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Home My WebLink AboutR-80-0520e Ile, RESOLUTION NO. J 80-520 A RESOLUTION ACCEPTING THE EDWARD H. FRIEND AND COMPANY STUDY ON FUNDING ALTERNATIVES DATED JANUARY 18, 1980 CONCERNING THE CITY'S PENSION PROGRAMS; FURTHER ADOPTING THE RECOMMENDATION CONTAINED IN SAID STUDY TO INCREASE THE AMORTIZATION PAYMENT OF THE UNFUNDED PAST SERVICE LIABILITY BY 5% EACH YEAR FROM OCTOBER 1, 1976. WHEREAS, the Edward H. Friend and Company completed a study dated January 18, 1980 on funding alternatives to the Acturial Valutation Report as of October 1, 1978 for the City's Pension Programs, and WHEREAS, this study provides an acceptable acturial methodology which would produce an incidence of City contributions within the City's budgetary constraints, but sufficient to protect and ensure the benefits of the prior and present employees. NOW, THEREFORE, BE IT RESOLVED BY THE COMMISSION OF THE CITY OF MIAMI, FLORIDA: Section 1. The Edward H. Friend and Company Study on Funding Alternatives dated January 18, 1980 concerning the City's Pension Programs is hereby accepted and the recommendation therein to increase the amortization payment of the unfunded past service liability by 5% each year from October 1, 1976 is hereby approved. PASSED AND ADOPTED this loth day of July , 1980. "SUPPORTIVE DOCUMENTS ATTEST: FOLLO - " f/ LPH G. ONGIE, CITY CLEW PREP ED B : RONA D J. COHEN ASSISTANT CITY ATTORNEY APPR D AS TO FO 7ORRECTNESS: ) 0-4 A . KNOX, JR., CITY ATTOR MAURICE A. FERRE M A Y O R "D"Uhic r r rPrutx ITEM NO r. .. " CRY COMMISSION MEETING OF JUL 101980 �■wrnw. 0- 52 A Joseph R. Grassie City Manager James E. Gunderson Director of Finance t`..; .� � ��.�'. .i •r � ° • •' , is ': '. ♦ • - June 17, 1980"E Revised Pension Costs Edward H. Friend and Company, Actuary, has completed their study of what is necessary to implement the limited pension funding policy of the City. They have examined two alternatives: a) Raising the investment assumption. b) Changing the funding of our past service liability from a level dollar premium to a percentage equal to the adopted policy of a 5% increase per year. Their recommendation is to adopt the funding change approach. In accepting this recommendation, the City's Pension budget will be reduced from $16,755,335 to $15,391,851 for a net savings of $1,363,484. JEG:hb Attachment "SUPPORTIVE DOCUMENTS FOLLOW" 60-520 ' 15 . Joseph R. Grassie June 17, 1980 VILE City Manager Revised Pension Costs .;James E. Gunderson j Director of Finance Edward H. Friend and Company, Actuary, has completed their study of what is necessary to implement the limited pension funding policy of the City. They have examined two alternatives: a) Raising the investment assumption. b) Changing the funding of our past service liability from a level dollar premium to a percentage equal to the adopted policy of a 5% increase per year. Their recommmendation is to adopt the funding change approach. In accepting this recommendation, the City's Pension budget will be reduced from $16,755,335 to $15,391,851 for a net savings of $1,363,484. JEG:hb Attachment "SUPPORTIVE DOCUMENTS FOLLOW" ®0-520 i� ja- fL' Fri end FYteo" f Di f4ten6o, V. •,' . • I rvndiny v#&A Friend ww* Change Budget* jtlnderlBu get Administrative Expenses Salaries and Benefits $ 89,005 Other Operating 577.40 Total Administrative Ex- -$ 66_6, 405 penses Funding Requirements System $8, 738, 319 Plan 5,911,327 ICMA 50,000 Old Fire and Police 25_800 Total Funding /Required $14, 725, 446 Total Costs $15, 391, 851 Resources $486, 300 Reimbursement from System and Plan Trust Funds Metro Dade County 248,539 dr Metro Water and Sewer 500, 312 State. of Florida 3,126 $ 89,005 577,400 66�40 $16, 061, 367 27,563 $16, 088, 930 $16, 755, 335 $379, 000 192,015 370,456 2,027 Off -Street Parking 24,406 17,672 (1, 411, 721) 22,437 25.800 (1, 363, 484) (1, 363, 484) $107, 300 56, 524 1-9, 856 1,099 6.734 City Departments 14,129.168 15, 401, 983 (1, 272, 815) Salary Increase 4.342 ( 4,342) Retiree Benefits 387,840 { 38_ 0 Total Resources $15, 391, 851 $16, 755, 335 $(1, 363, 484) per January 15, 1979 memorandum from Management and Budget 80-520 Elaina Rodriguez 7 t June 27, 1980 Pension Administrator Actuarial Report A J� Howard V. Gary #t—g'e"irES Assistant City a Attached is the actuarial report which was prepared by Edward H. Friend and Co., to implement the limited pension funding policy of the City. The City Commission has asked that this information be pro- vided to the Plan and System Boards and that they be informed that this matter will be considered at the July 10, 1980 City Commission Meeting. As Pension Administrator, would you please see to it that both Boards are informed of this matter. "SUPPORTIVE DOCUMENTS FOLLOW# 80-520 Joseph R. Grassie June 17, 1980 City Mann-ler Revised Pension Costs James E. Gunderson Director of Finance Edward H. Friend and Company, Actuary, has completed their study of what is necessary to implement the limited pension funding policy of the City. They have examined two alternatives: a) Raising the investment assumption. b) Changing; the funding of our past service liability from a level dollar premium to a percentage equal to the adopted policy of a 5% increase per year. Their recommendation is to adopt the funding change approach. .In accepting this recommendation, the City's Pension budget will be reduced from $16,755,335 to $15,391,851 for a net savings of $1,363,484. JEC :hb Attachment "SUPPORTIVE DOCUMENTS FOLE.OW" 80-520 • . ];_ Funding H_ Friend FY180 rInptod Difference Fri'nd n%? Cjjan,-e Budget$ jVnderlBudaet Administrative Expenses Salaries and Benefits $ 89.005 $ 89,005 -0- Other Operating N 577,400 577,400 -0- Total Administrative Ex- $ 666,40 $ 666,405 0- penses Funding Requirements System $8, 738, 319 $16, 061, 367 (1, 411, 721) Plan 5,911,327 - 1CNLA, 50,000 27,563 22,437 Old Fire and Police 25, 800 -0- 25.800 Total Funding /Required $14, 725, 446 $16, 088, 930 (1, 363 Total Costs $15, 391. 851 $16, 755, 335 (1. 363. 4841 Resources $486, 300 $379, 000 $107, 300 ' ' Reimbursement from System and Plan Trust Fund s OW Metro Dade County C 248, 539 192.015 56, 52J --a Metro Water and Sewer 500,312 0 C 370,456 129,856 �I , O � Q State. of Florida 3, 126 2,027 1,099 --� Off -Street Parking 24,406. 17.672 6,734 (_ -T1 City Departments 14,129. 168 15, 401, 983 (1, Z7Z, 815) Salary Increase 4,342 ( 4.342) Retiree Benefits 387,840 ( 387.840 Total Resources $15, 391. 851 $16, 755, 335 $(l. 363. 4841 per January 15, 1979 memorandum from Management and Budget 80- 520 - , Oft �1`'EOvVA'Ab'H.IFRIENO S COMPAN4" "` . J I. A CONSULTING ACTUARIES • EMPLOYEE St Nt►IT PLAN CONSULTANTS • CASUALTY R19R CONSULTANTS EDNARO N. ►RICND, 01.6 A. • C A, PRt SIOtNT .f.M. M K"I.• sr •A •J•.ICA dONN S. VCRRECA, SENIOR VICE -PRt S,O[NT •ION.I A. MAC DOUGALL, •IR, P. S A, /. CA, SENIOR VICt -ORES I0tN7 04m". s• I.& A".a...a.Ac.• M +c•w. u A►SERT 111111119. !.A A. S. A„ I. C A. V,Cf-PRESIOt N7 ...N• N... •-•. iY KYf.• A. Ac•Y•••I0 *US ?AV t A..RA US t, ►. C.A S.A. CA., VICE -POCSIDt N7 ".sss s. 7-A rs.,cA., •cYA-• H •Crw.•lA RtttR O VERNt. Ass'T VICe• PRts,ot.17 .4.02.0. 1.2 •NsyAs •CAN.• s. •t •.—to DAVID I. S[NC/VENOA. A.S A., ASS'? VICE - PRE Slot PIT "WE 0 PACCLL1. A,S ♦I ASS'? VICE-PRILSIOtN7 .sw•u sr 7.e •.•s,A•. •suA.. A. •e•w.•N OtOROt L. St RISN, P. S A.. ASS'? VICE •PRts,DEN7 .1-0u er •.0 •-I-L-•C•Nr• Or •C•Yu I$ Mr. Joseph Grassie City Manager City of Miami City Hall 3500 Pan Americ.in Drive Miami, Florida 33133 Dear Mr. I;r:-PF'e: INT[NNATIONAL CLUS SUILDINO SUITE too too* w fTRte% N. W. MASNINoToN, 0• C. too** 4008l TSS-SOSO 1 60NfuLT�N?f "sets s► 1" A"P.A. • 110- so ss7VA- ►AUL ! LISCORD, I. C. ♦ ! "eNs s► ty A"A,fA. •AYC.• M .97w• January 18, 1980 Re: Miami City Employees' Retirement _System and Plan I .aclo..a,: is our report entitled Study on Funding Alternatives Addendum to the Actuarial Valuation Report as of October 1, 1978 for the Miami City General Employees' Retirement Plan�(Plan). 1..is letter highlights the key features of the report, extends those fea- tures to th Miami City Employees' Retirement System (System), and pre- sents recommendations for the City Commission's consideration. The City Commission adopted a retirement policy which set forth the fol- lowing objectives: 1. "To establish and maintain essential parity between the Pension Plan for non -uniformed City employees and the Pension System for uniformed personnel." 2. "To evaluate, on a continuing basis, the components of both the is �� Ian and the System for the purposes of making the benefits equi- �" VL%ble for all employee members in each program." QOCU P W1 ENTS FOLLOW" g 0 . %so . W CoWS.AO H. F1%1t%V i COM►AMV I Mr. Joseph Crassie January,18 1980 Page 2 3. "To limit, until this policy is revised, or the 10 mill cap on mu- nicipal taxing ability is removed, the annual expenditures on pen- sion program funding to a 5% increase in property tax revenue each fiscal year; however, not to exceed 4 mills. If the state legis- lature reduces the millage below 10 mills, then the 4 mills will be reduced to the arithmetic equivalent." � 4. "This policy to become effective for the 1979-80 fiscal year." In addition, the City Commission indicated that these objectives are to be obtained without affecting the,benefits of prior or present employees. This policy defines both funding and benefit levels. Over the lifetime of any retirement program, this cannot normally be done. The benefit levels will create the funding levels needed and, conversely, a cutback in fund- ing levels implies the need for a cutback in benefit levels. Consequently, we interpreted the City Commission's policy as follows: 1. The City Commission seeks an acceptable actuarial methodology which would produce rin incidence of City contributions within the City's budgetary constraints but sufficient to protect and ensure the benefits of the prior and present employees. 2. The City Commission endeavors to maintain parity between the Sys- tem and Plan, both as to benefit and funding levels. In order to L•e acceptable, the actuarial methodology must meet other uni- versal and i,�ai constraints. For example, the methodology must: 1. provide for the systematic accumulation of assets; 2. liqui�ate the unfunded past service liability in 35 years from Oc- tober 1, 1976; 3. develop an'incidence of City contributions which meet minimum cash flow requirements in all future years; 4. meet State of Florida funding requirements contained in Chapter 112 of the Florida Statutes; and S. derive reasonably predictable City contributions from year to year. Naturally, in order to maintain parity, the actuarial methodology must be applied in the derivation of the City's contribution requirement for both the System and Plan. 80'520 I EOWAAO H. FAICMO L COMPANY Mr. Joseph Grassie January .18, 1980 J .�':�v.',. 1� : t:'•.`t,_: ,�• �.,,,s �•�•,•r • �. �►. Paee 3 Several alternative actuarial methodologies were examined and tested to assure that they meet the policy and constraints listed above. After due consideration, it is our recommendation that the City Commission pursue the following acceptable funding policy for the System and Plan. 1. The aggregate accrual modification of the entry age normal cost 4� method should be used (as a technical matter, without a frozen in- itial liability). 2. The unfunded past service liability derived under the foregoing method should be amortized in 35 years from October 1, 1976 with payments which would increase by 5% each year. " S U P PO RTIV E3. A 7% investment performance assumption should be adopted, repre- DOC U N1 E N TS senting the average annual rate of return including appreciation and depreciation but after investment expenses have been deducted FO L0�1! (i.e., investment management expenses shall be reimbursed from in- vestment return and not by the City). Although this funding policy differs from the adopted City Commission pol- icy, it will meet both the needs of the Systen and the Plan and the bud- getary constraints of the City. The contribution requirements for the System and Plan, determined by this funding policy for the fiscal year ending September 30, 1980, are summa- rized in the table below. (The System contribution and the administrative expenses are estimated from +mailable :.,f.ormition.) Contribution Rei-irca,ent for the Svstem and Plan for the Fiscal Year Ending September 30, 1980 Contribution Requirement Administrative and Miscel- laneous Expenses Tot al item Plan Total $8,738,319 $5,911,327 $14,649,646 128,000 150,000 278,000 $8,866,319 $6,061,327 $14,927,646 In addition to adopting the foregoing funding policy, we also recommend that the City Commission should consider initiating t:he following actions. 80-520 i EDWAwo H FRICHO i COMPAN♦ 1 Mr. Joseph Crassie January 18, 1980 `j 1•� �, > .. ; . �� ; .• •. Page 4 1. A retirement advisory committee should be established, perhaps consisting of three employee representatives, three City represen- tatives, and three citizen representatives with no personal inter- est in the retirement programs. This committee should establish specific guidelines on the City's retirement policy, e.g., appro- priate levels of benefits, eligibility requirements for the bene- fits, the protection of the benefits from inflation, the level of employee contributions, etc. 2. The retirement policy set by the advisory committee should be used to design a new retirement program for employees hired on or after January 1, 1980. This action is strongly recommended as a result of the recently enacted Florida Statutes which place benefit limi- tations on these employees. 3. The ordinances currently in effect for employees hired before Jan- uary 1, 1980 should be recodified in their entirety, eliminating ambiguities, properly defining benefits, incorporating all amend- ments, etc. 4. The ancillary benefits provided by the System and Plan should be carefully ex-imined to see if they might be better provided through an insured or self-finded arrangement outside of the System and Plan. Candidates for such examination would include the ordinary death benefits, the accidental death benefits, the accidental ser- vice -incurred disability benefits, etc. In closing, the continued success of the System and Plan rests upon the financial strength of the City and its abi.ity to Lske future contribu- tions to the Trust Funds. The funding policy recommended in this letter provides a universally acceptable actuarial methodology for meeting these comm:tments and, barring the Trust Funds erperiencinp a substantial in- vestment loss, ensuring continued success. We believe this letter and attached report responds fully to the request of the City Commission. However, we would be pleased to provide any addi- tional information or assistance needed. Respectfully submitted, David F. i n Edward H. Friend DFB:sf(6000;6005) Enclosure 80-520