LTC 197-2009 Pension Protection Act of 2006® ~~ I A1~/11 BEAC H
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OFFICE OF THE CITY MANAGER
NO. LTC # 197-2009 ZD09 JtlL 17 P#~~~~R TO COMMISSION
TO: Mayor Matti Herrera Bower and Members of the City Commission
FROM: Jorge M. Gonzalez, City Manage
DATE: July 17, 2009
SUBJECT: Pension Protection Act of 2006
The purpose of this Letter to Commission is to respond to a request from Vice Mayor Diaz
regarding the Pension Protection Act of 2006, and what impact it would have on the City's
budget if the Pension Protection act of 2006 were to apply to public employers.
The Pension Protection Act of 2006 (PPA) was signed into law on August 17, 2006. It is
important to note that this federal legislation applies only to private entities.
Among other provisions, the PPA requires applicable employers with defined benefit
(pension) plans to make sufficient contributions to meet a 100% funding target and erase
funding shortfalls over seven (7) years, beginning in 2008. The PPA also prohibits an
increase in benefits if a pension plan is less than 80% funded, unless the benefits are paid
for immediately. It also amends the methods with which actuarial valuation calculations
must be made.
While the PPA does not apply to the City of Miami Beach and it does not appear likely to
apply in the foreseeable future, if the PPA were to be amended or similar legislation were to
be passed such that similar requirements were in place for the City, it is estimated that the
City's financial obligations for pension funding would be greater. The number of years to
fund the unfunded liability would be shortened from 30 years to seven (7) years. The City's
annual Actuarial Required City Contributions (ARC) would need to be increased in order to
fully fund the unfunded liability over the shorter time period. However, the extent of that
increase in funding is unknown at this time, and again, the PPA does not apply to the public
sector.
Please feel free to contact me if you have any questions or need any additional information
regarding this information.
JMG/RIlkt
F:\huma\$all\Kristin\JMG and RI Correspondence\PPA LTC.doc