HomeMy WebLinkAboutM-78-0114INCREASE
.5%
1,01,
1.5%
2.0%
2.5%
3.0,7
JOSEPH !R: GRASSIE FEBRUARY 11, 1978
CITY I4ANAt3ER
t5 E, UNDERS0N
1 RECTOR Oi' FINANCE
THE PROBLEM IS TO PROVIDE A COST of LiV$NO ADJUSTMENT Nip: RETIREES OF THE CITY,
THERE ARE THREE APPROACHES THAT MAY BE TAKEN TO SOLVE THIS PR08LEMt
1, A ONE TiME ALLOCATION CAN SE MADE TO EACH RmArt REGARDLESS OF WHEN Ht
RETIRED, THE COSTS ASSOCIATED WITH THIS APPROACH ARE DESCRIBED 8EL0W,
SYSTEM
INCREASE IN
UNFUNDED_LtABILITY
$ 300,000
600,000
900,000
1,200,000
1,500,000
1,800.000
SYSTEM
INCREASE IN ANNUAL
INCREASE UNFUNDED LIABILITY COST
.5% $ 1,735.000 $121,000
1 . G'jt• 3,470.000 242,000
1.5% 5,205,000 363,000
2.07 6,940,000 484,000
2.5% 8,675,000 605,000
3.C% 10,410,000 726,000
PLAN
ANNUAL INCREASE IN ANNUAL
COST_ UNFUNDED LIAB,LLITY COST
$ 21,000
42,000
63,000
84,000
105,000
126,000
$ 208,056
416,112
624,168
832,224
1,040,280
1,248,336
Pt1St &REt i REMENt COSt OF
LIVING ADJUSTMENT,
$15,639
31,278
46,917
62,556
78,195
93,834
'TOTAL ._. .
INCREASE IN ANNUAL
UNFUNDED LIAB.ILt.TY COST.
$ 508,056
1,016,112
1,524,168
2,032,224
2,540,280
3,048,336
THE DISADVANTAGE OF THIS METHOD IS THAT OLDER RETIREES ARE TREATED UNFAIRLY AS
THEY RECEIVE A DISPROPORTIONATE SHARE OF THE TOTAL INCREASE. THIS NEGATION HAS
BEEN MITIGATED BY INCREASES ADOPTED IN 1972, 1973, 1974 AND 1975 WHICH PROVIDED
RETIREES WITH ADJUSTMENTS OF 2%, 1 %, 1% AND 3/4 %, RESPECTIVELY, FOR EACH YEAR
SINCE THEIR EFFECTIVE DATE OF RETIREMENT. THE PRIMARY ADVANTAGE OF THIS METHOD
I5 THAT IT REPRESENTS THE LEAST COSTLY OF THE THREE APPROACHES.
2. TO PROVIDE A PERCENT INCREASE APPLICABLE SINCE THE DATE OF RETIREMENT. THE
CONSEQUENCES or THIS APPROACH ARE PORTRAYED IN THE FOLLOWING TABLE:
PLAN
INCREASE IN ANNUAL
UNFUNDED LIABILITY COST
$ 963,306
1,926,612
2,889,918
3,853,224
4,816,530
5,779,836
$ 69,793
139,586
209,379
279,172
348,965
418,758
$ 2,698,306
5,396,612
8,094,918
10,793,224
13,491,530
16,189,836
TOTAL
INCREASE IN
UNFUNDED LIABILITY
$ 36,639
73,278
109,917
146,556
183,195
219,834
ANNUAL
COST
$ 190,793
381,586
572,379
763,172
953,965
1,144,758
JOSEPH R. Gi #ASSIE
CITY :TANAGER
T:E I :i ApPROACH PROVIDES GREATER PARITY DETWEEN OLDER AND I?ECI NT R1" f Gifts.
;:1FORTU'1ATCLY. THE COSTS ASSOCIATED WITH THt5 APPROACH ARE HIGH; A l;ti
INCREASE COSTS 413, 355, 51 O OVER THE 25 YEAR AMORTIZATION R t ODa
THE ABOVE COSTS WERE CALCULATED BASED ON THE CURRENT AMORT I tAT I CN PER I C
U T I L I Z E D 3Y THE SYSTEM AND PLAN. THE AMORTIZATION of THESE ADDITIONAL
LIABILiTtES OVER THIS PERIOD MEANS THAT THE CtTY CONTRIBUTION WOULD at
EXPECTED TO CONTINUE BEYOND THE LIFET'ME OF THE CURRENT RETIRED EMPLOYEE
iROUP.
3. To PROV117E AN AUTOMATIC ADJUSTMENT RASED UPON SOME COST OF LIVING INDEX.
THERE wERE tiTUDiEs CONDUCTED IN 1 ?75, WHICH ARE NOW OUTDATED DUE TO
CENT ACTUARIAL AOSUt.1PTION CHANGES, THAT i:*!DICATE0 TO DO 50 WOULD ADD A
m t ti I tAw.i COST FOR THE SYSTEM OF 16.5% OF PAYROLL AND FCR THE PLAN, 5.2'
OF PAYROLL. THESE PROJECTIONS WERE MADE LIMITING THE ADJUSTMENT IN ANY
ONE YEAR TO THE S "AALLER CF THE ACTUAL INCREASE IN THE CPI INDEX OR .Ys
FOR THE SYSTEM AND et FOR THE PLAN. THE COST IMPACT ON A PERCENTAft
BASIS c3 GREATER ON THE SYSTEM THAN THE PLAN SINCE SYSTEM MEMBERS RETIRE
AT YOUNGER AGES AND BECOME DISABLED I•'ORE FRECUt NTLY THERM* EXTENDING THE
RCR10D OVER WHICH RETIREMENT BENEFtTS ARE PAID. THE mAGNITUDE OF THE
COSTS CHOWN RESULTS FROM THE FACT THAT THE CiTY YOULO :IOT ONLY 7E REQUIRED
"0 Ft!•ID T'4^_ YICREASE3 +:,F:ANTE) TO ^ETIREES, 3UT ALSO WOULC HAVE TO START
:.NTICtPATE•') ! %CRE.1SE3 TO BE ;.RANTED TO FUTURE RETIREES.
THE ACTUARIES HAVE RECCUMENDED AGAINST AUTOMATIC COST OF LIVING ADJUSTMENTS
SINCE THE CITY COULD FIND ITSELF FACED WITH THE SITUATION OF RAPIDLY
CPIRALH G COSTS DUE TO FACTORS ENTIRELY BEYOND ITS CONTROL. FUTURE
LIABILITIES CAN NOT BE ESTIMATED ACCURATELY SINCE IT IS QUITE POSSIBLE
THAT FUTURE INFLATION IMAY BE MUCH GREATER THAN ANTICIPATED. VERY HIGH
INFLATI'JN WOULD MAKE IT IMPOSSIDLE FOR THE CITY TO FUND THE RETIRt:.IENT
PROGRAMS. IN ORDER TO UNDERTAKE A RECOMMENDATION IN THIS AREA, THE CITY
COMMISSION WOULD HAVE TO AUTHORIZE A CURRENT ACTUARIAL STUDY.
FUNDING
THE PRECCEDtNG ALTERNATIVES HAVE TO OE ADOPTED PURSUANT TO SECTION 14 OF THE
FLORIDA CONSTITUTION WHEREBY GOVERNMENTAL UNITS SHALL NOT AFTER JANUARY 1, 1377,
PROVIDE ANY INCREASE IN BENEFITS UNLESS SUCH UNIT HAS MADE PROVISIONS FOR
FUNDING THE INCREASE 09 A SOUND ACTUARIAL 3AS1S.
114E CITY OF MIAMI is AT THE 10 •.11L CAP AND THERE IS NO INCREASE 19 MILLAGE
AVAtLAJLE TO FUND SAID INCREASES. THUS, ALTERNATE FUNDING THROUGH CUTS IN
TTHER PPOt.RAMS tN THE GENERAL FUND OR REDUCTIONS IN THE EXISTING RETIREMENT
IENEF t T :. WOULD HAVE TO :3E ADOPTED.