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Home My WebLink AboutItem #17 - Discussion Item-..� 1.11'%'.1! •:JILJN Mr. Joseph R. Grassie Cit M iPIT "q.7:' =1C_.. : IEi'10PANCU.M . C'Ar'` April 4, 1980 riLL y anager c Cost of Living Adjustment to Retirees Ja'es E. Gunderson 'Director of Finance - Background = Earnings from work represent the major source of income for most individuals. To alleviate the economic hardship of retirement, society has developed a complex wage replacement system. Social Security, which is the major source of retirement income for most A^:ericans,is the primary component of the income -maintenance network. Employer sponsored pensions, where available, supplement this by providing additional benefits. The success of a pension in achieving 'its wage replacement goal is most frequently measured by its replacement rate. Total replacement rate is the ratio of social security and pension benefits to the workers earnings before retirement. Certain guidelines exist for evaluatinh the adequacy of the replacement rate. At a minimum, benefits should replace enough income to meet the retirees basic needs. At the other extreme, the maximum desirable replacement allows the worker to maintain pre -retirement consumption levels. The pre -retirement consumption level is row -dilly equivalent to the final years earn- ings net of ta:•'cs, and savings. however, in comparing pre -and -post retirement consumption e:;pense, expenses related to earnin', a living; should also be subtracted from earnings since these expenditures arc not incurred after retirement. Although medical epenses frequently increase upon retirement, medicare benefits defray a portion of Hie cost. The net effect of reduced expenses and preferred tax treatment in retircr.:ctit is th,it consumption levels equivalent to the pre.-retireanent living; standards can be repL1C('d with replacement rates of 65 to 80 percent. Even if replacement rates art' established, to maintain pre -retirement consuption levels, the retirees livin,, standard will decline over time as inflation erodes the purchasin power of benefits. Since the future pattern cost of living increases can not be predicted accurately, no amount of preplanning; can insure protection from inflation. The only, way to insulate retirees from the erosion of their pension benefits is to provide cost of livin;; adjustments which compensate for the full amount of price increases. In the absence of such adjustments a retirees economic welfare is entirely dependent upon the vagaries of the economy. A situation which undermines the establishment of a rational system of income maintenance. Controlling', Annual AtTIstments An example of this approach was used in Massachusetts in 1976. The Massachusetts legislature acted to limit the cost -of -living; increase added to retirement checks. Before that year, the first $6,000 of pension benefits had been increased annually at the same rate as the previous year's change in the Consumer Price Index. After , .„,,,,,,,,..,.�......,...,.'_'_' __.. _ . _............:...,,a.,..,,.�.,,r.r�rwanaxtwawrnewwmr�.eex+u�.�.»-..;..,_.,,,......,._.�..,..,...,�...,....r.,,.. _............�..«....... ._._,.....�..._._... _._ Joseph R. Grassie April 4, 1980 Page - 2 - the index rose by eleven -percent (11%) in fiscal year 1975, the legislature acted to limit the cost of living increase of state employes pensions to five -percent (5%), in the following year. Since then the legislature has determined the rate of increase each year. The same pattern of cost of living adjustments applies to disability benefits as to retirement benefits. The Federal program provides full adjustments for inflation; some State and Local plans also adjust for increases in prices, but usually with a cap; and Private plans generally do not include cost of living adjustments. Solutions Many of the problems afflicting the elderly are related directly to the economic hardship caused by retirement, and naturally, these would be relieved by continued employment. Working might also alleviate their isolation in a society that seems to have no place for them, and restore their dignity and self-reliance. Across-the-board rate increase indexed to the cost of living, or, not so indexed. Ad hoc action annually or periodically by the City Commission. Target increases to reach the economic disadvantaged. The foregoing solutions represent a spectrum of approaches. Each has advantages and disadvantages as the aforementioned material points out. The most justifiable approach is represented by targeting the cost of living to the economic disadvantaged. This meets the criteria for economic and social justice to former employes'. If cost of living adjustments were specifically directed to those employes' who were on the poverty level of subsistence as defined in CETA or Welfare regulations, then the maximum benefit would be achieved by the Commission. For instance, 1.979 lion -Farm poverty levels spelled out by the U. S. Government are: 1 Person $ 3,680 2-Member Family $ 4,730 3-Member Family $ 5,790 In order to determine the eligibility under such a criteria, the City would have to obtain further information from its retirees. Such a form is attached herewith. There is a call back provision in the Retirement Ordinance that might be used to require the submission of this information. This process is not pure, nor is it devoid of difficulties. JEG:hb Attachment Ok �.itfiia• ri fNkECTGK Of FtNA+- t SURVEY OF EMPLOYEES ON RETIREMENT NAME LAST FIRST MIDDLE BIRTHDAY MONTH DAY YEAR SOCIAL SECURITY NUMBER NUMBER OF DEPENDENTS AGE OF DEPENDENTS INCOME ANNUAL AMOUNT PENSION $ SOCIAL SECURITY OTHER TOTAL INCOME $ SOURCE P. 0. Box 330708 Coconut Croce Station/Miami, Florida 33133 MfMbfR ML %ICIPAL �'%A%C f 0MCERS ASS S OF THE 1:%ITtD %IATIS AND CANADA 37 Tn. Mr. Joseph Grassie April 21 1980 City Manager Comonission Agenda 0 Ccmmi.ssi erg .L.Plurruner, Jr. t < Please have item C "Discussion of an acturarial study of the impact of a .50 (1/2 of one percent) increase for each full year since retirement of all retired employees. (See Motion 79-477 July 11, 1979" from the Feb. 12, 1980 agenda rescheduled for the next cemmission meeting. "iTY .IP NV NMI, c:r:'It,•1 ICQR N114C,L.,IM Joseph R. Grassie March 10, 1 80 City Manager Cost of Living Increase to Retirees Elena Rodrigue2 Administrator The Miami City Employees Retirement System & Plan I was asked by both Boards, the Miami City Employees' Retirement Plan on March 7, 1980, and the Miami City Employees' Retirement System on March 6, 1980 to write to the City Commission and reiterate their prior position regarding the Cost of Living Increase to Retirees. I respectfully request that my package be added to the other material you have coming up on March 27, 1980 regarding the Cost of Living Increase to Retirees. ER:js teN "- City Commission ,17�12•:Jf-'i=1CiFO JG1;',t March 10, 1980 Cost of Living Increase to Retirees Elena Rodriguez Administrator The Miami City Employees' Retirement System & Plan We are enclosing copies of the last memo that was submitted to the City Commission by us in reference to the Cost of Living Increase to retirees. Enclosed also are copies of the actuaries studies on this subject. Both Boards, the Miami City Employees' Retirement Plan and the Miami City Employees' Retirement System, have asked me to write you and reiterate their position. At the System's meeting of August 30, 1979, and in light of the present Budget constraint beiliq faced, a motion was made by Gary Houck to recommend to the City Commission not to grant the cost of living increase. This motion was seconded by Carlos Garcia and passed by a 7 to 1 vote. "Yes" votes: J. Bertzel, C. Garcia, V. Grimm, G. Houck, E. Jaremko, B. Jennings, J. Reese. Dissenting: D. ;•larch. The Plan, at their meeting of August 31., 1979, had James Gunderson make a motion to recommend to the City Commission to deny the cost of living increase to retirees. His motion was seconded by Howard Gary and passed by a 5 to 2 vote. "Yes" votes: C. Arauz, C. E. Cox, L. JeJesus, J. Gunderson. Dissenting: A. Harris, P. Joffre. ER:js W CITY Of MIAMI, FLORIDA INTEROFFICE MEMORANDUM tee City Commission PROM; Elena Rodriguez, C$ecretary The Miami City Empl. Retirement System & Plan VAU September 12, 1979 "It-E susimr, Cost of Living Increase To Retirees "ErtQLNCts ENCIO{UREs Attached, please find a copy of the motion made by the City Cor.—issicn., at their meeting of July 11, 1979. Also find ccFiez of the study by E. H. Friend & Co. for the Plan, and Alexander & Alexander for the Syster.., of the impact of a .511; (one half of one percent) increase for each full year since retirement for all retired employees with percentage limited to the first $200, g?OC, cr $L:11 of present rr,cnthly benefits. At the S;•stem's meeting of August 3C, 1979, and in lig}.t of the present Budget constraint being faced, a motion was made by Gary Ycuck to recommend to the City CoT=,ission not to grant the "cost of living" increase. This motion was seconded by Carlos Garcia and passed by a 7 to I vote. "Yes" votes: J. Bertzel, C. Garc'_a, V. Grirn.,LG. Fcuck, E. Jarenke, B. Jennings, J•. Reese. TL Lissentfn : . Marc.. The Plan, at their meeting of August 31, 1979, had James Gunderson make a notion to recommend to the City Comr,:issicn to deny the "cost of living" increase to retirees. His motion was seconded by Howard Gary and passed by a 5 to 2 vote. "Yes" votes: C. Arauz, C.E. Cox., L. De Jesus, H. Gary, J. Gunderson. Dissenting: A. Harris, P. Jcffre. P^ m CETY OF WILEArz'' I MEETING LATE: J= 11. 1979 CITY MALL-OINNEPI KEY A MOTION ALM ORIZZN- AND DIRECTING THE CITY MANAGER TO COOPERATE IN TIAL DISTRIBUT:O:: OF PROMOTIONAL MATERIALS TO ENCOURAGE PARTI- CIPATIO:: BY CITY ENC LOYEES IN THE U. S. SAVINGS BOND PROGMM . A EnTION AUTti"vTZIh; AND DIRECTING THE CITY MANAGER TO REQUEST AN ACTUARIAL S•ILDY JF THE WACT OF A .5% (ONE iiALF OF ONE PERCEN INCREASE FOR Ei.Cii PULL YEAR SINCE RETIREMENT FOR ALL RETIRED ET-'LOVEES U:TH PERCENTAGE LIMITED TO THE FIRST $200. $300 oz $400 07 PP!SEh" )ADNTHLY BENEFITS AND TO REPORT RIS FINDINGS TO THE CIT A r,:,-"G'" I?S..IZING AND DIRECTING THE CITY MANAGER TO GIVE THE DOLP!i:` 5 Te+'� OPPORTUNITY TO SQL BEER IN THE ORANGE BOWL ST: LI;r,; Ui,:ii. THE EXPIRATION OF THEIR PRESENT LEASE (JULY 1. 1980 CO::;+I7I0;'ED U?v,N µC EXPENSE WHATSOEVER BEING INCURRED BY THE CITY OF ?:LA.X2 IN CO.N%TION WITH SAID BEER SALE: FURTHER CONDITIONED UPON THE PAY.C,*l OF 32% ON BEER SALES TO THE CITY OF MIAM:I IF BEER IS SOLD IN ZM ORANGE BOWL STADIUM. THIS TEAR. A MOTION INS7RIlCTING THE CITY MANAGER TO Il3+ZDIATELY DRAFT GUIDE- LINES AN) LECAL LANGUAGE TO PUT OL•T FOR PUBLIC BID THE CONCESSION AT mn omnGF LO»,, STADIUM FOR THE PERIOD BEGINNING JULY 1980 THR%GH JULY, 1966 AND TO COME BACK TO THE CITY COMMISSION FOR FINAL APPROVAL OF THE EXACT WORDING OF SUCH BIDS; FURTHER IN- STRUCTING THE CITY•H9ANAGER TO AFFECT THE ADVERTISING OF THESE BIDS AS QUICKLY AS POSSIBLE (EARLY 19BO) SO THAT INSTALLATION OF ANY NEEDED EQUIPMENT MAY BE 'ACCOMPLISHED; FURTHER PROVIDING THAT THE EXPENSE OF SUCH INSTALLATION SHALL BE BORNE ENTIRELY BY THE CONCESSIONAIRE; PROVIDING THAT MINIMUM BIDS FOR FOOD. BEVERAGE ANJ &LEE BE A MINIMUM; OF 35%; FURTHER PROVIDING FOR POSTING OF A 100,000 BID BOND AND FURTHER PROVIDING THAT ACCORDING TO A CON - CT SIGNED IN 1977 BETWEEN THE MIAMI DOLPHINS AND THE CITY OF r"..,AM:I. PARAGRAPH 12. THAT THE CITY SHA1-L GIVE MR. ROBBIE 30 DAYS ' ACCEPT OF REJECT THE HIGHEST BID TENDERED; FURTHER PROVIDING THAT IF Mt. ROBBIE ELECTS TO ACCEPT TEE NIGH BID THAT THE ESCAPE CLAUSI PRESENTL? CONTAINED IN RIS COATRACT BE•CHANGED FROM 3 TEARS TO 4 TEARS; FURTHER PROVIDING THAT IF MR. ROBBIE REJECTS SUCH BID PROPOSAL WITHIN THE 30 DAY PERIOD PURSUAM.•T TO PARAGRAPH 12. THE CITY OF ?:IAMI SHALL THEN AWARD TSE CONCESSION TO THE HIGHEST BIDDER. A MOTION TO ACCEPT THE PROPOSED RESOLUTION (PACKET ITEM: B) CON- CERNING THE ORANGE BO'w'L SCOREBOARD AND INSTRUCTING THE CITY MANAGER TO AMEND THE PROPOSED AGREEMENT. GIVING PRIORITY TO THE CONCESSIONAIRE FOP 21M ADVERTISING ON THE ORANGE BOWL SCOREBOARD CW7%NG ♦ PRLwARY RIGHT FOR USE OF THE SCOREBOARD TO INSURE THAT COMPE'::!VE PRODUCTS NOT SOLD BY TRf ORANGE BO L CONCESSIONAIRE WILT Nti . BE ADVERTISED -ON' THE SCOP_EBOAP.D; FURTHER DIRECTING TEAT M 79-476 Gi/Go M 79-477 ) P1/Gi M 79-490 To/La NOES: Pl, Go. M 79-491 To/La NOES: Go. P1. 1 79-492 Ft/Go DOES: Pl EOWARO H. FwENC S COMPANY CONOU01000 ACTVAgIts • C"StioTtt atNtfIT P&AN 900d1♦NI.TANT! • CAs1/AOT 0160t 19000aY61ANTa 10WAPC At ►wIt%o ►.• A.• C A.Pat •.Dt•/T Wiese* of T.s set. c•. •Ntl.• ►. •C...• is dOrw s ►twAEc •.str,OP to Ct •00tf'OtroT d D•II. • r.e DouClA.e. W N,► s A,► C A, ►tw-oa W.Ct•ONENOt%1 .1.89• O• 1.1 ..is t.. Ate "1" O• .C••.. I s A609 OT Plat i.i A f A.► C A.viCt -ONES DE I' ■test• 0• •.t •.1.:•. •t•ol.• O•.C•+.. t• D of T•vt • •oA.ft ► C • •. • L •.v,Ct•PNtf ct•.T ' el.S1. G• •.t ..1. L•. •C.Da.• O• •C...• I: OtTes C VCR,[ ass C, Does bt" .1.00• C. •.1 •.t•u• •:.C1.• C• .. ... Is V^V C • ot•.0 vt«O• • f A Ass'- v Ct•POES Ct%' WA./t C PAct.L'. ASA Afs'T VICe-Pots DE•.- .6.D9. Or 1.1 ..t. :..... 01.• C. .t•+.• t 090039 t- eta S- ► s •.. Ass'T v et•Pots-Dtl.T sot• e• •.t •.1.•c•..c•ct.• Weer•..• is Ms. Elena Rodriguez Secretary Miami City General Employees' Retirement Plan Post Office Box 330708 Coconut Grove Station Miami, Florida 33133 Dear Elena: wilt wNAT 10NAL Gus OWILDINO •NITC Soo $Goo A •TwttT, AI IN AA•MINOTOh, D C 110006 loot Tff••oso eo«f�.T.•.•s . wOstPT rTt ws, ► s A . ► C A. s . ► C • Pe.At• e• •.1 wn.e•. •e.et.• e• •:•+•• 1 t PAWL f • a e1.91• e• •.t ..1. t•• .. •:1.• V •. .•• is August 16, 1979 Re: Miami City General Employees' Re- tirement Plan; Actuarial Study on Proposed Ad Hoc Cost -of -Living In- creases for All Retirees (6000) Pursuant to your request dated August 8, 1979, this actuarial study evaluates proposed ad hoc cost -of -living increases for all retirees of the Miami City General Employees' Retirement Plan. The proposed ad hoc increases are equal to 1/2% for each full year since retirement for all retirees, vith percentage increases limited to the first $200, $300, or $400 of present monthly benefits. The attached table presents the results of the study. The increase in the unfunded past service liability as a result of each proposed ad hoc increase is displayed in item D. The recommended additional annual City Contribution is displayed in item F, expressed both as a dollar amount and as a percentage of payroll. It is an indisputable fact that inflation erodes the benefits of re- tirees on a fixed income. Any arguments based upon the needs of re- tirees for protection against such erosion are convincing. 6 towAwo M FastNO COM�AN� Ms. Elena Rodriguez August 16, 1979 Page Two However, it is also an indisputable fact that the current financial status of the Plan is in serious condition. In order to meet its,cur- tent level of benefit payments, the Plan has had to liquidate assets in addition to using every dollar of City and member contributions made to the Plan. Any additional benefit payments, such as the proposed ad hoc cost -of -living increases, would likely necessitate the liquida- tion of additional assets. This process could only go on for so long before the Plan would be bank- rupt, placing even the current level of .benefit payments in jeopardy. Consequently, for this reason and also since the funding of the Plan is presently under discussion (and, likely, a resolution will be em- braced before the end of this fiscal year), we strongly recommend that the consideration of the granting of any ad hoc coat -of -living increase be postponed to a later date. DFB:sf Attachment Sincerely, David F. Bencivenga EOWANO n. ►w�awv • - -- —• 1 MIAMI CITY GENERAL EMPLOYEES' RETIREMENT PLAN Evaluation of Proposed Ad Hoc Cost -of -Living Increase for All Retirees A. Retireesl/ i B. Total Annual Benefits of Retirees C. Increase in Annual Benefits as a Result of the Ad Hoc Cost -of - Living Increase D. Increase in Unfunded Past Service Liability as a Result of the Ad Hoc Cost -of -Living Increase E. Increase in Amortization Pay- ment as a Result of the Ad Hoc Cost -of -Living IgSresse: 1.0739000 x (D)]— IF. Recommended Additional Annual City Contribution as a Result of the Ad Hoc Cost -of -Living In- crease Expressed as a: a. Dollar Amount [greater of (C) or (E)) i b. Percentage of Payroll [F(a) + $29,169,114] Increase Equal to 1/2% for Each Full Year Since Retirement on Monthly Benefits Up to: $200 $300 $400 1,255 1,255 1,255 $5,946,439 $5,946,439 $5,946,439 $ 73,700 $ 94,364 $ 109,536 $ 595*914 $ 765,428 $ 889,998 $ 44,038 $ 56,565 $ 65,771 $ 73,700 $ 94,364 $ 109,536 .253% .324% .376% i/ "Retirees" includes retired participants, beneficiaries, and disabled partici- pants. ?/ The Ordinances call for the amortisation of the unfunded past service liability over 35 years from October 1, 1976. EOWARD H. relsko a CO01'ANr Alexander i Alexander Inc. Consulting Actuarial Division Two iexander Pt Center 3565 Piecimo�eomont poac N E lexander Atlanta Georgia 30305 Telephone 404 261.34'%� T WX 810.751.8.33 August 23, 1979 Ms. Elena Rodriguez, Secretary Miami City Employees' Retirement Sy8t4M Retirement Office Post Office Box 330708 Miami, Florida 33183 BENEFIT INCREASE FOR RETIREES Dear Elena: The purpose of this letter is to provide the increase in annual Retirement System costs for a one-time adjustment in benefits to currently retired eir.- ployees, as outlined in the City Commission Motion 79-477. Our understanding of the adjustment is that present retirement benefits would be increased by .5% on the first $200, $300, or $400 of current monthly benefits for each full year since retirement as of January 1, 1979. There will be no increases for partial years. Following are the costs and cost components for each chanoc: A. Unfunded Supplemental Liability B. Increase in (A) C. Amortization of (B) over 35 years from 10/1/76 D. Annual Benefits E. Increase in (D) Current :2C1 S S 70,368,000 70,967,000 - +599,000 + 47,365 6,594,784 6,660,406 - + 65,662 $300 54^0 $ S 71,248,000 71,511,000 +880,000 +1,143,000 + 69,584 + 90,384 6,690,530 6,718,291 + 95,746 + 123,507 Consistent with our recommended funding approach for the 1978 increases, we recommend that the additional contributions for this benefit liberalization be at least equal in magnitude to the amount of initial increase in annual benefit payments. These are the amounts shown in line E, the level annual payments of which would amortize the increased liabilities over approximately a 16-year period. mi Page Wo texandf�- Ms. Elena Rodriques, Secretary &Ajexande- Miami City Employees itetirement System August 23, 1979 The actuarial basis used for calculation of the additional liabilities and amortization of the additional costs is the same as that adopted for the year beginning October 1, 1977 (i.e., 7% interest and 1951 Group Annuity Mortality Table). We feel that two points should be noted with respect to the proposed changes. The first is that the form of the change does not reflect the pattern of inflation since a participant's retirement. For example, an individual who had been retired 10 years would have received an increase of about SE both last year and this year, while one who had been retired 5 years would have received only half that amount in each year. Since some increases were granted last year, perhaps a better approach would be to consider a flat percentage increase for all participants who had been retired at least one year. The second point to be noted is that the additional deposits associated with the cost -of -living increases are included in the total System costs for comparison to the 4 mills linit, in the analysis and proposal of the Finance Director. If you have questions, or if we may help further, please let us know. Sincerely, Randall L. Stanley, F.S.A. Assistant Vice President RLS:jm