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2013-28290 Reso
2013-28290 RESOLUTION NO. A RESOLUTION OF THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA ACCEPTING THE RECOMMENDATION OF THE FINANCE AND CITYWIDE PROJECTS COMMITTEE AT ITS MAY 13, 2013 MEETING TO ADOPT THE BUDGET ADVISORY COMMITTEE'S PROPOSED POLICIES AND GUIDELINES IN ORDER TO ENSURE LONG TERM PENSION REFORM. WHEREAS, During the October 1, 2009 — September 30, 2012 collective bargaining process with the City's five (5) collective bargaining units, the City and the Unions negotiated several changes that were implemented for each of the pension plans for then current and for future employees in November 2011; and WHEREAS, the General Employees' pension plan (MBERP) was amended to include pension reform initiatives that will significantly reduce the City's pension contributions in the short, mid, and long-term; and WHEREAS, while the changes made to both plans will yield short and long-term savings, these changes failed to fully address the increasing costs derived from the benefits provided to the pension plan members, particularly in the. City Pension Fund for Firefighters and Police Officers in the City of Miami Beach ("Fire and Police Pension Plan"), which represents the fastest growing cost to the City's budget in recent years; and WHEREAS, in early 2011, the Mayor approached the City's Budget Advisory Committee (BAC) regarding a reform study for each of the pension plans to identify options to ensure the long-term sustainability of the Plans, particularly the Fire and Police Pension Plan, which represents the fastest growing cost to the City's budget; and WHEREAS, on April 17, 2012, by a majority vote of 7-2, the BAC passed a motion for the Committees' final recommendation on pension reform for the Fire and Police Pension Plan which is currently being discussed through the bargaining process; and WHEREAS, the BAC also recommended guidelines for the City to adopt to establish thresholds which, if met, will require the City to take prompt and appropriate measures to meet the guideline criteria; and WHEREAS, the policies and guidelines address four perspectives: (1) Affordability and Sustainability, (2) Appropriate Benefits to Provide to Employees, (3) Recruitment and Retention, and (4) Management of Risk/Risk Sharing; and WHEREAS, the item was presented at the May 13, 2013 Finance and Citywide Projects Committee meeting where the Committee recommended passing all of the proposed guidelines for long-term pension reform by the BAC except for one, "Once pension reform is implemented,' a 5/7th vote of the City Commission should be required for any further pension changes"; and WHEREAS, accepting the recommendation of the Finance and Citywide Projects Committee to adopt all of the proposed guidelines, with the exception of the one proposed guideline that would require a 5/7ths vote for any further pension changes, the City will help to address the long-term sustainability of both of the City's pension plans. NOW, THEREFORE, BE IT DULY RESOLVED BY THE MAYOR AND THE CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, that the Mayor and City Commission hereby accept the recommendation of the Finance and Citywide Projects Committee at its May 13, 2013 meeting and adopt the following Policy and Guidelines for pension reform as recommended by the Finance and Citywide Projects Committee and as more fully set forth below and in the Commission Memorandum accompanying this Resolution and in the Exhibits hereto: 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. • 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. • POLICY STATEMENT: There shall be an experience study of each of the City's pension plans' 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. 2 Appropriate Benefits to Provide to 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 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 to the extend legally permissible. 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. 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. • 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. PASSED and ADOPTED this 19th day of July, 2013. ATTEST: 44V at errera Bove( ......... or Rafael Granado City Clerk :INCORP ORATED: : • U-j APPROVED AS TO •. , ' po ORM&LAN GE &FOR EX ION H 2-b C NEY- - DA COMMISSION ITEM SUMMARY Condensed Title: A Resolution Accepting the Recommendation of the Finance and Citywide Projects Committee to Adopt the Budget Advisory Committee's Proposed Policies and Guidelines In Order To Ensure Long Term Pension Reform. Key Intended Outcome Supported: Control costs of payroll including salary and fringes/ minimize taxes/ ensure expenditure trends are sustainable over the long term. Supporting Data (Surveys, Environmental Scan, etc.): Based upon the draft Actuarial Valuation Report for the Fire and Police Pension Plan that was presented at the February 21, 2013, Fire and Police Pension Board meeting, the preliminary estimate for the City's Annual Required Contribution (ARC) towards the Fire and Police Pension Plan, which is payable on October 1, 2013, is $41.5 million, an increase of approximately $2.1 million from the current fiscal year. The $41.5 million represents 89.6% of pensionable payroll for Fire and Police. The unfunded liability is estimated at 382 million, representing a percent funded of 59 percent. If no changes are made and all assumptions are met, the City's actuary estimates that the ARC will decrease to 80 percent of pensionable payroll by 2022, and 35% of payroll by 2041. The Actuarial Valuation Report for the Miami Beach Employees' Retirement Plan (MBERP) adopted during the March 12, 2013, Pension Board meeting, reflects the City's ARC, payable October 1, 2013, at $26.2 million, an increase of $5 million. If no changes are made and all assumptions are met, the Plan's actuary estimates that the MBERP Plan will be at 31 percent of payroll in 2022. Item Summa /Recommendation: In early 2011, the Mayor approached the City's Budget Advisory Committee (BAC) to undertake a study of pension reform for each of the City's two pension plans (Fire and Police and the General Employees' Pension Plan) to identify options to ensure the long-term sustainability of the Plans, particularly in the Police and Fire Pension system which represents the fastest growing cost to the City budget. The BAC's final recommendations were presented during a Special Commission Workshop on August 29, 2012. As part of their recommendations, the BAC proposed a set of policies for long-term pension reform and guidelines for the City to adopt which establish thresholds, which, if not met, will require the City to take prompt and appropriate measures to meet the guideline criteria. The policies and guidelines address four perspectives: (1) Affordability and Sustainability, (2) Appropriate Benefits to Provide to Employees, (3) Recruitment and Retention, and (4) Management of Risk/Risk Sharing. Advisory Board Recommendation: Finance and Citywide Projects Committee recommend adopting the resolution. Financial Information: Source of Amount Account Funds: 1 2 3 OBPI Total Financial Impact Summary: Adopting the proposed pension guidelines will provide future savings and sustainability to the City's pension plans. City Clerk's Office Legislative Tracking: Sylvia Crespo-Tabak- Human Resources Sign-Offs: Department Director Assistant ity Manager City Manager SCT ��1.,j KGB JLM AGENDA ITEM 67 �.. AMAMIBEACH DAirE 7-! -13 MIAMI BEACH City of Miami Beach, 1700 Convention Center Drive,Miami Beach, Florida 33139,www.miamibeachfl.gov COMMISSION MEMORANDUM TO: Mayor Matti Herrera Bower and mbers f the City Commission FROM: Jimmy L. Morales, City Manage DATE: July 17, 2013 SUBJECT: A Resolution Accepting the Recommendation of the Finance and Citywide Projects Committee to Adopt the Budget Advisory Committee's (BAC) Proposed Policies and Guidelines In Order To Ensure Long Term Pension Reform The Government Finance Officers Association (GFOA) recommends that state and local governments have a policy statement that will guide their on-going plan design decisions. This policy should encourage governments to provide sustainable and properly funded retirement plans, which will attract employees in a competitive labor market, facilitate effective management of the workforce and fulfill employee retirement needs. In early 2011, the Mayor approached the City's Budget Advisory Committee (BAC) regarding undertaking a reform study for each of the pension plans to identify options to ensure the long-term sustainability of the Plans, particularly the Police and Fire Pension system that represents the fastest growing cost to the City budget. As part of this effort the BAC developed a set of guidelines and policies for the future. p 9 P BACKGROUND The City has two (2) pension plans, which are the City Pension Fund for Firefighters and Police Officers in the City of Miami Beach (Fire and Police Plan) and the Miami Beach Employees' Retirement Plan for General Employees (MBERP). During the October 1, 2009 — September 30, 2012, collective bargaining process with the City's five (5) collective bargaining units, the City and the Unions negotiated several changes that were implemented for each of the pension plans for current and future employees in November 2011. The General Employees' pension plan (MBERP) was amended to include pension reform initiatives that will significantly reduce the City's pension contributions in the short, term and long-term. However, the pension changes made to the Fire and Police Plan in 2010, failed to address the short-term increasing costs derived from the benefits that are currently provided to the pension plan members, which represents the fastest growing costs to the City's budget in recent years. The BAC held twenty meetings and developed a study that included the following components: • Develop an understanding of the City's current pension plan benefits and costs for the Fire and Police Pension Plan and the Miami Beach Employees' Retirement Plan from the perspective of legal counsel, the City's actuary, the City Manager and the administrator for each of the pension plans; City Commission Meeting Pension Policies and Guidelines July 17, 2013 Page 2of5 • Solicit input from the City's collective bargaining groups and individual employees; • Survey comparative jurisdictions in the region regarding pension plan costs and benefits; • Draft policies and guidelines to guide management of the City's pension plans into the future, (a copy of which is attached for your review); • Identify and review options for changes to the Fire and Police Pension Plan based on 6 major categories, namely: • Florida Retirement System (FRS) • Defined Benefit similar to FRS, including a Social Security equivalent • Hybrid Plans with both, a defined benefit and a defined contribution component • Changes to the existing plan with a combination of past service benefits and benefits earned prospectively • Freezing the existing plan and defining new benefits based on Florida Statute Chapter 175 and 185 minimum benefits to continue receiving premium taxes • Changes to the existing plan to reflect the savings associated with plan changes included in the 2010 collective bargaining agreements with the International Federation of Fire Fighters (IAFF) and the Fraternal Order of Police (FOP) that have not yet been implemented by the Fire and Police Pension Board, • Evaluate the cost impacts of potential options; and • Develop recommendations. On April 17, 2012, by a majority vote of 7-2, the BAC passed a motion for the Committees' final recommendation on pension reform for the Fire and Police Pension Plan which are currently being discussed through the bargaining process. In addition, the BAC recommended a set of policies and guidelines. The GFOA best practices for developing policies for retirement plans state the following: • Purpose of the retirement plan (e.g., level of replacement income and purchasing power retention), • Ability of public retirees to contribute to the economic viability of their community and not become a financial liability to the community in which they live due to inadequate retirement income; • Organization's philosophy regarding employer and employee responsibilities in preparing for retirement; • Availability of Social Security, retiree medical benefits, disability and survivor benefits and supplemental (e.g. 457) savings plans; • Costs, including the employer's ability to sustain payments and perhaps increase benefits over time and cost predictability; • Labor market considerations such as competitive environment, workforce mobility, length of employee service and recruitment and retention of employees; • Investment risk and control, including how investment risk is allocated between employer and employee; • Portability of benefits; • A plan design that can be communicated to and understood by plan participants, • Employee educational efforts; and • Advantages of the different types of plans (e.g., defined benefit, defined contribution and hybrid). City Commission Meeting Pension Policies and Guidelines July 17,2013 Page 3 of 5 BAC RECOMMENDED POLICIES AND GUIDELINES As part of the evaluation for pension reform in the City of Miami Beach, the BAC recommended policies for the long-term. The BAC also recommended guidelines for the City to adopt to establish thresholds which, if not met, will require the City to take prompt and appropriate measures to meet the guideline criteria. The policies and guidelines address four perspectives: (1) Affordability and Sustainability, (2) Appropriate Benefits to Provide to Employees, (3) Recruitment and Retention, and (4) Management of Risk/Risk Sharing, and include: 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. • 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. • POLICY STATEMENT: There shall be an experience study of each of the City's pension plans' 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 i City Commission Meeting Pension Policies and Guidelines July 17, 2013 Page 4 of 5 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. Appropriate Benefits to Provide to 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. 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. Mana ement 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. • 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. These policies and guidelines were adopted unanimously by the BAC (detailed Proposed Guidelines and Policy Statements are provided in "Attachment 1"). The Supporting Rationale and Data for the Proposed Guidelines and Policy Statements are provided in "Attachment 2". FINANCE AND CITYWIDE PROJECTS COMMITTEE (FCWPC) RECOMMENDATION The BAC's Proposed Guidelines and Policy Statements were considered by the FCWPC on February 20, 2013, at which time the Committee recommended that Commissioner Weithorn review the Proposed Guidelines and Policy Statements with the BAC and bring back the item to the FCWPC for further discussion. Commissioner Weithorn reviewed the Proposed Guidelines and Policy Statements with the BAC at the April 9, 2013, BAC meeting. The item was then presented at the May 13, 2013, FCWPC meeting where the Committee City Commission Meeting Pension Policies and Guidelines July 17, 2013 Page 5 of 5 recommended passing all of the proposed guidelines recommended for long term pension reform by the BAC except for one which proposed, "Once pension reform is implemented, a 5/7 1h vote of the City Commission should be required for any further pension changes". The Committee requested that the City Attorney's Office research the legalities of implementing this particular policy statement. CURRENT STATUS OF CITY'S PENSION PLANS The actuary for the City Pension Fund for Firefighters and Police Officers in the City of Miami Beach Fire and Police Pension Plan presented a draft Actuarial Valuation Report during the February 21, 2013, Fire and Police Pension Board meeting. This report will be made available once approved by the Fire and Police Pension Board. Based on the draft Valuation, the preliminary estimate for the City's Annual Required Contribution (ARC) towards the Fire and Police Pension Plan, which is payable on October 1, 2013, is $41.5 million, an increase of approximately $2.1 million from the current fiscal year. This represents 89.6% of pensionable payroll for Fire and Police. The unfunded liability is estimated at $382 million, representing a percent funded of 59 percent. If no changes are made and all assumptions are met, the City's actuary estimates that the ARC will decrease to 80 percent of pensionable payroll by 2022, and 35 percent of payroll by 2041. The Actuarial Valuation Report for the Miami Beach Employees' Retirement Plan was adopted during the March 12, 2013, Pension Board meeting. Based on the results of the Valuation, the City's Annual Required Contribution (ARC) towards the Miami Beach Employees' Retirement Plan payable October 1, 2013, is $26.2 million, an increase of $5 million, which represents 40.3% of payroll. The unfunded liability is $216 million, with a percent funded of 66 percent. If no changes are made and all assumptions are met, the Plan's actuary estimates that the Plan will be at 31 percent of payroll in 2022. "Attachment 3" provides a summary of valuation data for both of the City's pension plans for the past five years. "Attachment 4" provides a summary of the recent changes that were made to the City's two pension plans for in 2010. CONCLUSION The Administration recommends that the City Commission accept the recommendation of the Finance and Citywide Projects Committee to adopt all of the proposed guidelines, with the exception of the one proposed guideline that would require a 5/7ths vote for any further pension changes, which is being reviewed by the City Attorney's Office. The adoption of these polices would represent a major effort in addressing the long-term sustainability of both of the t 's pension plans. al ow JLM/K B/SCT/CMG Attachments ATTACHMENT 1 6. RECOMMENDED POLICIES AND GUIDELINES The Government Finance Officers Association (GFOA) recommends that state and local governments hove a policy statement that will guide their on-going plan design decisions. This policy should encourage governments to provide sustainable and properly funded retirement plans, which will attract employees in a competitive labor market, facilitate effective management of the workforce and fulfill retirement needs. In developing a.policy for retirement plan design, a state or local government should consider the following: Purpose of the retirement plan (e.g., level of replacement income and purchasing power retention); Ability of public retirees to contribute to the economic viability of their community and not become a financial liability to .the community in which they live due to inadequate.retirement income; Organization's philosophy regarding employer and employee responsibilities in preparing for retirement; • Availability of Social Security, retiree medical benefits, disability and survivor benefits and supplemental (e.g. 457) savings plans; +► Costs, including the employer's ability to sustain payments and perhaps increase benefits over time and cost predictability;. Labor market considerations such as competitive environment, workforce mobility, length of employee service and recruitment and retention of.employees; Investment risk and control, including how investment risk is allocated between employer and employee; +� Portability of benefits; A plan design that can be communicated to and understood by plan participants; Employee educational efforts; and Advantages of the different types of plans (e.g., defined benefit, defined contribution and hybrid): Source: GFOA Best Practices and Advisories, Developing o Policy for Retirement Plan Design Options (1999, 2007) (CORBA) Source: Florida Pensions,.Vol urrie 1, Issue 1, April 2012. Budget Advisory Committee Pension Reform Report Page 38 _. _..._... .... ........ CITY OF MIAMI BEACH RECOMMENDED POLICIES AND G'rU1DEUNES As port of the evaluation for Pension Reform in the City of Miami Beach, the Budget Advisory Committee (BAC) is recommending policies for long term- pension reform. The BAC is also recommending guidelines for the City to adopt which: establish thresholds which if surpassed will require the City to take prompt and appropriate measures to meet the.guideline criteria. The policies and guidelines address four perspectives: (1) Affordability and Sustainobility, (2) Appropriate Benefits to Provide to Employees, (3) Recruitment and Retention, and (4) Management of Risk/Risk Sharing. These policies and guidelines were adopted unanimously by the BAC. Affordability and Sustainability • GUIDELINE STATEMENT: If the City's portion of the total annual cast 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. • P0L1CY 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. • POLICY STATEMENT: The City should ,strive to maintain a. funded ratio of at least 80 percent for each of its defined benefit pension plans. 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 solory growth in each of the City's pension plans. Budget Advisory Committee Pension Reform Report Page 39 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. • 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 of 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 517" vote of the City Commission should be required for any further pension changes. Appropriate Benefits to Provide to 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 o moxirnurn of 3 percent annually. Recruitment and Beten ion 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. Budget Advisory Committee Pension Reform Report Page 40 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. Budget Advisory Committee Pension Reform Report Page 41 ATTACHMENT 2 City of Miami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements 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. DackgroundlRationaie: Pension plans require annual contributions from plan sponsors (i.e., municipal governments) and participants in order to maintain their funding levels. Ideally,those contributions are only necessary to pay for future benefits that were earned by participants in the current year.That amount is referred to as the normal contribution. Normal contributions increase as plans provide more generous benefits, make benefits available to more individuals and reduce the number of years someone needs to work. or lower the age when the plan will begin to pay benefits. Underfunded pension plans require an additional contribution In order to eventually eliminate their unfunded liabilities. When pension plans are underfunded, annual contributions need to include the normal contribution and an additional contrlbution to pay down the unfunded portion of the liability. Therefore, If two pension Mans have equal benefit policies and equal employee characteristics but one is 75 percent funded and the other is 104 percent funded,the plan that is 75 percent funded will require a larger annual contribution In order to.pay down its unfunded liability. Plan sponsors do not have to make up the entire unfunded portion of the liability In a single year. In most. cases, that amount would be too costly for governments to pay in full. Instead, a professional actuary establishes a payment schedule that allows the sponsor to pay off the unfunded portion of the liability over as many as 30 years. In shorty plans with large unfunded liabilities will pay more in annual pension roosts. The combination of the normal cost funding requirement and the payment for amortization of the unfunded liability results in a combined annual required contribution (ARC)that the City is required to pay to each pension plan for the next f scat year. Typically, this is expressed as a percent of the payroll applicable to the particular pension plan to allow comparability from year to year,as well as,to other pension plans. t 182 City of Miami Beach Budget Advisory Committee Pension Reform. Policy and'Guideline Statements Current Conditions: The City of Miami Beach pension contributions as a percent of payroll as of the 1011110 valuation reports: Fire and Police Pension Plan:72:76%% Miami Beach Employees Retirement Plan:25.02% Fire and Police Pension Plan formal Cost:32.59%% Miami Beach Employees Retirement Plan Normal Cost: 10.80% At this time, the negotiated changes to the Fire and Police Pension Plan are under litigation. However, the projections provided by the Fire and Police Pension Plan actuary regarding the Impact of changes collectively bargained for new employees were minimal. In addition,assuming all actuarial projections were met from FY 2014111 forward, the ARC as a percent of payroll is projected to increase to 81.05%by Fiscal Year 2017 contribution. The Miami Beach Employees Retirement Plan(MBERP)Actuary projected that the 2010 changes to the plan for new employees would decrease the unfunded liability payment by approy mately $6 million - 5.78% of payroll after 10 years. Even with this decrease, and assuming all actuarial projections were .met from FY 2010/11 forward, the ARC as a percent of payroll is projected to Increase to 37,12%by Fiscal Year 2017,declining each year thereafter, Comparison to Florida Retirement System and Comparative Local Jurisdictions: Total annual employer cost of retirement benefits contribution as a percent of payroll Jurisdiction High Risk Employees General Employees Boca Raton 52.72% 119.81% Coral Gables 49.1% Coral Springs Police:87.98% Fire 28.02% Fort Lauderdale 49/0 32.75% Plan closed for new hires 1011 12007-315121108 Now defined contribution Hialeah 32.59% Hollywood Police:84.41% 36.14% Fire 127.03°1/0 (Plans are now ,frozen for - ---- {Plans are now frozen and new General Fund Employees -and plans with lower benefits new plans with lower benefits became effective 1011111) 1 became effective 1011111 i 2 183 Supporting Rationale and Data for Proposed Guidelines and Policy Statements 181 City of Miami Beach Budget Advisory Committee Pension Reform; Policy and Guideline Statements AFFORDABILITY ANQ jM&TA11NAB GUIDELINE STATEMENT: If the Guy's portion of the total annual coast of retirement benefits contribution exceeds 25 percent of payroll for general employees and,80 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 Ins pension - - --- - - - -stabilization fund,to be made available for future pension shortfalls. - Background/Rationale: Pension plans require annual contributions from plan sponsors (i.e., municipal governments) and participants In order to maintain their funding levels, ideally,those contdbutions are only necessary to pay for fixture benefits that were earned by participants In the current year.That amount Is referred to as the normal contribution. Normal conti'ibutions Increase as plans provide more generous benefits, make benefits available to more individuals and reduce the Number of years someone needs to work or lower the age when the plan vAll begin to pay benefits. Underfunded pension plans require an additional contribution In order to eventually eliminate their unfunded Ilalailites. When pension plans are underfunded, annual contributions need to include the normal contribution and an additional contribution to pay down the unfunded portion of the liability. Therefore, If two pension plans have equal benefit policies and equal employee characteristics but one Is 75 percent funded and the other Is 100 percent funded,the plan that Is 75 percent funded will require a larger annual contribution in order to pay clown its unfunded liability.Plan sponsors do not have to make up the entire unfunded portion of the liability In a single year. In most cases, that amount would be too costly for governments to pay in full.Instead,a professional actuary establishes a payment schedule that allows the sponsor to pay off the unfunded portion of the liability over as many as 30 Mears.In short, plans with large unfunded liabilities will pay more in annual pension casts. The combination of the normal cost funding requirement and:the payment for amortization of the unfunded ilabiihy results in a combined annual required contribution(ARC)that the City is required to pay to each pension plan for the next fiscal year. Typically, this Is expressed as a percent of the payroll applicable to the particular pension plan to allow comparability from year to year,as well as,to other pension plans. - - 4 162 City of Kim! Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements Current Conditions: The City of Miami Beach pension contributions as a percent of payroll as of the 1011/10 valuation xeports: Fire and Police Pension Plan;72.76%% Miami Beach Employees Retirement Plan:25.02% Fire and Police Pension Plan Normal Cost 32.59%% Miami Beach Employees Retirement Plan Normal Cost 10.8W/o At this time, the negotiated changes to the Fire and Police Pension Plan are under litigation. However, the projections provided by the Fire and Police Pension Plan actuary regarding the Impact O was cd boa y bWOSi1%d 1os now employees wwe mmWnat In addfon,assuming all sidua€lai projections were met from FY 2010/11 forward, the ARC as a percent of payroll is projected to increase to 81.05%by Fiscal Year 2417+contribuftn. The Wami Bead Employees Retirement Plan (MBERP)Actuary projected that the 2010 granges to the plan for new employees would decrease the unfunded liability payment by approximately $6 million - 5.780 of payroll after 10 years. Even vulth this demise, and assuming all actuarial projections were met from FY 2010/11 forward, the ARC as a percent of payroll Is projected to Increase to 37.120/6 by Fiscal Year 2017,declining each year thereafter. Comparison to Florida Retirement System and Comparative Local Jurisdictions: Total annual enr .icy er coat of retirement benefits contribution as a preent o� r�oii Jurisdiction High Risk Employees General Employees Boca Ratan 52.72% 119.8110/0 Coral t=ables 49.1010 Coral Springs Police:87.98% Fire 28,020 Fort Lauderdale 49% 32.75°la Plan closed for new hires 1011"2007-315/2008 Now dusted contribution Hialeah 32.59% Hollywood Police:84.41% 36.140a Fire 127.03% (Plans are now frozen for ---- _ —-- _ --_-- (Plans are now frozen and new General Fund Employees end plans with lower benefits new plans with louver benefits became effective 1011111) A became effective 10/1111 2 183 City of Wtami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements North Miami 30.21% 32.14% North Miami Beach 25% Pompano 36.59% 21.39% Tamarac 55.450/ 28.6°Ya FRS 14.1%711111 4.91%711111 (inoiudes Coconut Creek, 19.56%7/1192 6.58°la 711112 Cooper City, Miami Gardens, Miami-Dade County, Miami Lakes, Pirnecrest and Wilton Manors 3 184 City of Miami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements POUCX STATEMENT: * The City should strive to maintain a funded ratio of at least 80 percent for each of its defined benefit pension plans. GUIDEUNE STATEMENT(S): • if the funded ratio(actuarial value of assets minus actuarial liabUtUes)of either of the City of Miami Beach's pension plans falls below 70 percent,the City should strive to Implement approaches to Irtcrease the funded ratio to that level over five(5)gears. Background/Rationale: Each year, the City receives independent actuarial.reports for each of the City's two pension plans. The actuarial valuation of the pension plan.Is a mathematic at determination of the financial condition of the plan, which Includes; the computation of the present monetary value of benefits payable to ----- ------ present members, the present monetary value of future employer and employee contributions, considering the ected mortality rates among employees and retirees,rates of disability,retirement age,withdrawal from service,salary Increases,investment earnings and value of assets. As part of the annual actuarial valuation for each plan based on plan data as of October 1, the Actuary evaluates how the actual data for the preceding year compared to the actuarial valuation for that year. Any differences are reflected as gains or losses In unfunded liability. The unfunded liability -- --- - for a plan Is the difference between the benefits earned (accrued) and the assets of the plan on a amortized and funded over 30 years. The given date, and is typically ye a amortization methodology varies by plan. In the Fire and Police Pension Plan,the amortization Is based on increased payments to assumed future payroll growth. In the MSERP an assumption of level In proportion payr g , mp amortization payments is used. The unfunded liability of the plan is the actuarial accrued liability less the plan actuarial assets. This amount is expected to have year-by-rear fluctuations: however. if the plan's assumptions are consistent with the plans long-term experience,the changes In the unU)ded liability should be offsedrng over the fie of the plan. in contrast to the market value of the pension plan assets, the actuarial value of the pension plan ash Is ell to the market value of the assets at a opedfic data, adjusted to reftect a Eva-year phase4n(or soothing) of any asset experiencs gain or lass. 'fire five-year smooftV of pension plan asset value means that only 20 percent of the experience gain or loss that the fund experiences in any one year is reoogr ized immediately for the purpose of determining the actuarial value of the plan and the annual required contribution. The pomwIt of Vw actuarjai a=ced liability funded Is a measure of a pension fund's 11V*1 health. It cornpam assets to pension obligations. A percentage over 1DMA means fiat the fund has more money than It needs to meet Its obligations atihat paint In time. 4 185 City of Miami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements Current Conditions: City of Miami Beach funding levels as of the 1011114 valuation reports: FWa and Pcfte Pen on Pism 164.3% Miami Bead Employees Retirement Plan: 74.4% Comparison to Florida Retirement-System and Comparative Local Jurisdictions: Funded Ratio Jurisdiction Hi h Risk Em to ees General Etn to ees Boca Raton 70.26% 191.38% Coral Cables 57.5% Coral Springs Police 77.77% Fire:79.85% _ Fort Lauderdale 77.4/0 70.7°fir+ Plan closed for new hires 1011/2007-3/512008 Now defined contribution Hialeah 75.03% 75.03% Hollywood Police 53.5% 53.78% Fire 37.6% (Plans are now frozen for (Plans are now frozen and new General Fund Employees and plans with lower benefits new plans milth lower benefits became efl'ec#ve 1011/11) became effective 1011111 North Miami 68.6% 75.6% North Miami Beach £1,6% 70.3% Pompano f9.811/o 74.2% Tamarac 63.376 177.96% FRS (Includes Coconut Creek, 87.1% Cooper City, Miami Gardens, Miami-Cade County, Miamil Lakes, Pinecrest and !Wilton Manors Other Information: The united States Postal Service office of the inspector General (.Tune 18, 2410)concluded that 80 percent prefunding of pensions Is reasonable based on the follow4ng: - - - - -- - "the Standard and Poor's companies'(S&P 500)/median pretunding level for pensions in 2009 was 79 percent of liabilities. from 2001 through 2009, S&P 50Vs pension median pretending ranged from 73 to 112 percent. 5 186 City of Miami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements The aggregate prefunding for states" pensions In 2008 was also 79 percent, From 2001 through 2009, state govemrnents' aggregate pension prefunding ranged from 59 to 90 percent. The Goverr meat Accountability twice(GAO)reported that many experts consider at least 80 percent prefunding to be sound for government pensions. (Source: The GAO's State and Local Government Retiree Benefits Current Funded (5); The GAO s State and local Government Retiree Benefits Current Funded Status of Pension and Health Benefits,January 2048,) The Pension Protection Act of 2006 considers pensions prefunded at less than 70 percent as being "at risk" and attempts to protect such plans by commencing restrictions on corporate pension funds only when prefunding is below 80 percent. The 2011 report prepared by the Leroy Collins Institute at Florida ate University for pension systems across Florida assigned the following grades to pension plans based on percent funded. GRADE PERCENT FUNDED A More than 9011/o funded B 80 to 80%funded ——- - - - C 70 to 80%funded Q 60 to 70%funded F Less than 60%funded The follovAng cities scored an "F' grade, according to the institute's study: Boynton Beach, Cooper City, Fort Myers,Hollywood, Homestead, Jacksonville, Miramar, Oakland Park, Ocala, Oviedo, Palm Beach Gardens, Panama City, Parkland, Plant City, Port Grange,Tamarac,Temple'Terrace, Venice and Winter Haven. The highest rated was Melbourne's general employee plan with 190.1 percent- funding, while Cooper City's general employee and police pension fund sat at the bottom with 35.48 percent funding, Pension funds that exceeded the 100% funded mark -- Tallahassee's general, Clearwatees firefighters, Gainesville's general, Key West's general, Palm Coast's firefighters, Plantation's firefighters and Rockledge's general and police funds--have more than enough money in the bank to cover projected payouts to former and current employees. The federal government has funded its combined +Chit Service Retirement System (CSRS) and Federal Employe Retirement System (FERS) pension obligations at only 41 percent of liabilities and the military`s prefunding for pensions is only 24 percent(Source: US Postal Service tff"we of The Inspector General Report of Pension Funding,201.0). 6 107 City of Miami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements POLICY STATEMENT(S): Salary growth should not exceed the average actuarially assumed salary.growth In each pension plan. Background/Rationale: Each gear,the City recelves Independent actuarial reports for each of the City's two pension plans. The actuarial valuation of the pension plan is a mathematical determination of the financial condition of the plan, which Includes: the computation of the present monetary value of benefits payable to present members, the present monetary value of future employer and employee contributions, considering the expected mortality rates among employees and retirees,rates of disability, retirement age,withdrawal from service,salary Increases.Investment earnings and value of assets. Each gear, experience gains' in the prior year reduces the actuarial accrued liability. Experience "losses" for the prior year, conversely, increases the actuarial accrued liabllity. To the extent that salary growth is more than the actuarial assumption for the plan, this would result In an experience ``foss"and add to the unfunded liability of the plan. Salary growth can result from merit increases, automatic.step adjustments to salaries annually, cost of living adjustments impacting all employees or subsets or employees (COLA's), adjustments to salary ranges based on compensation studies,etc. Current Conditions: Projected salary rate Increases vary by age, For the Fire and Police Pension Plan, the average long-term assumption across all ages is 6 percent per year. For the Miami Beach Employees Retirement Plan,the assumed Increases are as follows: Years of Servioe Merit and Sevlo ' Base(Economlo Total Increase 1 4.0% 4.0% 8.0% 2 3.9% 4.0% 7.9% 3 3.8°x, 4.0% 7.8% 4 3.7% 4.0% 7.7% 5 3.6% 4.0% 7.6% 6 3.6% 4.01$ 7.5% 7 310% 4.0% 7.0% 8 2.9% 4.0% 669% 2.8% 4.0% 6.8% --- 10 2.7% 4.0% 6.71,/0 11 2.6% 4.0% 6.6% 12 2.6% 4.0% 6.5% 13 2..40/6 4.00/6 ala.4°la 7 188 City of Miami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements 14 2.3% 4.0010 6.3% 15 2.2% 4.0% 6.2% 16 2.1% 4.0% 6.10 17 2,0% 4.0% 6.4%0 Is 1.$% 4.0% 5.8°fo 10 1.8% 410% 5.6°Io 20 1.7% 4.0% 5.7% 21+ 4.0% 5.5% The pension board for MBBRP recently approved a decrease In the salary growth assumption for the 10191111 valuatlon to reflect the downturn In the economy and the lower eoonomle Increases in recent years and likely Into the future. Comparison to Florida Retirement System and Comparative Local Jurisdictions: Not Applicable 8 189 City of Miami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements POLICY STATEMENT(SY • The City should require 5, 90 and 20 year projections of required pension contributions as part of the annual actuarial valuations for each of the Cl 's pension plans. Them projections shall be based on the current ac WaOal assumptions for each plan. The projections snail be updated to reflect the cost of any proposed benefit enhancement,before the City Commission agrees to the enhancement, The cost of these studies shall be funded separately from the annual+contribution to the pension.plan. » There shall be an experience study of each of the City's pension plan's actuarial assumptions performed by an actuary that is independent from the pension board. The experience study should be conducted at least once every three (3) years, to compare actual experience to the assumptions. The independent actuary shall make reoommendations for any changes in assumptions based on the results of the experience study, and any deviations from to assurnptlons by the pension board shall be justified to the City Commission. • once pension reform Is implemented, a 5I7$'vote of the City Commission should be required for further pension changes. Backgroundiationale: Changes to plan benefits can affect the actuarial socrued liability of a plain, either positively or ------ negatively.-If plan benefits are-In reaased, the mathematical caic lations viii result In more benefits anticipated to be paid to plan members In the future, which will need to be recognized all at once, although payments would be amortized over the tons-term. Conversely, If plan benefds are reduced, with all else being equal,the plan will see a reduction in the actuarial accrued liability. Currant Conditions: Not Applicable Comparison to Florida Retirement System and Comparative Local Jurisdictions: Not Applicable 9 190 City of Miami Bead Budget Advisory Committee Pension Reform: Policy and Guideline Statements POLICY STATEMENT(S): The City should require 5, 10 and 20 year projections of required pension contri City of Miami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements APPROPRIATE BENEFITS TO PROVIDE TO EMPLOYEES DRAFT POLICY STATEMENT(S): +► 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. Background/Rationale: in the United States. 96 percent of workers are covered by Social Security, The benefit payment is based cn how much Is earned cluing your working career. Higher lifetme earnings result in higher benefits. if there were some years when you.did not work or had low earnings,your benefit amount may be lower than If you had worked steadily. Social Security replaces about 40 percent of prercetirement Income for the average worker. The average replacement rate for tower-paid worker equals about 55 percent of fair pre-retirement earnings.The average replacement rate for highly paid workers Is abet 25 percent Windfall Elimination Provision Before 1883, people who worked mainly In a job not covered by Social Security had their Social Security benefits cWcWsted as If they were long-term, low-wage workers.They had the advantage of receiving a Social Security benefit representing a higher percentage of their earnings,plus a pension from a job where they did not pay Social Security taxes.Congress passed the V1 lmftU Elimination Provision to remove that advantage. Government Pension Offset if you recelve a pension from a federal,state or local government based on work where you did not pay Social Security taxes,your Social Security spouse's or widovVs or w1dowees benefits may be reduced by two-thirds of your government pension. (Source: Sociat Security websb'. htto:fJv %vw.sse.goy�gubsf1Ug35,htrni — - --- -htfp;llin ..-n0ytpubs/100445.htrnt htt llwww;sse.gov/oubs/10007.html� Current Conditions: The City of Miami Beach currently does not participate In Social Security. In evaluating proposed changes to the City`s pension plans,the fact that the CRY does not participate Irt Social Security must be taken into account 10 192 .City Of Miafy i Beach Budget:Advisory Committee Pension Reform: Policy and Guideline Statements Comparison to Florida Retirement:Meta and Comparative Local Jurisdictions: Paftici allon in Social Secuft Jurisd"an General o s Boca Raton ` Yes Coral Cables Yes Loral Springs Yes Fort Lauderdale Yes Hialeah Yes Hollywood Yes North Miami Yes North Miami Beach Yes Pompano Yes Tamarac Yes FRS Yes (includes Miami Cade County, Miami Lakes, Pinecrest, Wilton Manors 193 City of Miami Beech Budget Advisory Committee Pension Reform: Policy and Guideline Statements POLICY STATEMENT(S): • City of Miami Beach retirement benefits should be adjusted Wodically after retirement to refisct the impacts of Inflation, with rates no more than the Consumer Price Index for All Workers(CPI- w),aut4ect to Commission approval,and with a maximum of 3 pement annually. Back oroundRstionale: Most people are aware that thar+e are annual increases In Social Security benefits to offset the effect of Inflation on fbod Incomes.Thew increase, now known as cost-of-Iiving adjustments(COLAs),are such an accepted feature of the program that It Is difficult to Imagine a time when there were no COLAs. Before 1975,boneficiarles had to awal.t a special act of Congress to receive a benefrt Increase. Beginning In 1975, Social Security started automatic annual. COLAs. The change was enacted by legislation that ties OOL,As to annual increase in the CPI-W. (Source: Social Security website:htta:/1wrw.ssa.00v/Qubs/10035.htmi http:1Pwww.ssa,aov/taubs1J0045.html htt2:1/www.ss2.-Q /p ubs110007.htmii Current Conditions: Fire and Police Pion Plan Employees hired before 10/1110-2.5% Employees hired on or after 1011110—1.5%with first adjustment deferred to 1 year after the and of DROP or 2 mandatory 0 DROP COLAs" Miaml Beach Employees Pension Plan Employees hired before 10/1110-25% Employees hired on or after 10/1/10—1.510 - - -- - -- --- -- *Subject to current Iitigatl.crn---- ----- ---- — -- 12 1194 City of Miami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements Comparison to Florida Retirement System and Comparative Lodi Jurisdictions: Cost of Uving N usxtmennts Jutisdiction High Risk Employees General Employees Boca Raton Not required -- reviewed every Not required — reviewed every odd y2ar I odd year Coral Gables if investment returns are over 10%,then equal to hail'of CPl— catch-uD clause cappo at BOA Coral Springs 2.5% 'l% ©ommences 5 years after retlremat or DROP en Fort Lauderdale COLA provision repealed Very Infrequent - only if actual 7/1512008 investment earnings exceed assumptions Plan cio&W for new hires 1011/2007.3/5/2008 Now defined contribution Hialeah 2%for 10 ykqrs, Hollywood Police:None Only Enterprise employees Fire gone hired prior to 7/1512009 (Plans are now frozen and new (Plans are now frozen for plans with lower benefits General Fund Employees and became effective 1011111) new plans with lower benefits became effective 1 0/1111 North Miami 1.92% with 1 year elimination 1.92% with 1 year elimination period or 3% with 5 year period or 3% w th 5 year elimination period elimination period North Miami Beach 2.6% ,Annually after 3 Years of 2.25%Annually Retirement Pompano 2%fixed Tier 12% 1%variable 'Tier 2 5 year waiting period tiered 0-2%based on age Tamarac Employees retiring before Up to 2% - solely funded from °31110-7 S 27a—Mer 3 years of actuarial gains retirement After 311107 — 2.25%. after 3 ears of refirement FRS (includes Coconut Creek, 3%for•benefits earned prior to 711111 Cooper City, Miami Gardens. None for benefits eamed thereafter Miami-Lade County, Miami Lakes, Pinecrest and Wilton Manors 13 196 City of Miami Beach Budget Advisory Committee Pension Reform: Policy and Guideline Statements RECRUITMENT AND RETENTION POLICY STATEMENT(S): • The City of Miami Beach should sbive to provide retirement benefits that ensure that the City is competitive In recruftent and retention of employees. BackgroundfRatlonale: Salary ranges for job dassifications In city of Miami Beach are periodically reviewed to ensure intemal equity and extemal competitiveness.Intemal equity refers to the relationships(duties, level of responsibilities, salary,tenure,etc.)between positions within the same organization. External equity refers to the relationships (duties, level of responsibilities, salary, tenure, etc.) between positions to the external labor rrta*et, in both, the public and private sectors. Benefits, Including pwWon, are also periodically reviewed. Current Conditions: In the pasty particularly during periods of low unemployment rates when competition for employees has been tights the City has targeted to set salaries In the 75h percentile of neighboring jurisdictions, and to provide benefits similar to neighboring jurisdictions. Comparison to Florida Retirement System (FRS)and Comparative Local Jurisdictions: See surrey of pension benefits provided by neighboring jurisdictions In addition,the 2009 Classification and Compensation Study prepared by Condrey and Associates for - the City -of Miami Beech concluded that "the City's retirement benefit, while generous, appears — —---- appropriate considering the employee 8 parent c onbibution to the fund (based on a comparison to _pjhef jurisfjopns Ipgally#kd ihrgpghout Flo6oj. �. 14 196 Gity afi Mardi Seach Budget Advisory Committee Pension Reform. Policy and Guideline SUtements MANAGEMENT OF RISK/RISK SHARING POLICY STATEMENT(S): •� The City of Miami Beech should strive to share some portion of retirement benefit risk with employees. GUIDELINE STATEMENT(S): • tf +C Vs cunt Abutlon to a defined pension bem%Van exceeds 25 perosnt of pWoU for general employees and 60 percent of payroll for high-risk employe,the employee contribution should be reviewed. Background/Rationale: With the City of Miami Beach's two pension plans, the City bears 100 percent of the risk of the volatility of the equity market~ whereas, with private sector pension plans, the risk is born by the employee. Current Conditions: Fire and Police Pension Plan: Employee Contribution Rates--10 Miami Beach Employees Retirement Plan Employee Contribution Rates for employees hired prior to early 1990's—12°rho Employee Contribution Rates for employees hired after early 1990's—10% Comparison to Florida Retirement System and Comparative Local --— Jurisdictions: Ern 10 Contribution Rates Jurisdiction Hi h Risk Em to ees General Ern O es Boca Raton 10.2% Plans AN 9.65% Man C 610/6 Coral Gables 5-10% Coral Springs Police 9.975% Fires 8.75% Port Lauderdale Hired before 4.18-10 8.259 6% Plan closed for now hires Hired after 4.18-10 8.5% 101112007.315/2008 - - - - -- — Now defined contributon Hialeah 0% 15 197 City of Miarni Beach Budget Advisory Cot'f1t"l'1ittee Pension Reform: Policy and Guideline Statements Hollywood Police 8.28%a % fire 7.5%-80A {Plans are now frozen for (Plans are now frozen and new General Fund Employees and Mans with lower benefits became new plans with lower benefits e fewve 10111111 time effective AW 11 I North Miami 11.511/*or 8.51% 7% North Miami Beach 12% 7% Pompano 11.8% Tier 110% Tier 2 7% Tamarac 90/0 7% FRS 3° 3% (Includes Coconut Creek, Cooper City,Miami Gardens, Miami-Dade County,Miami Lakes, Pinecrest and Wilton Manors Note: Employees In Social Security also contribute to Social Security. See page 1 for additional comparatives related to pendent of payroll. j 1 E3 198 o ATTACHMENT 3 a M O m M M v GOD �f r h.F,: C �! — COP W N 000 O P- Pl-- OD 0) LK C6 C6 t(i Lcil C G� Q � N N N cN '6 Ul Q- Llotf3 ZT p) O © O DO O in to 4 m F- 0 p of (D r O 'C7 Z !� �' M N N w r et I': CRt N w Q = r r r N co Q 14) 4) 0 !i9 Efl 6 0 CL c N O m O O -� to ° C t(0fl (p U 1= na m N N O to oD O to O] M Q) O L co O ` m = aQJ ? O) M co csr(6 e-- � L 4 Ep .o` o q: \ I .II CO — CO Q 0 -� R) "i N © O 4)!l- co co � O 0 0 d O �) r r_ Coll T— 00 Z a � m m toy �- o CL O(D co O r O COi O c6 C6 ►n O o ze ac► V c c a m �. C4 N ,ate M L6 Co 4m r- 0 W co 0 °�° aZi co (� Cfl � O V' Z? 1g r O N m v 131 r e- r . .i 0 0 'D Z N N 0W 0 i .r r r V- 0 Q N N N a L N 0, LL N _ s C O O © r eN„ N N N N N 0 p �. Q 4. I ATTACHMENT 4 RECENT CHANGES TO MIAMI BEACH PENSION PLANS RECENT CHANGES TO FIRE AND POLICE PENSION PLAN All(Employees No retiree cost of living adjustment(COLA)for at least 2 years forparticipants entering the deferred retirement option plan(DROP) after 9/1132(Years 3 and 4 of DROP) Off duty compensation pensionable/sick leave sell backup to the overtime compensation cap Additional Reductions for Employees Hired after 111/3/10 Minimum retirement Age of 48 for Rule of 70 Pushed back increase in multiplier from 3%to 4%so that it occurs in year 20 instead of year 15 Final Average Monthly Earning(FAME)increased from highest or last 2 to highest or last 3 years Retire COLA decreased from 2.5%to 1:5% The impacts estimated by Buck Consultants,the actuary for the Fire and Police Pension Plan for changes for existing Fire and Police Pension Plan employees were minimal,with an initial cost increase of 5368,865 included in the actuarial impact statement,to be offset in the future by a savings of approximately$6:51,322.. The savings estimated by Actuarial Concepts Inc.,the City's actuary,fro . these changes for new Fire and Police Pension plan employees generates a Net Present Value of$32.8 million over 30 years; however,savings in the early years were minimal RECENT CHANGES TO GENERAL EMPLOYEES PENSION PLAN All Employees Increase employee pension contribution by 2% 5 year final averaging period(phased in) Additional reduced pension benefits for employees hired after 30/1/30: Increased normal retirement age Reduced multiplier from 3%to 2.5% Reduced retiree COLA from 2.5%to 1.5% The savings estimated based on the changes to existing MBERP employees was$33 million in year one. The impact of the changes to new MBERP employees was estimated as$900,000 in the first year,and approximately$6 million per year after 10 years I