004 I Increase
Before Changes After Changes (Decrease
Number 2 2 -
Annual Benefits $ 23,916 $ 23,916 -
Average Annual Benefit $ 11,958 $ 11,958 -
Average Age 41.3 41.3 -
Covered Annual Payroll
$
6,755,078
$
6,755,078
-
Average Annual Payroll
$
68,929
$
68,929
-
Average Age
39.2
39.2
-
Average Past Service
9.8
9.8
-
Average Age at Hire
29.5
29.5
-
Number
9
9
_
Annual Benefits
$
242,192
$
264,467
$
22,275
Average Annual Benefit
$
26,910
$
29,385
$
2,475
Average Age
57.8
57.8
-
Number
12
12
-
Annual Benefits
$
319,834
$
336,139
$
16,305
Average Annual Benefit
$
26,653
$
28,012
$
1,359
Average Age
49.9
49.9
-
Number 2 2 -
Annual Benefits $ 23,916 $ 23,916 -
Average Annual Benefit $ 11,958 $ 11,958 -
Average Age 41.3 41.3 -
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CITY OF PALM BEACH GARDENS
10500 N. MILITARY TRAIL • PALM BEACH GARDENS, FLORIDA 33410 -4698
October 21, 2005
Bonni Jensen, Esq.
Hanson, Perry & Jensen, P.A.
400 Executive Center Drive, Suite 207
West Palm Beach, FL 33401 -2922
Re: Proposed Amendments to Police Pension Plan
Dear Ms. Jensen:
We are in receipt of the draft amendment to the Police Pension Plan, and the attached Actuarial Impact
Statement. We have reviewed the Actuarial Impact Statement in light of the 2004 Actuarial Valuation
Report and have identified a number of issues that need to be clarified before the amendment is placed
on the City Council Agenda.
A. Please provide a revised Actuarial Impact Statement that addresses the cost of each amendment
separately. The Actuarial Impact Statement considers the overall effects of the amendments in one
lump sum. The draft amendment proposes six (6) separate changes to the existing plan:
The increase in the multiplier from 3% to 3.5 %. (Section 50 -116)
2. The increase in the maximum benefit from 75% to 100 %. (Section 50 -116)
3. The monthly supplemental benefit of $12.50 per month per year of service. (Section 50 -136)
4. Retroactivity of the change in supplemental benefits to October 1, 2004. (Section 50 -136)
5. Removal of the limitation of supplemental benefits being tied to excess Chapter 185 Funds.
(Section 50 -136)
6. The change in annual adjustment eligibility from age 55 pensioners to all pensioners who
have been retired one year. (Section 50 -135)
B. Please provide alternative analysis of the cost of these six (6) separate amendments using more
conservative rates of return of 3% and 5 %, and include projections for the next five (5) years at
these rates, including payroll growth assumptions for each of those years. This is of particular
importance to the City as the Actuarial Valuation Report dated September 30, 2004, indicates that
there was a net actuarial loss of $246,347, which translates into an increase in annual employer
contributions of .57% of covered payroll.
OFFICE OF THE CITY ATTORNEY
PHONE: 561-799-4138 FAX: 561-799-4139
E -MAIL: CTATUM(cDPBGFL.COM
Bonni Jensen, Esq.
October 20, 2005
Page 2 of 2
C. Please provide alternative analysis of the cost of each of these six (6) separate amendments using
a more realistic salary increase assumption. The Actuarial Valuation Report dated September 30,
2004, indicates that the actual salary increases for FY 2003 were 16.4% rather than the assumed
rate of 6 %; 7.4% for FY 2002 rather than the assumed rate of 6 %; and 11.8% for FY 2001 rather
than the assumed rate of 6 %.
D. Please provide a revised copy of the Excess 185 Funding Distribution Form that has been filed with
the State of Florida Division of Retirement for each of the past five (5) years.
E. It is unclear which if any of the six proposed amendments affect participants who are or will be in
DROP status. Please provide clarification.
F. Please provide an explanation of the method of amortizing gains /losses over the five (5) year period
identified in the 2004 Actuarial Valuation Report, Calculation of Actuarial Value of Assets. It
appears that the methodology of comparing Expected Investment Earnings with Actual Net
Investments earnings produces a somewhat inflated loss figure.
G. As a final point of clarification, the proposed amendment to Section 50 -116 provides that the
increase to both the multiplier and the maximum benefit will be paid from Chapter 185 Funds. It
does not appear that there will be adequate Chapter 185 Funds to cover both these changes, even
in the first year. The amendment does not clarify that the increases will be limited only to the extent
of the Chapter 185 Funds.
When we have received the above - referenced documentation, we will re- schedule the meeting
between you, Jay Spencer, and the City Manager to discuss these items.
Please call me should you have any questions.
Sincerely,
Christine P. Tatum
City Attorney
c: Ron Ferris
Allan Owens
\ \Pbgsfile\Attorney\attorney _share \CORRESPONDENCE\Jensen police pension plan.doc
OFFICE OF THE CITY ATTORNEY
PHONE: 561-799-4138 FAX: 561-799-4139
E -MAIL: CTATUM(cDPBGFL.COM
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HANSON, PERRY & JENSEN,P.A.
400 EXECUTIVE CENTER DRIVE, SUITE 207 — WEST PALM BEACH, FLORIDA 33401-2922
December 15, 2005
VIA FACSIMILE AND FIRST CLASS MAIL
Christine P. Tatum, City Attorney
City of Palm Beach Gardens
10500 North Military Trail
Palm Beach Gardens, Florida 33410
Dear Ms. Tatum:
TELEPHONE (561) 686 -6550
FACSIMILE (561) 686 -2802
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Re: Palm Beach Gardens Police Pension Fund
Plan Document
File No.: 0003.0050
As a follow up to your October 21, 2005 letter (and the meetings of November
18, 2005 and December 6, 2005), below are the enumerated responses to the
information requested in that letter.
A. Enclosed as Exhibit A is a copy of the spreadsheet prepared by J. Stephen
Palmquist of Gabriel, Roeder, Smith and Company ( "GRS "), the Fund's actuary.
This document was also presented to you at the November 18, 2005 by Steve
Palmquist. Items 1 -3 are detailed on the spreadsheet in columns 1 through 3.
4. Retroactivity of the change in supplemental benefits to October 1, 2004 -
As we discussed at the November 18, 2005 meeting, the retroactivity of
the monthly supplemental benefit will have no impact on the City's
contribution. The calculation of the cost has been factored into the
spreadsheet as the numbers are based upon the October 1, 2004
actuarial valuation. The retroactive benefit is estimated to be $59,400 and
will be paid for from the Chapter 185 funds.
5. Removal of the limitation of supplemental benefits being tied to excess
Chapter 185 Funds - As we discussed at the November 18, 2005 meeting
the impact of this change is unknown at this time. If the Chapter 185
revenue decreases, the City will be responsible to make the Fund
actuarially sound.
doW 13
Christine P. Tatum, City Attorney
City of Palm Beach Gardens
December 15, 2005
Page 2
6. The change in annual adjustment eligibility from age 55 pensioners to all
pensioners who have been retired one year - The is no impact of this
change to the City. The pool of funds for distribution of this amount is the
investment earnings on the retiree assets. The early eligibility date
increases the number of retirees who are eligible for the benefit and
therefor spreads the distribution pool over a greater number of retirees.
B. Enclosed as Exhibit B is a copy of projections of the impact of investment returns
of 3% and 5% for the next 5 actuarial valuations. In each case, the actual rate of
return as September 30, 2005 was used for the first valuation. The rate of return
was 9.8 %.
C. Enclosed as Exhibit C is a copy of GRS' proposal to change the Salary Increase
Assumption. This assumption change was approved by the Board of Trustees at
the December 6, 2005 meeting. The spreadsheet provided as Exhibit A includes
information regarding the impact of the salary assumption and the benefit
changes.
D. Enclosed as Exhibit D are copies of page 6A of the annual reports filed for the
past 4 years. The 2001 Annual Report is the first report which had this
confirmation. The 2005 Annual Report has not yet been prepared or filed.
E. Retirees, members in the DROP, and vested deferred retirees are not eligible for
the increased multiplier and increased maximum benefit which are referenced in
your items 1 and 2. All retirees in payment status are entitled to the monthly
supplemental benefit, including DROP members. All retirees who have been
retired for at least one year are eligible for the annual adjustment, provided the
other conditions for payment of the benefit are met. This information is provided
on the first page of the Supplemental Actuarial Report enclosed as Exhibit E.
F. Enclosed as Exhibit F is a copy of pages 20 and 21 of the October 1, 2004
Actuarial Valuation for the Palm Beach Gardens Police Pension Fund. To help
to make the employer contributions even, the Fund employs a five year
smoothing method. The smoothing method recognizes 1/5 of the investment
gain /loss for each year over a five year period. The smoothing has been used by
the Fund since 1997. The effect of the smoothing can be seen on page 21. In
2001 when the Fund had a loss of (7.8 %) at market, the actuarial value of
returns recognized a 6.3% gain. In 2004, when the market returned 8.6% the
fund recognized an actuarial gain of 3.9 %.
G. As we discussed at the November 18, 2005 meeting, the proposed amendment
is to be funded from several sources:
Christine P. Tatum, City Attorney
City of Palm Beach Gardens
December 15, 2005
Page 3
The City agreed to increase their contribution by $235,818 to provide the
Police Officers' with the use of 100% of their 185 money, similar to the
Firefighters Plan.
2. There were additional funds in the Police Department budget which were
available to spend on the benefit improvements.
3. Additional 185 money in the amount of $171,292, which is available to
spend on extra benefits. In future valuations, the City will receive a credit
of $407,110 against the employer contributions.
As a follow up to the November 18, 2005 meeting, please contact me at your
earliest convenience to discuss the language of the amendment. You had indicated
that you wanted some changes made to the amendment.
If you have any questions on this matter or need any further documents, please
do not hesitate to contact me.
Sincerely yours,
Bonni S. Jenden !
BSJ/ka
Copy to: Chairman and Secretary
Administrative Services, Inc.
H: \PBG 0003 \City of PBG \City Atty \Tatum 121505.wpd
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PALM BEACH GARDENS POLICE OFFICERS PENSION FUND
November 18, 2005
Gain (Loss)
Change in City Cost
Yearend
MV
Due to
Starting One Year Later
9130
Return
Investments
Amount
%of Payroll
2005
9.8%
$(650,000)
$88,000
1.2%
2006
8.5
(317,000)
43,000
0.5
2007
8.5
26,000
(4,000)
0.0
2008
8.5
(28,000)
4,000
0.0
2009
8.5
(8,000)
1,000
0.0
2005
9.8
(650,000)
88,000
1.2
2006
5.0
(459,000)
62,000
0.8
2007
5.0
(289,000)
39,000
0.4
2008
5.0
(547,000)
74,000
0.8
2009
5.0
(764,000)
103,000
1.0
2005
9.8
(650,000)
88,000
1.2
2006
3.0
(541,000)
73,000
0.9
2007
3.0
(465,000)
63,000
0.7
2008
3.0
(829,000)
112,000
1.2
2009
3.0
(1,165,000)
157,000
1.5
November 18, 2005
PALM BEACH GARDENS POLICE OFFICERS PENSION FUND
Proposed Change in Salary Increase Assumption
November 18, 2005
Collective Bargaining Agreement provides:
➢ Merit increase of 0% to 6 %, with 4% for satisfactory performance
➢ Annual increase equal to change in the Employment Cost Index (ECI)
➢ Longevity increase of 5% upon reaching ten years of service
➢ 8% increase due to promotion from officer to sergeant or sergeant to
lieutenant
Expected Annual Increase in Salary Over First 20 Years
3.0% for inflation (CPI)
1.2 for difference between ECI and CPI
4.0 for merit (satisfactory)
0.8 for promotion (two promotions over 20 years)
9.0 annual increase
14.0 increase in year ten
City Name: PALM BEACH GARDENS
2004 ACTUARIAL CONFIRMATION OF THE USE OF STATE MONEYS
(LOCAL LAW PLANS ONLY)
TO BE FORWARDED TO THE PLAN ACTUARY FOR COMPLETION AND RETURNED TO THE MUNICIPALITY AS
SOON AS POSSIBLE, SO THAT IT MAY BE SUBMITTED TOGETHER WITH THE ANNUAL REPORT DUE ON
MARCH 15, 2005.
The Plan's actuary must provide the following information in order for the MPF office to determine that State
premium tax revenues are being used in accordance with the provisions of sections 175.351 and 185.35, Florida
Statutes, as amended by Chapter 99 -1, Laws of Florida.
A. Name of actuarial firm Gabriel Roeder Smith and Company
B. Date of most recent actuarial valuation October 1, 2003
C. Use of State money -- Please provide the following information:
(1) Annual cost of qualifying benefit improvements -- required minimum benefit improvements or "extra
benefit" improvements -- enacted during the fiscal year.
Recurring costs One -time use Ordinance Number(s)
1999-2003 $ 0 (Previously reported) (Previously reported)
2004 $ 0 $ 54,626 9,2004
(2) For the Fiscal Year 2004, please indicate the amount of State premium tax moneys that are available to be
used by the plan sponsor toward the minimum required contributions. (NOTE: If there have been no qualifying
benefit improvements since the enactment of Chapter 99 -1, Laws of Florida, this amount can be no more than
the 1997 base year amount.)
Police $ 235,818
Fire $ 0
Fire Supplemental $ 0
Total $ 235,818
(3) Are there any remaining minimum benefit improvements required to be made subject to the provisions of
Chapter 99 -1, Laws of Florida? If yes, please identify. Attach additional page, if necessary. YES _ NO X
(4) As of Fiscal Year End 2004, please provide the cumulative balance of additional premium tax revenues that
are remaining to be used to provide future minimum or "extra benefit" improvements. If the sum total of all
qualifying benefit improvements enacted since Chapter 99 -1 exceeds the total additional premium tax revenues
received this year, this may be a negative balance; however, negative balances are not cumulative. NOTE:
Investment Earnings, if included, may not be negative in the aggregate.
Total Accumulated Balance 9/30/04 $ 159,088
(Includes Investment Earnings of $ 0 )
D. Actuary representing the Plan:
Name: J. Stephen Palmquist Telephone: (954) 527 -1616
(Please print)
(Signature)
Revised 11/2004 (6a)
(Date)
From:6ureau of Local Retirement Sys 850 921 2161 12/16/2005 15:00 #023 P.002 /002
CITY NAME: PALM BEACH GARDENS
2003 Actuarial Confirmation of the Use of State Moneys
(LOCAL LAW PLANS ONLY)
TO BE FORWARDED TO THE PLAN ACTUARY FOR COMPLETION AND RETURNED To THE MUNICIPALITY AS SOON AS
POSSIBLE, SO THAT IT MAY BE SUBMITTED TOOETHER WITH THE ANNUAL REPORT DUE ON MARCH IS. 2004.
The Plan's actuary must provide the following information in order for the MPF office to determine that
State premium tax revenues are being used in accordance with the provisions of Sections 175.351 and
185.35, Florida Statutes, as amended by Chapter 99 -1, Laws of Florida.
A. Name of actuarial firm Gabriel, Roeder, Smith & Company.
B. Date of most recent actuarial valuation 10 /1/02
C. Use of State money -- Please provide the following Information:
(1) Annual cost of gualifvina benefit Improvements -- required minimum benefit improvements or
"extra benefit" improvements — — enacted during the fiscal year.
Ordinance Number(s)
1999 —2002 S 0 (Previously Reported)
2003
(2) For the Fiscal Year 2003, please indicate the amount of State premium tax moneys that are
available to be used by the plan sponsor toward the minimum required contributions. (NOTE: If there
have been no qualifying benefit improvements since the enactment of Chapter 99 -1, Laws of Florida, this
amount can be no more than the 1997 base year amount,)
Police $ 235,818
Fire $
Fire Supplemental $
Total $
(3) Are there any remaining minimum benefit improvements required to be made subject to the
provisions of Chapter 99 -1, Laws of Florida? If yes, please identity. Attach additional page, if necessary.
YES._ NO
1) Change early retiremMtt penalty to 3% per year. 2) Provide that Minimum dui and rionduly
disability benefit is accru2pensio .
(4) As of Fiscal Year End 2003, please provide the cumulative balance of additional premium tax
revenues that are remaining to be used to provide future minimum or "extra benefit" improvements. If
the stun total of all qualifying benefit improvements enacted since Chapter 99 -1 exceeds the total
additional premium tax revenues received this year, this may be a negative balance; however, negative
balances are not cumulative. NOTE: Investment Earnings, if Included, may not be negative in the
aggregate. /
Total Accumulated Balance 9/30/03 S 84,547
(Includes Investment Essnings of $ )
D. Actuary representing the Plan:
Name: J. Stephen Palmquist Telephone: (954) 527 -1616
(Please PrinO
Signature: Date: December 16, 2003
Revised September 2002 (6a)
CITY NAME' PALM BEACH GARDENS
2002 Actuarial Confirmation of the Use of State Moneys
(LOCAL LAW PLANS ONLY)
TO BE FORWARDED TO THE PLAN ACTUARY FOR COMPLETION AND RETURNED TO THE MUNICIPALITY AS SOON
AS POSSIBLE, SO THAT IT MAY BE SUBMITED TOGETHER WITH THE ANNUAL REPORT DUE ON MARCH 15, 2003.
The Plan's actuary must provide the following information in order for the MPF office to
determine that State premium tax revenues are being used in accordance with the provisions
of Sections 175.351 and 185.35, Florida Statutes, as amended by Chapter 99 -1, Laws of
Florida.
A. Name of actuarial firm Gabriel, Roeder, Smith & Company.
B. Date of most recent actuarial valuation 10/1/01
C. Use of State money -- Please provide the following information:
(1) Annual cost of qualifying benefit improvements -- required minimum benefit
improvements or "extra benefit" improvements — — enacted during the fiscal year.
Ordinance Number(s)
1999-2001 $ 0 (Previously Reported)
2002 $ 0
(2) For the Fiscal Year 2002, please indicate the amount of State premium tax moneys that are
available to be used by the plan sponsor toward the minimum required contributions. (NOTE:
If there have been no qualifying benefit improvements since the enactment of Chapter 99 -1,
Laws of Florida, this amount can be no more than the 1997 base year amount.)
Police $ 235,818
Fire $
Fire Supplemental $
(3) Are there any remaining minimum benefit improvements required to be made subject to
the provisions of Chapter 99 -1, Laws of Florida? If yes, please identify. Attach additional page,
if necessary. YES X NO
11 Chanqe eadv retirement penalty to 3% Der-year. _2) Provide that minimum dutv and
nonduty disability benefit is accrued pension
(4) As of Fiscal Year End 2002, please provide the cumulative balance of additional premium
tax revenues that are remaining to be used to provide future minimum or "extra benefit"
Improvements. If the sum total of all qualifying benefit improvements enacted since Chapter
99 -1 exceeds the total additional premium tax revenues received to date, this will be a
negative balance; however, negative balances are not cumulative. NOTE: Investment
Earnings, if included, may not be negative in the aggregate.
Total Accumulated Balance 9/30/02 $ 27,919
(Includes Investment Earnings of $ 0 )
D. Actuary representing the Plan:
Name: J. Stephen Palmquist Telephone: (954) 527 -1616
(Please Print)
Signature:
Revised September 2002 (6a)
Date: W,*1103
PALM BEACH GARDENS POLICE OFFICERS PENSION FUND
ACTUARIAL CONFIRMATION OF THE USE OF STATE MONEYS
(LOCAL LAW PLANS ONLY)
TO BE FORWARDED TO THE PLAN ACTUARY FOR COMPLETION AND RETURNED TO THE MUNICIPALITY AS
SOON AS POSSIBLE, SO THAT IT MAY BE SUBMITED TOGETHER WITH THE ANNUAL REPORT DUE ON
MARCH 15, 2002.
The Plan's actuary must provide the following information in order for the MPF office to determine that State
premium tax revenues are being used in accordance with the provisions of sections 175.351 and 185.35, Florida
Statutes, as amended by Chapter 99 -I, Laws of Florida.
A. Name of actuarial firm GABRIEL. ROEDER. SMITH AND COMPANY
B. Date of most recent actuarial valuation 10 /1 /2000
C. Use of State money -- Please provide the following information:
(1) Annual cost of qualifying benefit improvements -- required minimum benefit improvements or "extra benefit"
improvements -- enacted during the fiscal year.
Ordinance Number(s)
1998
$
1999
$
2000
$
2001
$_
(2) For the Fiscal Year 2001, please indicate the amount of State premium tax moneys that are available to be used
by the plan sponsor toward the minimum required contributions. (NOTE: If there have been no qualifying benefit
improvements since the enactment of Chapter 99 -1, Laws of Florida, this amount can be no more than the 1997
base year amount.)
Police $ 225.892
Fire $
Fire Supplemental $
(3) Are there any remaining minimum benefit improvements required to be made subject to the provisions of
Chapter 99 -1, Laws of Florida? If yes, please identify. Attach additional page, if necessary. YES X NO
(1) Change early retirement penalty to 3% per year (2) Provide that minimum duty and nonduty
disability benefit is accrued pension
(4) As of Fiscal Year End 2001, please provide the balance of additional premium tax revenues that are remaining
to be used to provide future minimum or "extra benefit" improvements. If the amount of the qualifying benefit
improvements enacted since Chapter 99 -1 exceeds the amount of additional premium tax revenues received to date,
this will be a negative balance.
Fiscal Year End 2001
D. Actuary representing the Plan:
Name: J. Stephen Palmquist
(Please print)
(Signature)
$ 818
Revised 9/2001 (6a)
Telephone: (954) 527 -1616
(Date)
r
GABRIEL, ROEDER, SMITH & COMPANY
Consultants & Actuaries
301 East Las Olas Blvd. • Suite_ 200 t Ft. Lauderdale, FL 33301 - 2254.954- 527 -1616 • FAX 954 - 525 -0083
SEP 2 7 2!�0-
September 26, 2005
Bonni Jensen, Esq.
Hanson, Perry & Jensen, P.A.
400 Executive Center Drive, Suite 207
West Palm Beach, Florida 33401 -2922
Re: Palm Beach Gardens Police Officers Pension Fund
Dear Bonni:
As requested, we have prepared the enclosed Actuarial Impact Statement showing the
actuarial impact of changing the multiplier from 3% to 3.5 %, raising the cap from 75% to
100 %, and providing a supplemental monthly benefit equal to $12.50 per year of service.
Funding for the supplemental benefit will come from the difference between baseline
Chapter 185 revenue of $235,818 and this year's revenue of $411,047, This difference
is $175,229 per year.
The Statement must be filed with the Division of Retirement before the final public
hearing on the ordinance. Please have a member of the Board of Trustees sign the
Statement. Then send the Statement along with a copy of the proposed ordinance to
Tallahassee.
This report is based on data as of October 1, 2004.
Cost results are shown at the bottom of the page entitled Annual Required Contribution.
We welcome your questions and comments.
Sincerely yours,
,tr- , pu,
J. Stephen Palmquist
JSP /or
Enclosures
cc: Joe Mastrangelo
Jay Spencer
CITY OF PALM BEACH GARDENS POLICE OFFICERS' RETIREMENT FUND
Impact Statement — September 26, 2005
Description of Amendment
The proposed ordinance would increase the benefit multiplier from 3.0% to 3.5%
of average monthly earnings, increase the maximum benefit from 75% to 100 %, and
implement a supplemental monthly benefit equal to $12.50 per year of service.
Funding Implications of Amendment
An actuarial cost estimate is attached. The annual required contribution would
increase by $587,986, or 8.41 % of covered payroll.
Certification of Administrator
I believe the amendment to be in compliance with Part VII, Chapter 112, Florida
Statutes and Section 14, Article X of the Constitution of the State of Florida.
For the Board of Trustees
as Plan Administrator
Plan
SUPPLEMENTAL ACTUARIAL VALUATION REPORT
Palm Beach Gardens Police Officers Pension Fund
Valuation Date
October 1, 2004
Date of Report
September 26, 2005
Report Requested by
Board of Trustees
Prepared by
J. Stephen Palmquist
Group Valued
All members of the Plan
Plan Provisions Being Considered for Change
Present Provision Before Changes
(1) The pension multiplier is 3 %.
(2) Maximum pension benefit is 75% of AFC.
(3) There is no supplemental benefit
Proposed Changes
(1) The pension multiplier would be 3.5 %.
(2) Maximum pension benefit would be 100% of AFC.
(3) There would be a new supplemental monthly benefit equal to
$12.50 per year of service.
Participants Affected
(1) and (2) All members who retire or terminate employment after
adoption of the amending ordinance.
(3) Present service and disability retirees as well as future service and
disability retirees.
Actuarial Assumptions and Methods
Same as October 1, 2004 Actuarial Valuation Report with no exceptions.
Some of the key assumptions /methods are:
Investment return — 8.5% per year
Salary increase — 6.0% per year
Cost Method — Frozen Entry Age
Amortization Period for Any Increase in Actuarial Accrued Liability
30 years
Summary of Data Used in Report
See attached page.
Actuarial Impact of Proposal(s)
See attached page(s).
Special Risks Involved With the Proposal That the Plan Has Not Been
Exposed to Previously
None
Other Cost Considerations
None
Possible Conflicts With IRS Qualification Rules
None
�a t
. Ste hen Palmquist, A, MAAA, FCA.
Enrolled Actuary No. 05 -1560
r
N. AL RE UI : ED C,0 T : IBUTION
k
0
1
(. . C a fi
F
V
A. Valuation Date
October 1, 2004
October 1, 2004
Increase
Valuation
Multiplier from
(Decrease)
3% to 3.5 %,
Cap from
75% to 100 %,
$12.50 Supplement
B. ARC to Be Paid During
Fiscal Year Ending
9/30/2006
9/30/2006
C. Assumed Date of Employer Contrib.
Quarterly
Quarterly
D. Annual Payment to Amortize
Unfunded Actuarial Liability
$ 306,109
$ 587,232
$ 281,123
E. Employer Normal Cost
1,468,590
1,727,309
258,719
F. ARC if Paid on the Valuation Date:
D +E
1,774,699
2,314,541
539,842
G. ARC Adjusted for Frequency of
Payments
1,866,061
2,433,694
567,633
H. ARC as % of Covered Payroll
27.62 %
36.03 %
8.41 %
I. Assumed Rate of Increase in Covered
Payroll to Contribution Year
3.50 %
3.50 %
-
J. Covered Payroll for Contribution Year
6,991,506
6,991,506
-
K. ARC for Contribution Year: H x J
1,931,054
2,519,040
587,986
L. Estimate of State Revenue in
Contribution Year
235,818
407,110
171,292
M. Required Employer Contribution (REC)
in Contribution Year
1,695,236
2,111,930
416,694
N. ARC as % of Covered Payroll in
Contribution Year: K - J
24.25 %
30.21 %
5.96
C=_�,A AL UOF R: ENE `ITS. ��
A. Valuation Date
October 1, 2004
October 1, 2004
Increase
Valuation
Multiplier from
(Decrease)
3% to 3.5 %,
Cap from
75% to 100 %,
$12.50 Supplement
B. Actuarial Present Value of All Projected
Benefits for
1. Active Members
a. Service Retirement Benefits
$ 24,955,831
$ 30,490,489
$ 5,534,658
b. Vesting Benefits
872,437
1,077,057
204,620
c. Disability Benefits
1,879,546
2,017,210
137,664
d. Preretirement Death Benefits
380,950
438,969
58,019
e. Return of Member Contributions
36,202
36,202
-
f. Total
28,124,966
34,059,927
5,934,961
2. Inactive Members
a. Service Retirees & Beneficiaries
2,579,739
2,816,968
237,229
b. Disability Retirees
3,260,186
3,426,334
166,148
c. Terminated Vested Members
104,733
104,733
-
d. Total
5,944,658
6,348,035
403,377
3. Total for All Members
34,069,624
40,407,962
6,338,338
C. Actuarial Accrued (Past Service)
Liability per GASB No. 25
24,962,551
29,581,729
4,619,178
D. Plan Assets
1. Market Value
15,755,417
15,755,417
-
2. Actuarial Value
16,405,794
16,405,794
E. Actuarial Present Value of Projected
Covered Payroll
44,790,332
44,790,332
F. Actuarial Present Value of Projected
Member Contributions
3,851,969
3,851,969
-
A�LC� XTIJON W. O
a�s'
RAWOr
A. Valuation Date
October 1, 2004
October 1, 2004
Increase
Valuation
Multiplier from
(Decrease)
3% to 3.5 %,
Cap from
75% to 100 %,
$12.50 Supplement
B. Actuarial Present Value of Projected
Benefits
$ 34,069,624
$ 40,407,962
$ 6,338,338
C. Actuarial Value of Assets
16,405,794
16,405,794
-
D. Unfunded Actuarial Accrued Liability
4,573,607
9,192,785
4,619,178
E. Actuarial Present Value of Projected
Member Contributions
3,851,969
3,851,969
-
F. Actuarial Present Value of Projected
Employer Normal Costs: B -C -D -E
9,238,254
10,957,414
1,719,160
G. Actuarial Present Value of Projected
Covered Payroll
44,790,332
44,790,332
-
H. Employer Normal Cost Rate: F/G
20.63 %
24.46 %
3.83 %
1. Covered Annual Payroll
6,755,078
6,755,078
-
J. Employer Normal Cost: H x 1
1,393,573
1,652,292
258,719
K. Assumed Amount of Administrative
Expenses
75,017
75,017
-
L. Total Employer Normal Cost: J +K
1,468,590
1,727,309
258,719
M. Employer Normal Cost as % of
Covered Payroll
21.74 %
25.57 %
3.83 %
October 1, 2004 I October 1, 2004 I Increase
Before Chanqes After Chanqes (Decrease
Number
98
98
-
Covered Annual Payroll
$ 6,755,078
$ 6,755,078
-
Average Annual Payroll
$ 68,929
$ 68,929
-
Average Age
39.2
39.2
-
Average Past Service
9.8
9.8
-
Average Age at Hire
29.5
29.5
-
Number
9
9
-
Annual Benefits
$
242,192
$
264,467
$
22,275
Average Annual Benefit
$
26,910
$
29,385
$
2,475
Average Age
57.8
57.8
-
111111111.1 MIL - =R --as
Number
12
12
-
Annual Benefits
$
319,834
$
336,139
$
16,305
Average Annual Benefit
$
26,653
$
28,012
$
1,359
Average Age
49.9
49.9
-
I Ion=
FAM
Number
2
2
-
Annual Benefits
$
23,916
$
23,916
-
Average Annual Benefit
$
11,958
$
11,958
-
Average Age
41.3
41.3
-
F-
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Report of the Budget Oversight Committee
Our committee has been asked to consider the financial implications of raising the
multiplier in the Police Officers Pension Fund from 3 to 3.5.
The plan's funding method is the Frozen Entry Age Cost Method. Under this cost
method the contributions are designed to be level as a percentage of salary. Our first
cause for concern is that contributions have risen steadily and dramatically from 8.36% of
payroll in 1993 to 27.62% of payroll in 2004.
The funded ratio is a measure of the plans ability to meet
second cause for concern is the decline in funded ratio frc
2004. The unfunded actuarial liability increased from $
2004. When the contribution increases dramaticall
increasing.
Our third cause for concern is the declining rate ol
returns for the five year period 2000 — 2004 are dr.
1995 —1999. Favorable investment turns allow
contributions.
fun
obligations. Our
in 1993 to 65.7% in
jh Lto $8,556,757 in
Wuld be
urn. The iestment
than the five year period
es without increasing
ising the pension
at least three years
re against the police officers. Quite
in a well funded pension. A plan's
pension promises will be met.
® GABRIEL, ROEDER, SMITH & COMPANY
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21
INVESTMENT RATE OF RETURN
The investment rate of return has been calculated on the following bases:
Basis 1 - Interest, dividends, realized gains (losses) and unrealized appreciation
(depreciation) divided by the weighted average of the market value of the
fund during the year. This figure is normally called the Total Rate of
Return.
Basis 2 - Investment earnings recognized in the Actuarial Value of Assets divided by
the weighted average of the Actuarial Value of Assets during the year.
Year Ending
September 30th
Investment Rate of Return
Market Value
Actuarial Value
1990
9.1 %
9.1 %
1991
8.6
8.6
1992
8.2
8.2
1993
8.8
8.8
1994
2.4
2.4
1995
18.2
18.2
1996
5.2
5.2
1997
24.2
10.3
1998
5.3
9.2
1999
11.6
9.6
2000
6.7
9.0
2001
(7.8)
6.3
2002
(6.5)
(1.6)
2003
12.7
3.7
2004
8.6
3.9
Average Compounded
Rate of Return for
Number of Years
Shown
7.4 %
7.3 %
Average Compounded
Rate of Return for last 5
Years
2.4 %
4.2 %
= GABRIEL, ROEDER, SMITH & COMPANY
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BUDGET ADVISORY COMMITTEE
EMPLOYEE BENEFIT PLANS
FUTURE IMPACT ON BUDGETS
INTRODUCTION
In our comprehensive report submitted near the end of last summer, we noted the annual
operating budget does not adequately fund some of the City's employee retirement
programs. This report expands on those comments.
The City has responsibility for two pension plans, one covering the firefighters and the
other the police. Both the employer and participating employee 'bute. These are
defined benefit plans, that is, there is a commitment to pay e� d pensions regardless of
the value of the assets in the respective plans.
A number of retired, former City employees have
cost reimbursement program. The retirees pay fo
the former employer.
Our concerns are centered on availability of
financial statement disclosure. We e not
benefits, as that is not within our sc
CONCLUSION
We believe all of the above - discussed
budgetary planning an man(
or disclose the facts
to be covelOWY the medical
P ;ent financial is the escalating cost of medical
rmitted to join the City's plan and each
total premium (employer plus employee share)
the s are an older group the real cost with respect to
,re the subsidy.
If historical tre ' ontin hen future medical costs will continue to rise. This combined
with anticipated in in the number of City retirees will add to the cost.
Heretofore accounti g standards for municipalities did not require financial statement
recognition of the future cost of the subsidy. This has changed. The staff is collecting the
data needed to make the calculations.
RECOMMENDATION- MEDICAL PLAN
The appropriate accounting will require recognition of the cost of the subsidy of this
retirement benefit and the accruals will be made over the period of employment. It is a
difficult calculation. Estimates must be made for the number of employees who
eventually will elect coverage and the size of the future subsidies. This in turn requires an
assumption for the rate of premium increases.
We recommend that either the next budget contain funds to begin the defraying of the
subsidy or alternatively eliminate the subsidy feature.
PENSION PLANS DISCUSSION
The circumstances of the pension plans are not identical but somewhat comparable. In
both cases both the employer and employees contribute although not equally. Each plan
has its own administrative board appointed by the Council. None ( the appointees are
Council members or from the City staff and none of the app oin ° rlap.
Each plan engages its own consultants and service providers
:t
pension is paid from a fund which accumulates durin a peril
primary source is the contributions. As these acc;Peorthe*"employee i estmer
and administrative expenses add to the account.
payments gradually reduce the fund balance.
the time the pension terminates due to death.
Since the City's plans of se "'
balance
employment .The
ings less losses
he pension
wi zero at
,termining the amount of
ations between the City
i yhe advice of
a1 Assumptions "). No single
tds or sponsors. The U.S.
apply to private pension
pay"jFne of the four vital assumptions is the
Wee's compensation. This is very difficult
ve of the -final 10 years of employment (the typical
me pay and any payments for previously
sed sick leave.
anticipated rate of return on invested funds.
average mortality.
The last key assumption under discussion is the future rate of funding ( "amortization ") of
any [actuarially calculated] deficits, technically known as the "unfunded actuarial
liability". These deficits occur when benefits are increased without an immediate
commensurate increase in contributions or when actual compensation levels are more
than assumed or when investment returns are less or when mortality is longer than
projected. The treatment of these deficits determines the actuary's presentation of the
status of the plan. If the deficit is scheduled for amortization then as a practical matter it
is treated as an asset of the plan. If the amortization period is relatively short, the level of
contributions must be dramatically increased if the period of amortization is long; while
the contribution requirements are not as onerous a weakening of financial position is the
result. Please see Appendix II.
The results for the last five years reinforce our view that actuarial assumptions have not
been on the conservative side ode of the range. Investment returns have been below the
projected level and compensation increases have been above.. In fact the compensation
assumption was reduced a few years ago. We are aware that one of the plans recently
increased the compensation assumption from a six to about nine percent... All of these
events increased the unfunded actuarial liability.
The conventional practice in essence causes a short-fall in the iF#Wdi#te past to be
recovered over the long future. It overstates the assets avail to provide for the
committed level of benefits.
If any unfunded actuarial liabilities were amortized s paid dov�n era short
duration, then the ups and downs of assumptions mpared to actual r�ei, would be less
significant. With regard to this issue the two ake a
for amortization of actuarial liabilities over 3 ye he
period for different circumstances with a ran ge of 1
has not established specific standards,,,,,
With regard to private pension plans, t1i
attempting to establish much more cons
amortization periods as short as 8 or 10
permitted when a plan ' icit po:
long -term bond rate
RECOMMENDA
We are not
boards f Me
been gffitaken by
Ll
=ferent stance TWifferent fovides
seems to us
sears. It is clear the Council
3 1 administration are
U er discussion are
Who benefit increases will be
,sumptions may be limited to
date has occurred. The administrative
practice. The customs and traditions have
d be a shift to a modern approach.
We offer flowing re endations to the Council:
1. The cil and st should monitor plan performance and establish uniform
standar licab o both plans. The period of amortization of the unfunded
actuarial li nvestment projected return and mortality table are areas where
conservative umptions would be appropriate.
2. For purposes of financial evaluation the Council should request that each of the
two plans submit a pro forma reappraisal using conservative assumptions
including a 10 -year amortization schedule.
3. Do not institute any pension increases until a plan of action to improve the
funding is developed.
4. There may be expenses reduction opportunities by consolidating some of the
services used by the respective plans. This would include a master investment
trust, record keeping, etc. We are not suggesting that the boards be merged.
OTHER RETIREE PALN FEATURES
Each of the two plans has an option which in essence permits retirees to bank pension
distributions with the respective funds. While this has been deemed to not have a cost
there perhaps are circumstances relating to investment choices which may negatively
impact the fund. It also goes beyond the basic purpose of a pension plan. The City should
consider eliminating this feature, known as a "DROP ", the timing is good as very few
have exercised this option to date.
FINAL COMMENT
The historically acceptable approach for pension fund decision, ,ting, reporting and
decision making has led to some very troubled situations in nited States. A number
of municipal or state pension systems are discussing a b correction and a large
number of private plans already have exercised that o ti or si ollapsed. Our City
is not in dire straits but there is no question the fun ' poach sh be modernized.
The route to avoid a financial crisis is to imm ly beg a corrective p Q to
protect the benefits
Apl
statements
FY 2006/07 Budget Timetable
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