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HomeMy WebLinkAboutItem #04 - Discussion ItemRonald A. Silver (,1, , ,l r,, R,; . _,,1 I Attorney at Law 19 OCT00-f ZJ N4 2 : 01 October 29, 1979 Mr. Joseph Grassie City Manager, City of Miami 3500 Pan American Drive Miami, Florida RE: Funding of. Retirement Plan by City of Miami 2750 N, E, 187 Street , North Miami Beach, FL 33180 (305) 932-5400 Brwd: 920-1670 Dear Mr. Grassie: The City Commission of the City of Miami has passed on first reading a resolution which would reduce the funding of the Retirement Plan for the fiscal year 1979-80 to 105% of the previous fiscal year funding. If you recall at that particular meeting, I indicated to the Commssion my objection to the proposed policy. Since the time of. that meeting I have had a chance to review the policy and also my objections. I am convinced that the procedures as outlined in the resolution are violative of the Ordinances of the City of Miami and the laws of the State of Florida. I have communicated my opinion to the Board of Trustees of the Miami. City General Employees' Retirement Plan at their meeting of October 19, 1979. They have instructed me to communicate to you their objection to the resolution which was passed by the City of Miami Commission. It is the feeling of the Board of Trustees that the original recommendations made by the actuary with regard to funding requirements are the figures that should be utilized in order to comply with the applicable laws. The proposal by the city is an attempt to circumvent the law and to do that indirectly which cannot be done directly. It is my hope that the city will revaluate its funding recommendations so as to comply with the actuary's original recommendation and applicable law. If the city chooses to adopt the policy which is contrary to the law, the Board of Trustees, pursuant to their duties and responsibilities, have authorized me to take whatever action is necessary to see that the trust is funded in accordance with the applicable provisions of law. Since time is of the essence, I would appreciate a response within 20 days of the date of this letter. Thank you for your prompt attention to this matter. Sincerely, Ronald A. Silver Legal Counsel Miami City General Employees' Retirement Plan cc: Elena Rodriguez RAS:ty EDMOND J. GONG ATTORNEY AT LAW October 29, 1979 HAND DELIVERY Mayor and City Commission City of Miami City Hall Miami, Florida Dear. Mayor and Commissioners: SUITE 190 8595 SUNSET. DRIVE MIAMI, FLORIDA 33143 TELEPHONE (305) 596-2500 Please be advised that the Board of Trustees of the Miami City Employees' Retirement System (Police and Firefighters) pursuant to a legal opinion rendered to them October 18, 1979,. (copy enclosed) have instructed me to inform you that it opposes any reduction in funding of the System in the fiscal year 197.9 1980 from that appropriation earlier recommended by them, their actuary and required by City ordinances. The Trustees further directed me to bring appropriate legal action to require the City of Miami to properly fund the System in the coming fiscal year in the event that the City adopts a "new policy" arbitrarily underfunding the System. If the City of Miami fails to fully fund the System. as required by November 27, 1979, we will have no other choice than to seek legal redress. EJG/jk Enclosure cc: George F. Knox, City Attorney / Joseph Grassie, City Manager v • rn. . p/ 9 - ►t• <S 1 TO: October 18, 1979 LEGAL OPINION Board of Trustees Miami City Employees' Retirement System (Police and Firefighters) FROM: Edmond J. Gong System Legal Counsel RE: Legality of Policy Adopted by City of Miami Commission to Reduce Funding of System in FY79 to FY80 from Appropriation Required by City Ordinances I. FACTS 1, On July 23, 1979, James E. Gunderson, Director of Finance, City of Miami, proposed a resolution adopting a new City Commission policy on pension funding recommended by him and the City Manager Joseph Grassie before the,City Commission meeting of that date. A copy of this proposed resolution and an inter- office memorandum dated July 18, 1979, subject: "Pension Problem and Recommendation, Proposed Policy and Resolution," from Mr. Gunderson to Mx. Grassie, setting forth the new proposed policy is attached as Exhibit A. 2. The,City Commission at its meeting on July 23, 1979, did not act on the proposed resolution and referred the proposal:, to each of Boards of Trustees of the System and Plan foe their deliberation and recommendations through Elena Rodriguez, Secretary to the System and Plan '(Exhibit B). 3. On August 31, 1979, the Trustees of the System met in joint session with the Trustees of the Plan in a public meeting to receive Mr. Gunderson's proposal in detail. Erlployee representatives, employees and other interested parties were in attendance. At the conclusion of the joint meeting, the'Board of Trustees of the System met to formally consider the Gunderson proposal: After due deliberation and discussion,:the Trustees rejected Mr. Gunderson's proposed policy and by resolution requested the City Commission instead to adhere to its previous pension funding recommendation made to the:City Manager earlier in the year without any deviation whatsoever . A letter was sent to the Mayor and Commissioners advising them of this action (Exhibit C). 4. On September 27, 1979, the Miami City Commission passed on first reading a resolution to reduce funding of the System for FY79-FY80 to 105% of the previous fiscal year's. funding, among other things, and to direct the System to have its actuaries provide alternative methods to "accomplish this funding limitation." System Legal Counsel appeared in opposition, to adoption of this policy and urged the Commission to adhere to the funding recommended by the System Trustees. 5. ' The City's understanding of the resolution is set forth in a letter dated October 1, 1979, from Jartes E. Gunderson, Director of Finance, City of Miami, to David F. Bencivenga, Edward H. Friend & Company, -one of the System's actuaries. This letter has as an attachment a document which purports further to set forth the City of Miami Commission policy. Mr. Gunderson serves also as a Trustee of the Miami City General Employees' Retirement Plan. This letter and attachment is attached to this opinion as. Exhibit D. 6. On October 11, 1979-, the System Trustees met in a special meeting to review and evaluate the proposed new policy of the City. By resolution the Trustees voted to oppose adoption of the proposed new policy and directed a letter to the City, Commission requesting it for a second time to -fund the System in strict adherence with their previous pension recommendations delivered earlier in the year to the City Manager as provided for in the pension ordinances (Exhibit E). 7. Implementation of the new policy would reduce the City's contribution to the System for the coming fiscal year. approximately $1 million to . $1,.5 million below the amount recommended by the System Trustees and its actuary. This significantly reduced contribution would result in the City significantly underfundi.^.g the System. 8. Adoption and implementation of the new policy would have a serious impact on the unfunded liability of the System and would be clearly contrary to the best interest of the System and its beneficiaries and participants. II. LEGAL QUESTIONS PRESENTED (1)" 'IS ADOPTION AND IMPLEMENTATION OF A NEW CITY POLICY SIGNIFICANTLY REDUCING AND UNDEF_ UNDING THE CITY'S ANNUAL CONTRIBU- TION TO THE SYSTEM LAWFUL? (2) DOES FAILURE OF THE SYSTEM TRUSTEES TO INSIST THAT THE CITY FUND THE SYSTEM IN FY79-FY80 CONSTITUTE A VIOLATION OF THEIR FIDUCIARY DUTY TO PARTICIPANTS AND BENEFICIARIES OF THE SYSTEM? -2- III. ANSWERS TO LEGAL QUESTIONS PRESENTED (1) Answer: NO (2) Answer: Yes IV. REASONS 1. The Trustees have the sole and exclusive authority under city pension ordinances to adopt actuarial assumptions and other criteria which determines the city's required annual contribution to the System. 2. Since'inception of 'the System'in 1939, the Trustees have been.empowered by City ordinance to determine.. the annual contribution of.the-City through the following provisions: (a) Section 41-408(2)(c) which provides: "Regular Contributions by City. (c) .. the regular annual contribution by the city shall be determined annually by actuarial valuations and on the basis of regular interest, mortality and such other tables and assumptions as are adopted by the board." (b) Section 41-408 (6)(a) which provides: "(6) Appropriations (a) On or before May 15 of each year, the board [Board of Trustees] shall file with the city manager its- certification of the amount of the appropriation'necessary. to pay the normal and accruedi liability contributions to the trustee, which are. creditable to the Pension Accumulation Account for the year, the amount of any pensions payable on account of policemen or firemen under the provisions ofsection 41-409,- and the amount of appropriation required to cover the expenses necessary in connection with the administration and operation of the retirement system...." -3- 3. The new policy of the City. is an illegal attempt to change an existing procedure followed by the City since the inception of the System in 1939 and followed without: exception to 1978 pursuant to City ordinances. 4. Each Trustee is a fiduciary under Florida law and the common law of Trusts. Florida Statutes, Chapter 112.656(1). -5. Florida law, Chapter 112.656(1) provides: -"A fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries for the exclusive purpose of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the. plan."_ [Emphasis supplied] 6 A Trustee owes a duty to the beneficiary to administer the affairs of the trust in the interests of the beneficiaries and participants alone, and to exclude from consideration his own advantages and the welfare of third persons including the City. 7. A Trustee of the System has the fiduciary duty to protect the System from underfunding by the City of Miami since such action constitutes serious damage to'the interests: of the beneficiaries and participants of the System. Section 41-411(3)(h) of the pension ordinance provides: "The Trustee [Board of Trustees] is authorized to prosecute or defend actions, claims or proceedings of any nature or kind for the crotection of trust assets and of the `trustee [Board of Trustees] in the performance of the duties of the Trustee [Beard of Trustees]." [Emphasis supplied] V. CONCLUSIONS 1. The City of Miami's new policy is a legal nullity which is unsupported by law. 2. Adoption and implementation of the new policy by the City of Miami would constitute a serious threat to the present and future financial soundness of the System. 3. The Trustees, individually and jointly, have the fiduciary duty and responsibility to oppose, if necessary, adoption and implementation of the new city policy by legal action, and to reinstate their recommended funding previously certified to the City Manager. -4- VIT. RECOMMENDATIONS 1. The Trustees should require the City of Miami to fund the System for FY79.-FY80 in strict accordance with its previous recommendations made pursuant to City ordinances and in accordance with procedure followed from the System's inception in 1939 through 1978. 2. The Trustees should authorize its Legal Counsel to bring legal action to enjoin adoption and implementation of the new City policy as unlawful and to require the City to properly fund the System in accordance with the earlier funding. recommended by the Trustees. 3. The Trustees, pending the outcome of its legal action against the City, should itself fund the contribution shortfall caused by,the new City policy so as to: protect the interests of the System's beneficiaries and participants 4. The Trustees should authorize its Legal Counsel to work in cooperation with any other persons and entities in opposing the new City policy by legal process. -5-