20120829 PowerPoint Commission Workshop on Pension
City of Miami Beach
Budget Advisory Committee
Pension Reform Initiative
Recommendation Report
City Commission Workshop
August 29, 2012
Marc Gidney, Committee Chair
Jack Benveniste
John Gardiner
Antonio Hernandez
Larry Herrup
Stephen Hertz
Dushan Koller
Jacqueline Lalonde
David Lancz
Budget Advisory Committee
Members
•Develop recommendations that will address the benefits
and funding concerns with the City’s pension plans.
•Focus on Fire and Police pension plan – significantly
greater cost to the City than the General Employees
pension plan.
•A series of written, implementable recommendations to
address the long term sustainability of the Fire and Police
Pension Plan
–Cost implications
–Impacts to employees
–Advantages and Disadvantages
•Subsequently, the BAC may provide recommendations
regarding other pension benefits in the City.
Mayor’s Charge to the
Mayor’s Charge to the
Budget Advisory Committee (BAC)
3
Defined Benefit Plan (DB):
Employee pays percentage of salary into DB Plan each pay period
City pays pension benefit to employee from start of retirement through
end of life, and to any surviving qualified beneficiary
Benefit calculated based on set formula
City retains Risk
Defined Contribution Plan (DC) :
Employee pays percentage of salary into DC Plan each pay period
City pays percentage in employee DC Plan each pay period
Employee determines how to invest DC Funds
Retiree receives benefits until DC funds exhausted
Employee retains Risk
Mayor’s Charge to the
Defined Benefit
vs.
Defined Contribution
4
Accrued Liability: The actuarial present value of the plan’s pension obligations as
determined by an actuarial cost method.
Actuarial Value of Assets: The total value of a plan’s assets used for performing
an actuarial valuation.
Annual Required Contribution (ARC): The employer’s periodic required
contributions to a defined benefit plan, as defined by GASB. If an employer’s
contributions fall below the ARC, the shortfalls must appear in the employer’s
financial statements.
Buyback – You may purchase eligible periods of employment that have not
previously been included as credited service. Purchasing eligible periods of
employment increases the amount of your pension benefits
Mayor’s Charge to the
Helpful Terminology
5
Deferred Retirement Option Program (DROP) – A retirement feature
allowing an employee, eligible to retire and receive normal benefits from
the defined benefit plan, to defer the monthly benefits while continuing
to work. The benefit payments are placed in a separate account until the
deferred retirement period ends. During this time the calculation for
years of service and final compensation formula used to calculate
pension benefits is frozen. DROPs can be used for phased retirement or
to retain experienced employees.
Final Average Monthly Earnings (FAME): Formula used to help
determine the member’s final accrued benefit.
Retiree Cost-of-Living Adjustment (COLA) - An annual increase in
the pension plan retirement benefit.
Unfunded Actuarial Accrued Liability (UAAL): The unfunded liability
of the plan is the actuarial accrued liability less the actuarial value of
plan assets.
Mayor’s Charge to the
Helpful Terminology
6
•Retiree Cost of Living Adjustments (COLA)
•Benefit Multiplier
•Salary Growth
•Pensionable Pays/Overtime
•Final Average Monthly Earning (FAME)
•Age of Retirement
•Experience Gains or Losses
Mayor’s Charge to the
Potential Key Drivers of Increasing
Pension Costs
7
Stuart (2007)- All Employees
•All City pension plans terminated
•City joined Florida Retirement System (FRS) for all employees
•City purchased past service credit under FRS for all employees
Ft. Lauderdale (2007) - General
•Closed general employee defined benefit pension plan
•Set up defined contribution plan for new hires
Coral Gables (2009) - Police
•Increased employee contributions for police officers by 5%
•Reduced pensionable earnings (excluded overtime in excess of 300 hrs. and
lump sum payments for compensatory time)
Naples (2009) - Fire
•“Stop & Restart” implemented; premium taxes that the City can use to offset
City pension contributions increased from $776K to $1.67 million per year
•“Share Plan” set up with excess premium tax revenues
Just Some Examples of
Recent Changes to Public Pension Plans
In Florida
8
Delray Beach (2010) General Employees
•Final average compensation period extended from 2 to 5 years
•Normal retirement age delayed to age 62 (was 60)
•Employee contributions raised from 2.5 to 3.05%
•Standard benefit changed to single life annuity (was 60 & joint & survivor annuity)
•Line of duty disability reduced from 75% to 65%
Coral Gables (2010) – General
•[Settlement approved by union members and City Commission in July 2011)
•Pension benefits frozen; reduced benefits for future service
•Pension changes for current and future employees:
•Reduced multiplier for future service (from 3% to 2.25%)
•Increase employee pension contribution by 5% (to 10%)
•5 year final averaging period (phased in from 3 year average)
•Delay retirement age to age 65 or “Rule of 85” (from age 52 or “Rule of 70”)
•Reduced disability benefits
•Future pension cost increases shared by City and employees
•City may establish defined contribution plan in future for new hires
Just Some Examples of
Recent Changes to Public Pension Plans
In Florida
9
Miami (2010) – Pension Changes (All Employees)*
•[Financial urgency declared – City Commission adopted wage and benefit reductions
8/31/10]:
•Later normal retirement age (to “Rule of 70” with minimum age of 50 from Rule 64/68)
•5 year average final compensation (was highest single year)
•Reduce benefit formula for future service (to 3% from 3.5% after 15 years))
•Normal form of benefit: life and 10 years certain (PF); life annuity (General)
•$100,000 cap on benefits
•* Litigation pending/City may establish defined contribution plan in future for new hires
Hollywood (2011) – All Employees*
•[City declared financial urgency; pension changes approved by referendum on 9/13/11)
•Pension benefits frozen for all employees
•Pension changes for current and future employees:
•Delayed normal retirement date (Police/Fire – age 55 with 10 years or age 52 with 25
years; General – age 65 or age 62 with 25 years or age 60 with 30 years)
•Reduced benefit multiplier 2.5% police/fire; 2.0% - general)
•5 year final averaging period (now 3 years)
•No COLA for future service
•No DROP
•City will withdraw from participation in Chapter 175 and 185
* Litigation Pending
Just Some Examples of
Recent Changes to Public Pension Plans
In Florida
10
Florida Retirement System (2011)*
•3% contribution effective 7/1/11 (was 0)
•No retiree COLA for service after 7/1/11 (was 3%)
•Delayed normal retirement age for members who join FRS on or after
7/1/11
–Regular: Age 65 or 33 years (was 62 or 30 years)
–Special Risk: Age 60 or 30 years (was 55 or 25 years)
•Average final compensation: highest 8 years for members who join FRS
on or after 7/1/11 (was high 5)
•8 year vesting period for members who join FRS on or after 7/1/11
(was 6 years)
•DROP interest = 1.3% for members who enter DROP after 7/1/11 (was
6.5%)
•* Litigation pending
Just Some Examples of
Recent Changes to Public Pension Plans
In Florida
11
State of California
•Total pension liabilities are 30 times its annual budget deficit.
•Annual pension costs rose by 2,000% from 1999 to 2009.
•Since 2008 -Four Municipalities in California have already filed for bankruptcy protection
San Diego – 2012 Proposition B*
•Freeze base pay used for pension calculations over the next six years
•Eliminate pension spiking
•All new hires except for police officers into 401-k type retirement plans. It is estimated that
the plan would save the city nearly $1 billion over 30 years.
* Litigation Pending
San Jose – 2012 – Measure B*
•Current employees keep pension credits but pay up to 16% more to continue benefit or
choose a more modest plan for remaining years on the job
•Future hires required to pay half the cost of a pension
•Suspend current retirees' 3 percent yearly pension raises up to five years if the city declares
a fiscal crisis.
•Discontinue "bonus" pension checks to retirees
•Require voter approval for future pension increases
* Litigation Pending
The Growing Need for Pension Change
12
Atlanta, Georgia August 2011 Creation of DB Hybrid Plan w/DC Component
– Hyrbrid Plan for All New Hires
–Current Employees hired before 10/1/11 can elect Hybrid Plan w/prior accrued
benefits intact or can elect to remain in current DB Plan. If remain in current
DB Plan Employee Contribution increases from 8% to 13% (If have designated
beneficiary)
HYBRID PLAN :
•DB Component - Employee Contribution 8%
•DC Component – 3.75% of salary mandatory/4.25% of salary voluntarily
with 100% match from City not to exceed 8%
•Multiplier reduced to 1%
• Maximum COLA of 1%
• FAME 10 Highest
•Retirement Age from 55 to 57 (sworn) and 60 to 62 (General Employees)
–Policy Implemented: If ARC exceeds 35% of payroll, additional increase split
between City and Employee with max additional employee contribution not to
exceed 5%. In addition, an advisory committee would be formed to address
ARC for future years.
Examples of
Recent Changes to Public Pension Plans
Around the Country
13
Rhode Island, 2012
•The new law invokes the "police power" of the state to take actions necessary to preserve the pension
system.
•COLAs will be suspended until such time as the plan's financial condition improves sufficiently, and will
thereafter be subject to financial-sustainability tests.
•Retirement ages will increase next summer
•Current employees' accrued pension benefits frozen and they will hereafter join Hybrid Plan consisting
of Defined Benefit and Defined Contribution with Reduced Multiplier to 1%
In addition, many states have enacted sweeping structural pension reforms in 2012 including:
•Alabama
•Kansas
•Louisiana
•New York
•South Carolina
•Virginia
•Wyoming
Growing need for Pension Plan Reform
14
POTENTIAL FACTORS TO CONSIDER REGARDING THE
HEALTH OF A DEFINED-BENEFIT PLAN
Percent Funded
Unfunded Actuarial Accrued Liability (UAAL)
City’s Annual Required Contribution (ARC) as a % of Payroll
Experience Gains and Losses
Defined Benefit Plan
15
•Actuarial Value of Assets / Actuarial Accrued Liability (value of
current benefits)
•Provides a measure of how much of current benefits (earned and
projected) are funded at a specific point in time
•Funded Status of City Pension Plans as of 10/1/10
Fire/Police General
–Act. Accrued Liability: $818 million $580 million
–Act. Value of Assets: $526 million $431 million
–Percent Funded*: 64.3% 74.4%
According to the Leroy Collins Report Grading Scale for funding: >90% = A; 80-90% = B and 70- 80% = C
Understanding the City Plans
Funded Status
16
The UAAL reflects a snapshot at a point in time based on
plan benefits and assumptions.
In order to calculate the total amount that will be paid in
the future for plan members. Actuary estimates for
member:
•When Retire
•How much paid over remaining lifetime after retire
•How long they will live
The total value of these benefits is then “present valued”
to current dollars to determine the Actuarial Accrued
Liability.
Unfunded Actuarial
Accrued Liability (UAAL)
17
•Unfunded Actuarial Accrued Liability (UAAL) is based
on existing employees – changes to benefits for new
employees do not impact UAAL.
•Annual UAAL payment is approximately half of the
annual required contribution in each plan – these do
not go away/could increase due to plan closure, etc.
•By law the City is responsible for funding the UAAL –
even if employees are transferred to other employers,
and even if the current pension plans are closed,
frozen or terminated.
Understanding the City Plans
Pension Legacy Cost
The UAAL Issue
18
Total Unfunded Actuarial Accrued Liability (UAAL) of City
pension plans as of 10/1/10 was $441 million:
Fire/Police: $291.9 million
General: $148.8 million
Fire/Police MBERP (General Employees Plan)
494 Current Members 1116 Current Members
66 DROP members 67 DROP members
594 Retirees 1023 Retirees
Total Fire and Police Plan Members Total MBERP Members
1154 2206
Understanding the City Plans
Pension Legacy Cost
The UAAL Issue
19
Fiscal Year 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
Fire and
Police Plan 47.82% 50.02% 55.32% 66.66% 72.76% 80.92%
MBERP Plan 24.24% 21.57% 25.20% 20.65% 25.54% 31.99%
Historical Snapshot
Percent of Payroll for Past 5 Years
20
* Projections for 2011 – 2015 based on 10/1/10 valuation data. Actuals for 10/1/11 - ARC
of $39.8M and 80.92% of Payroll and a Funded Ratio of 62% based on a discount rate of
8.10%.
Contribution for
Fiscal Year
2011 2012 2013* 2014* 2015* 2016* 2017*
Discount Rate 8.3% 8.2% 8.1% 8.0% 8.0% 8.0% 8.0%
Salary Scale Current Bargaining Agreement
Annual Required
Contributions (in
millions)
34.4 36.2 39.7 43.3 43.9 44.5 45.2
% of Payroll 66.66% 72.76% 77.22% 81.94% 81.76% 81.28% 81.05%
Understanding the City Plans
Cost - Next Five Years
Fire and Police
21
•Projections for 2011-2015 based on 10/1/10 valuation date. Actuals for 10/1/11 - ARC of $21.2M;
31.99% of Payroll and funded ratio of 70.7% based on a discount rate of 8.15%.
•According to the Leroy Collins Report Grading Scale for funding: >90% = A; 80-90% = B and 70- 80% = C
Contribution for
Fiscal Year
2011 2012 2013* 2014* 2015* 2016* 2017*
Discount Rate 8.25% 8.25% 8.25% 8.25% 8.25% 8.25% 8.25%
Salary Scale Current Bargaining Agreement
Annual Required
Contributions (in
millions)
17.6 21.8 25.8 27.7 29.0 29.6 28.2
% of Payroll 25.54% 30.76% 35.34% 36.87% 37.45% 37.12% 34.31%
Understanding the City Plans
Cost - Next Five Years
General (MBERP)
22
Plan Assets – Historical Returns
23
Standard Rate of Return Model = 8%
Some of the nation’s largest public pension funds have already
announced nearly flat returns
State of California (CALPERS) = 1%
New York City = 1.8%
Median annual return for most public pension funds in 2011 = 4.4%
5 Year Average Return = 3.25%
10-year average = 6%
FY
2006/07
FY
2007/08
FY
2008/09
FY
2009/10
FY
2010/11
Assumed Rate of
Investment
Return
8.50% 8.50% 8.40% 8.30% 8.20%
Actual Rate of
Investment
Return
8.18 % 4.87% 4.49% 4.25% 2.57%
5 Year Average Actual Rate of Return 4.87%
10 Year Average Actual Rate of Return 5.36%
Historical Snapshot
Rate of Investment Returns
Fire and Police Pension Plan
24
FY
2006/07
FY
2007/08
FY
2008/09
FY
2009/10
FY
2010/11
Assumed Rate of
Investment
Return
8.75% 8.65% 8.50% 8.35% 8.25%
Actual Rate of
Investment
Return
12.0% 5.2% 1.1% 5.0% 1.10%
5 Year Average Actual Investment Rate of Return 4.88%
10 Year Average Actual Investment Rate of Return 4.06%*
Historical Snapshot
Investment Rate of Returns
MBERP Plan
25
* Unclassified and General plans merged in 2007. Five year average for Unclassified Plan 2002-2006 = 7.38%
•Actuals for 10/1/11 - ARC of $39.8M and 80.92% of Payroll and a Funded Ratio of 62% based on a discount rate
of 8.10%.
•According to the Leroy Collins Report Grading Scale for funding: >90% = A; 80-90% = B and 70- 80% = C
As of 10/1/10 Valuation (FY 2011/12 Budget)* Fire and Police Pension
Funded Ratio
Unfunded Liability as of 10/1/10 (UAAL)
64.3%
$291,931,506
City’s Annual Required Contribution (ARC)
Pension Bond Payments
$34,416,519
$4,495,500
Total Annual City Payments
$38,912,019
City ARC as a % of Payroll (Normal Cost)
Amortization of Unfunded Liability
Total Employer % of Payroll
32.59%
40.17%
72.76%
Investment Rate of Return (Assumed = 8.20%) 2.57%
Current Plan Status
Fire and Police Pension Plan
26
As of 10/1/10 Valuation (FY 2011/12 Budget)* MBERP
Funded Ratio
Unfunded Liability as of 10/1/10 (UAAL)
74.4%
$148,766,860
City’s Annual Required Contribution (ARC)
Pension Bond Payments
$14,474,678
$499,500
Total Annual City Payments
$14,974,178
City ARC as a % of Payroll (Normal Cost)
Amortization of Unfunded Liability
Total Employer % of Payroll
10.80%
14.22%
25.02%
Investment Rate of Return (Assumed = 8.25%) 1.1%
Current Plan Status
MBERP Plan
27
•Actuals for 10/1/11 - ARC of $21.2M and 31.99% of Payroll and a Funded Ratio of 70.7%
based on a discount rate of 8.15%.
•According to the Leroy Collins Report Grading Scale for funding: >90% = A; 80-90% = B and
70- 80% = C
•Mayor’s Charge
• Higher Cost
– City’s Annual Required Contribution (ARC)
–Cost as a Percent of Budget
– Cost per employee
•Greater Unfunded Liability
Recommendations Focused Primarily on
Fire and Police Pension Plan
28
•During the past year we have met accountants,
actuaries, lawyers, pension fund managers, employees ,
administrators and others.
•As shown in the prior slides, we are reaching a financial
“tipping point” and we can act now or be forced to act
later.
•The 2 goals of reform:
–Save the city’s finances and protect solvency
–Save pensions and retirement benefits for employees
Options Reviewed and
Recommendations
29
Current Status of Police and Fire
Pension Plan
30
25
30
35
40
45
50
55
60
65
70
75
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Mi
l
l
i
o
n
s
Miami Beach Police & Fire Plan Projected Cost in Dollars
30 Year Projection
Current Plan Cost (incl. expenses & Buyback)-$
* Assumes all assumptions are met.
Current Status of Police and Fire
Pension Plan
31
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Miami Beach Police & Fire Plan Projected Cost in Percentages
30 Year Projection
Current Plan Cost (incl. expenses & Buyback)-%
* Assumes all assumptions are met.
We considered 6 options from one extreme Defined Contribution (DC) (i.e. 401K)
to the other Defined Benefit (DB), and we also developed policies and guidelines
for the future.
1.Florida Retirement System (FRS) + Social Security Changes to the Existing
Pension Plan
2.Defined Contribution Structured at a level similar to FRS + Social Security
Equivalent Contribution
3. Hybrid Plans- DB and DC Combined
4.Changes to Existing Pension Plan - Past/Future Service Approach with a
Combined Benefit
5.“Freeze” Current Plan for Past Accruals and Create a “Minimum” Benefits Plan
6.Package of Items Incorporated into the Collective Bargaining Agreements in
2010
•Additional Policy Changes
Options Evaluated and Considered
32
OPTION I: Florida Retirement System (FRS) - a Defined Benefit Plan
•Results in a normal cost equivalent to approximately 25 percent of
projected payroll, with a NPV of savings of approximately $22
million for only new employees and $51 million for both new and
non-vested employees over the next 30 years.
•NOT RECOMMENDED because the City’s loss of control of
expenses to Tallahassee, ongoing litigation regarding FRS pension
changes implemented in 2011, news of projected shortfalls and
payment increases and loss of the premium insurance payments.
* Evaluated for New and Non-Vested Fire and Police Employees
Options Evaluated and Considered
33
OPTION II: A defined contribution plan structured at a level similar to
FRS, including a Social Security equivalent contribution
•Designed similar in cost to FRS and results in a normal cost equivalent to
approximately 25% of projected payroll, with a NPV of savings of
approximately $22 million for only new employees and $51 million for
both new and non-vested employees over the next 30 years .
•NOT RECOMMENDED although this option completely eliminates City’s
risk, because of concerns with savings potential given the relatively early
ages for retirement eligibility, the impact on morale for existing non-
vested employees and the potential that this may prove to be
unattractive to recruit police and fire employees in the future.
* Evaluated for New and Non-Vested Fire and Police Employees
Options Evaluated and Considered
34
OPTION III: Hybrid Plans – A combination of DB ad DC plans
•Result in a range of normal costs equivalent to between 20-25% of
projected payroll, with a NPV savings of approximately $37 million
for only new employees and $74 million for both new and non-
vested employees.
•WE RECOMMEND the City adopt a hybrid plan approach because
it keeps a DB plan together with a new DC plan that will reduce
risk. In particular, WE RECOMMEND Option IIID2, and we do not
recommend the other hybrid plans because although they
reduced the risk to the City, they did not generate the NPV savings
of Option IIID2.
* Evaluated for New and Non-Vested Fire and Police Employees
Options Evaluated and Considered
35
OPTION IV: Changes to the Existing Pension Plan
•Negotiate changes to existing plan including buyback provision,
COLA, FAME, retirement age, multiplier, etc . Can result in
significant reduction of percent of payroll and significant savings,
but will not eliminate future risks.
•NOT RECOMMENDED for non-vested and new employees because
they do not reduce risk, however RECOMMENDED in regards to
vested employees in order to meet savings targets and Policies
and Guidelines identified in Section IV.
* Evaluated for New and Non-Vested Fire and Police Employees
Options Evaluated and Considered
36
OPTION V: Freeze Current Plan for Past Accruals and Create a
“Minimum” Benefits Plan
•Results in a normal cost equivalent to approximately 12 percent of
projected payroll, with a net present value of savings of
approximately $167 million for new and all existing employees who
have not yet reached normal retirement age, over 30 years. It is
important to note that this is a low normal cost for a plan for high risk
employees that does not include Social Security.
•NOT RECOMMENDED because although this option can achieve very
high savings, it is the most draconian approach, and will have a
negative impact on morale for existing non-vested employees and the
potentially unattractive to new recruits in the future.
* Evaluated for ALL Fire and Police Employees
Options Evaluated and Considered
37
OPTION VI: Package of Items Incorporated into the Collective
Bargaining Agreements in 2010
•Results in a normal cost equivalent to approximately 23 percent of
projected payroll, with a net present value of savings of approximately
$33 million for new employees, over 30 years . In 2010, Buck
Consultants, the actuary for the Fire and Police Pension Plan, estimated
the impacts to existing employees to be minimal.
•While this agreement did meet short term objectives tied to recent
budgets, it is not a long term solution and is NOT RECOMMENDED for
same reasons given in Option IV. This Option is a starting point to
negotiate terms for vested employees per our final recommendation.
*Negotiated changes applied to all new Fire and Police employees hired after 11/1/10.
Options Evaluated and Considered
38
RECOMMENDATION TO ADOPT A STRUCTURE THAT REDUCES
RISKS AND THE COSTS ASSOCIATED WITH THOSE RISKS:
EXISTING VESTED EMPLOYEES (> 10 Years or Age 50)
Continue Existing Plan, earning benefits in existing plan with negotiated
reductions necessary to meet spending and savings targets including:
– Buyback
– Retiree COLA
– FAME
– Promotions
– Retirement Age
– Multiplier
*Any changes to current Fire and Police Pension Plan will need to be collectively bargained with the Fire and
Police Unions.
Final BAC Recommendation
Hybrid Option IIID2
39
RECOMMENDATION TO ADOPT A STRUCTURE THAT REDUCES
RISKS AND THE COSTS ASSOCIATED WITH THOSE RISKS:
NEW & NON-VESTED EMPLOYEES (Approx. 200 current employees)
Adopt new Hybrid plan structure:
•Provide a defined benefit component equal to minimum
benefits to receive Premium Taxes from the State.
•Provide a defined contribution component of 11% funded by
the City with employees providing a matching 5%
contribution.
*Any changes to current Fire and Police Pension Plan will need to be collectively bargained with the Fire and
Police Unions.
Final BAC Recommendation
Hybrid Option IIID2
40
Includes any buybacks. Service time is verified by the Plan’s Administrator at time of buyback or when member
becomes eligible for retirement. There are 2 members from Fire and 8 members from police that have <10 years
but are reflected as having > 10 years because they meet the Age 50 Retirement Age Eligibility.
Years of Creditable Pension
Service *
FIRE POLICE TOTAL % of Total
Membership
< 1 - 5 Years of Service 35 52 87 19%
5.1 – 7 Years of Service 22 40 62 14%
7.1 – 8 Years of Service 6 12 18 4%
8.1 – 9 Years of Service 7 11 18 4%
9.1 – 9.9 Years of Service 12 8 20 4%
> 10 Years of Service (VESTED) 69 182 251 55%
Total Active Members as of Today 151 305 456
Fire and Police Pension Plan
Active Members Years of Service
41
•Provided that the City Commission may periodically adjust the COLA up to 1.5% compounded for a given year, and COLA resets
to 0% for following yr. unless Commission affirmatively votes to increase above 0% for next Fiscal Year.
•**This represents a minimum consistent with F.S. 175/185 but the DB employee contribution can be set at any level.
•NOTE – Premium Tax Revenues for Fire and Police are expected to continue.
Current Plan/Vested
Employees
Negotiated Changes for
New Employees hired
after 11/1/10
Proposed Changes for New
and Non-Vested Employees
Multiplier 3% first 15 Yrs then 4%
thereafter
3% first 20 Years then 4%
Thereafter
2%
(FAME) 2 Years 3 Years Highest 5 of Last 10 Years
Retiree COLA* 2.5% 1.5% deferred until 1 yr.
after DROP
0.0%
Normal Retirement
Age
Age + Years of Service =
Rule of 70
Minimum Age 48 w/22
Years of Service = Rule of
70
Age 55 w/10 Yrs of Svc. or Age
52 w/25 Yrs. of Svc.
% Employee
Contribution to DB**
10% 10% 5%
Beneficiaries 85% / 75% Joint & Survivor w/ 10 Year Certain
85% / 75% with 10 years certain
Final BAC Recommendation
42
Current Plan/Vested
Employees
Proposed Changes for New
and Non-Vested Employees
% Employee Contribution to
DC*
0% 5%
% City Contribution to Social
Security
0.00% 0.00%
% City Contribution to DC 0% 11%
Share Plan DC** Yes Yes
Social Security No No
Hybrid Option IIID2
New and Non-Vested Employees (Cont.)
* Employee may increase contributions to extent permitted under Plan and under law.
**NOTE – Premium Tax Revenues for Fire and Police are expected to continue.
43
44
Recommended Option
15
20
25
30
35
40
45
50
55
60
65
70
75
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Mi
l
l
i
o
n
s
Miami Beach Police & Fire Plan Projected Cost in Dollars
Option IIID2: Hybrid Plan (Chapter Minimum with 5% Employee Contribution) with 12.46%
DC for New Employees and Non-vested Existing Employees
Current Plan Cost (incl. expenses & Buyback)-$Option IIID2-$
45
Recommended Option
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Miami Beach Police & Fire Plan Projected Cost in Percentages
Option IIID2: Hybrid Plan (Chapter Minimum with 5% Employee Contribution) with 12.46% DC
for New Employees and Non-vested Existing Employees
Current Plan Cost (incl. expenses & Buyback)-%Option IIID2-%
•Cost of pension benefits as a percentage of payroll
reduced from 74% to 21% over 30 years*.
•Net Present Value (NPV) Savings of $74M over 30 years .
•Estimated Savings for Year 1 = $2.5M
•Reduction of City’s Risk by 30% - 40% as the City will
carry no risk on the defined contribution portion.
•Hybrid Plan can always be adjusted (subject to
negotiations with unions).
* If there were no pension changes made, the UAAL will be reduced down
to 35% based on the 30 year amortization payments.
Hybrid Option IIID2
Anticipated Savings/Results
46
In addition to the negotiation points for vested employees (e.g.,
Buyback, Retiree COLA, FAME, Promotion Levels, Retirement Age,
Multiplier), there are additional policy changes to consider:
•Use 100% of 175/185 share plan monies towards benefits provided by the
defined benefit pension plan.
•Eliminate the provision that allows for transfer of years of service from Miami
Beach Employee Retirement Plan (MBERP) to Fire and Police Pension Plan
(proposed by Fire and Police Pension Plan Administration).
•Change purchase of service provisions to be based on actuarial provisions
(Government Finance Officers Best Practice and Advisory Papers on Pension
Reform).
•Eliminate the use of sick and vacation hours that are currently used to increase
“pensionable pay”.
•Reduce the use of overtime to a maximum of 300 hours.
Plan changes for Vested Employees
47
Policies and Guidelines Perspectives
1.Affordability and Sustainability
2.Appropriate Benefits to Provide to Employees
3.Recruitment and Retention
4.Management of Risk/Risk Sharing
Recommended Pension Reform
Policies and Guidelines
48
Affordability and Sustainability
•GUIDELINE STATEMENT: If the City’s portion of the total annual cost of
retirement benefits contribution exceeds 25 percent of payroll for general
employees and 60 percent of payroll for high risk employees, the City should
review and evaluate potential changes to the collective bargaining
agreements between the City and the Unions, applicable towards the next
contract negotiations, in order to identify potential approaches to reduce the
contributions to these levels over the long term.
•POLICY STATEMENT: The City shall fund at least the normal cost of pension. If
this exceeds the amount of the actuarially determined annual required
contribution, the excess should be placed in a pension stabilization fund, to be
made available for future pension shortfalls.
Recommended Pension Reform
Policies and Guidelines
49
Affordability and Sustainability
•GUIDELINE STATEMENT: If the funded ratio (actuarial value of assets minus actuarial
liabilities) of either of the City of Miami Beach’s pension plans falls below 70 percent,
the City should strive to implement approaches to increase the funded ratio to that
level over five (5) years.
•POLICY STATEMENT: Salary growth should not exceed the average actuarially assumed
salary growth in each of the City’s pension plans.
•POLICY STATEMENT: The City should strive to maintain a funded ratio of at least 80
percent for each of its defined benefit pension plans.
•POLICY STATEMENT: The City should require 5, 10 and 20 year projections of required
pension contributions as part of the annual actuarial valuations for each of the City’s
pension plans. These projections shall be based on the current actuarial assumptions
for each plan. The projections shall be updated to reflect the cost of any proposed
benefit enhancement before the City Commission agrees to the enhancement. The
cost of these studies shall be funded separately from the annual contribution to the
pension plan.
Recommended Pension Reform
Policies and Guidelines
50
Affordability and Sustainability
•POLICY STATEMENT: There shall be an experience study of each of the City’s
pension plan’s actuarial assumptions performed by an actuary that is
independent from the pension board. The experience study should be
conducted at least once every three (3) years, to compare actual experience
to the assumptions. The independent actuary shall make recommendations
for any changes in assumptions based on the results of the experience study,
and any deviations from those assumptions by the pension board shall be
justified to the City Commission.
•POLICY STATEMENT: Once pension reform is implemented, a 5/7th vote of the
City Commission should be required for any further pension changes.
Recommended Pension Reform
Policies and Guidelines
51
Appropriate Benefits to Provide Employees
•POLICY STATEMENT: The City of Miami Beach should strive to provide a
retirement benefit that provides for a replacement of salary at a level
at least equivalent to Social Security plus a supplemental retirement
benefit.
•POLICY STATEMENT: The City of Miami Beach retirement benefits
should be adjusted periodically after retirement to reflect the impacts
of inflation, with rates no more than the Consumer Price Index for All
Workers - CPI(W), that is subject to City Commission approval and with
a maximum of 3 percent annually.
Recommended Pension Reform
Policies and Guidelines
52
Recruitment and Retention
•POLICY STATEMENT: The City of Miami Beach should strive to
provide retirement benefits that ensure that the City is
competitive in the recruitment and retention of employees.
Recommended Pension Reform
Policies and Guidelines
53
Management of Risk/Risk Sharing
•POLICY STATEMENT: The City of Miami Beach should strive to
share some portion of retirement benefit risk with employees.
•GUIDELINE STATEMENT: If the City’s contribution to a defined
pension benefit plan exceeds 25 percent of payroll for general
employees and 60 percent of payroll for high risk employees, the
employee contribution should be reviewed.
Recommended Pension Reform
Policies and Guidelines
54
Management of Risk/Risk Sharing
•POLICY STATEMENT: The City of Miami Beach should strive to
share some portion of retirement benefit risk with employees.
•GUIDELINE STATEMENT: If the City’s contribution to a defined
pension benefit plan exceeds 25 percent of payroll for general
employees and 60 percent of payroll for high risk employees, the
employee contribution should be reviewed.
Recommended Pension Reform
Policies and Guidelines
55
QUESTIONS?
56