LTC 249-2009 Pension Protection Act of 2006
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m MIAf~^J BEACH
OFFICE OF THE CITY MANAGER
NO. LTC # 249-2009
LETTER TO COMMISSION
TO: Mayor Matti Herrera Bower and Members of the City Commission
FROM: Jorge M. Gonzalez, City Manage
DATE: September 23, 2009
SuB~ECT: 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 pension cost 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, not to state and
municipal governments.
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. However, since the PPA
does not apply to the City of Miami Beach, any pension impact calculation will only be an
estimate.
According to the City's actuary for pension matters, if the interest discount rates and funding
rules of the provisions of the PPA applicable to corporate plans were applicable to the City of
Miami Beach Fire and Police pension plan, it is estimated that the annual contribution
requirement would be approximately $51 million, compared to the current requirement of $23
million. If the interest discount rates and funding rules of the provisions of the PPA
applicable to corporate plans were applicable to the City of Miami Beach Employee
Retirement Plan (MBERP), it is estimated that the annual contribution requirement would be
approximately $37.5 million, compared to the current requirement of $17 million.
Please feel free to contact me if you have any questions or need any additional information
regarding this issue.
JMG/RI/kt
F:\huma\$all\KristinWMG and RI Correspondence\PPA LTC.doc