HomeMy WebLinkAboutMemo 12-17-09 FR/SRCITY OF MIAMI, FLORIDA
INTER -OFFICE MEMORANDUM
TO: Hector Mirabile, Ph.D. DATE : May 28, 2008 F,LE :
Director
Department of Employee Relations SUBJECT: Changes to GESE Retirement Plan
FROM: Mike BOudreaREFERENCES
Director
Management and Budget ENCLOSURES:
A review of the proposed plan changes to the City of Miami General Employees' and Sanitation
Employees' Retirement Trust (GESE) was performed to determine the potential budgetary
impacts it may have on the City's annual pension contribution. The following are the proposed
changes and their potential budgetary impacts:
• Change in the Amount of Optional Allowances
Change Sec. 40-255. Benefits, Option 2: Equal payment survivor annuities paid to a surviving
spouse from 10% to 5% of the member's benefit, and change Option 3: One-half payment
option paid to a surviving spouse from 2% to 1% of the member's benefit. Based on the
information provided by buckconsultants dated May 22, 2008, the changes in these options
would require the City to pay an additional $112,000 in pension contributions starting in fiscal
year 2008-09. This additional pension contribution is based on the October 1, 2007 actuarial
valuation, which should include the pay adjustments provided to plan participants in fiscal year
2006-07.
The decision to change these options will increase the fluctuation in the City's annual pension
contribution from year to year. This fluctuation will be depended upon the same actuarial
assumptions used in the present valuation method. However, it also assumes 30% of the plan
participants would.continue to elect Option 2, which according to buckconsultants, is, where the
largest increase in benefits will occur. The increase in annual pension contribution is also based
on more plan participation in Option 2 in subsequent years. The fluctuation as a result of these
option changes is currently estimated to change the City's annual pension contribution as a
percentage of payroll, from 28.26% to 28.40% in fiscal year 2008-09.
Although the fluctuation is anticipated to be minimal in fiscal year 2008-09, the change in
percentages for Option 2 and Option 3 will affect the year-to-year expected change in unfunded
liability due to changes in normal cost, and the interest on the normal cost. With the expected
changes in the unfunded liability, these option changes may have a greater cost impact on the
City in future years since -tYie City's annual -"-pension- contribution is-based—on on a variable
percentage of payroll, where plan participants' annual pension contribution is based on a fixed
percentage of payroll (10%).
• Allowing for Non -Spouse Beneficiaries under Options 2 and 3
According to information provided by buckconsultants dated October 8, 2007, any changes
made by plan participants to include a non -spouse beneficiary when selecting Options 2 or 3 will
have no impact on annual contributions since the actuarial equivalence factors are based on the
same underlying basis. However, should non -spouse beneficiaries be allowed it may result in an
Hector Mirabile, Ph.D.
Page 2
May 28, 2008
RE: Changes to GESS Retirement Plan
increase in the number of plan participants selecting Options 2 or 3, which were previous
excluded from selecting these options, especially among single and/or divorced plan
participants. There was no information provided in the buckconsultant report to indicate the
fiscal impact, if any, to the City's annual pension contribution should plan participant behavior
increase the overall number of retiring members selecting either Option 2 or 3 as a result of
allowing for non -spouse beneficiaries. The current report assumes 30% of retiring member will
continue to select either Options 2 or 3. Should more retiring members, who were otherwise
excluded from selecting either Option 2 or 3 under the previous agreement, increase then it is
anticipated the City's annual pension contribution will also increase. The amount of this increase
has yet to be specified.
MB:mb
c: Roger Hernstadt, Chief of Staff, Office of the City Manager
Larry M. Spring, Jr., Chief Financial Officer, Office of the City Manager
Elsa Jaramillo-Velez, Deputy Director, Employee Relations