C7L-Accept Recomm BAC�s Proposed Policies To Ensure Long Term Pension ReformCOMMISSION 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 Sup orted:
Control costs of payroll including salary and fringes/ minimize taxes/ ensure expenditure trends are
sustainable over the lon 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
olice 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
illion, an increase of approximately $2.1 million from the current fiscal year. The $41.5 million
epresents 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
ssumptions are met, the City's actuary estimates that the ARC will decrease to 80 percent of
ionable payroll by 2022, and 35% of payrol! by 2041. The Actuarial Valuation Report for the Miami
ach Employees' Retirement Plan (MBERP) adopted during the March 12, 2013, Pension Board
eeting, reflects the City's ARC, payable October 1, 2013, at $26.2 million, an increase of $5 million.
no changes are made and all assumptions are met, the Plan's actuary estimates that the MBERP
Plan will be at 31 ercent of a roll in 2022.
Item Summary/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.
Adviso Board Recommendation:
Finance and Citywide Projects Committee recommend adopting the resolution.
Financial Information:
Source of Amount Account
Funds: 1
l l 2
3
OBPI Total
Financial Impact Summary: Adopting the proposed pension guidelines will provide future savings
and sustainability to the City's pension plans.
Clerk's Office Le islative Trackin
Si n-Offs:
Department Director
KGB
MIAMI BEACH
ity Manager
284
JLM
AGENDA ITEM _C_7_L __
DATE 7-(7-13
City of Miami Beach, 1 700 Convention Center Drive, Mimni Florido 331
COMMISSION MEMORANDUM
TO: Mayor Matti Herrera Bower and
FROM: Jimmy L. Morales, City Manage
DATE: July17,2013
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.
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;
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Pension Policies and Guidelines
July 17, 2013
Page 2 of 5
• 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:
o Florida Retirement System (FRS)
o Defined Benefit similar to FRS, including a Social Security equivalent
o Hybrid Plans with both, a defined benefit and a defined contribution
component
o Changes to the existing plan with a combination of past service benefits and
benefits earned prospectively
o Freezing the existing plan and defining new benefits based on Florida Statute
Chapter 175 and 185 minimum benefits to continue receiving premium taxes
o 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).
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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
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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.
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.
These policies and guidelines were adopted unanimously by the SAC (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 SAC'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 SAC and bring back the item
to the FCWPC for further discussion. Commissioner Weithorn reviewed the Proposed
Guidelines and Policy Statements with the SAC at the April 9, 2013, SAC meeting. The item
was then presented at the May 13, 2013, FCWPC meeting where the Committee
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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/ih 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 's pension plans.
JLM/
Attachments
289
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/th 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.
290
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:
Affordabilitv 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
291
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 1ih day of July, 2013.
ATTEST:
Rafael Granado
City Clerk
Matti Herrera Bower
Mayor
3
292
ATTACHMENT 1
6. RECOMMENDED POLICIES AND GUIDELINES
The Government finance Officers Assodot1on [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 market1 facilitate effective
management of the workforce and fulfill retirement
In developing a policy
the following:
• Purpose of the retirement plan !e.g., level replacement income
power retention};
• Ability of public io to the economic viability of their
not become a financial liability the community in which they llve due to
..,",,.,,,.._.,., retirement income;
• Orgonizatlcm1s philosophy regording empfoyer and employee responsibilities ln
preparing retirement;
6 Availability of Sadol Securify,
benefits and supplemental (e.g.
• Costs, including the
benefits over time
medical disability and
savings plans;
ability to sustain payments and perhaps
.. labor market such as competitive environment, workforce mobility,
length of employee service and recruitment and retention
• Investment risk and controt including
employer and ~mployee;
• Portability of benefits;
• A plan design that con be communicated to and understood by plan participants;
• Employee educatioool efforts; and
• the different benefit, defined
contribution and hybrid).
GfOA Bast Practices ond Advisories, Developing Q Polley for Retirement Pion Design
!1999, 2007) {CORBA)
Source: Florido Pensions, Volume I, Issue 11 April 2.
293
CITY OF MIAMI BEACH RECOMMENDED POUCIES AND GUIDEliNES
As part of the evaluation For Pension Reform in the City of Beach, the Budget Advisory
Committee (BAC) is n~commending policies for lang term pension reform. The BAC is also
recommending guidelines the City to adapt establish thresholds 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 Susfoinobllity, {2)
Appropriate Benefits to Provide to Employees, (3} Recruitment and Reh;)l'lt\on, and (41
Management of Risk/Risk Sharing.
These policies and guidelines were adopted 1.manimously by the BAC.
Affordability and Sustainubility
• GUIDEliNE STATEMENT: If the City's portion of the cost retirement benefits
contribution exceeds pen::ent of payroll general employees and
risk employees, the review and evaluate potential changes to
bargaining agreements belvlleen the City and the Unions, applicable
towards next contrllc.:f neg~Jtiotions 1 in order to identify potem1ol approaches to reduce
the contribu!lons to these levels over the long term.
POUCY STATEMENT: The shall at
exceeds the omourd of acruoriol1y determined annual
pension. If this
the excess
should be placed in a '"'"'''""'" stabilization to be mode ovoiloble future
shortfalls.
~~ POUCY STATEMENT: The City should strive to ratio of at \east 80
percent for each of its benefit pension plt~ns,
e GUIDEUNE STATEMENT; If the funded ratio tactuoriol value assets oduarioi
liobililles} of either of the City of Beach's pension plans falls below 70 percent,
City strive to implement opproachas to im::reose the funded ratio to that level over
• POUCY STATEMENT: Salary growlh
salary growth in each Clly's
Budget Advisory Pension Reform Report
294
not exceed
pions.
assumed
Poge 39
• POLICY STATEMENT: The City should require 5~ l 0 ond 20 yeor projections of required
pension contributions as port of the annual octuarlol for eoch of the Ci!y1s
pension plans. These projoctlc:.ms sholl be based on the current assumptions for
each plan. The proiedlons shaH be updated to reflect the cost of cmy propose~d benefit
enhom::;ement before CiJy Commission agrees to the enhoncement. The cost of these
studies shall be funded separately the annual cor.tributll::m to the pension plan.
* POLICY STATEMENT: There ba on exparience study of each of the Ci!y's penslon
plan's ocluorlol assumptions performed by on actuary that is independent from the
pension board, The experience study should be conducted al least once every three {3)
yean:., to compare actual experience to the ossumpfions. The independenl actuary sholl
make recommendations for any changes in assumptions based on results of
experience study 1 and any devialions from those assumptions by the pension board shall
be to the Cily Commission.
® POLICY STATEMENT: Once pension reform is o 5/7&. vote of the City
Commlssion should be required For any further pension changes.
Appropriate Benefit-1 to Provide to Employees
111 POLICY STATEMENT: The City Mioml Beach should strive lo provide o retirement
beneffl jhot provides for o replacement of salary ot o level at least equivalent to Social
Security plus o supplemental be~~efit
® POLICY STATEMENT: lhe City of Beach retirement benefits should be adjusted
periodically after retirement to reflect the of rotes no more !hon
Consumer Index for All Workers -CPI(W), that is subjed to Clly
opprovol and wiih o 3 percent onnuolly.
Recruitm~nt and Ret~ntion
"" POLICY STATEMENT: The City of Miomi Beach strive to ,..,,,..,,.,,.., ..
thot ensure the is c:ompeli!ive in the recruitment and """'"''""~"'
Budget Advisory Committee Penslon Reform Report Page 40
295
111 POliCY STATEMENT: Th~ City of Micnni Beach lhould ftri~ ro $hare $<:»me PQrtlon of
retir4')tm(llnt benefit risk with employee~.
111 GUlDEUNE STATEMENT: If the City's ¢ontribution to o defined Pfi~nsion be~~eRt pion
axeee»ds 25 parcent payroll for g®neral employees ond 60 percent of poyroU for high
risk amploy®es, the employee contribution should be reviewed. ·
Poge41
296
AFFORDABILITY AND SUSTAINABlllTV
the total cost retirement benefits contribution exceecis
nAr>ll'lm employees and 60 percent of payroll for
cv~:~•uaJ,'I::l' potential Chan~ to the couaotlve mn11rllnn
applicable towards the contract n~IOiliEUiOI'IS
rArtiii'!A the to these
• The City shall fund at least the nonnal cost of pension. If this exceeds the amount of the
actuarially detennlned annual required contribution, the excess should be placed in a pension
····· 'Stabi!i!ation fund, to be made avaUabie for future pem~lon shortfalls. ···········~··~~·~··~~~
Pension plans requtm annual contributions fmm plan sponsors (l.e •• munlclpat governments) and
participants in order to maintain their funding kivals. Ideally, those contributions are only necessary to
pay for future benefits that were earned by participants in the current year. That amount Is referred1o.~--~
as the nonnal contribution. Normal contributions Increase as plans provide more generous benefrts,
.,..., .... T,te a:vatleble to more the of someone needs to
when the wilt begin to benefits.
n.., ... ,.,~,., ... plans require an additional contribution In
unfunded When pension plans are underfunded. annual need to include
normal contribution an additional contribution to pay down unfunded of liability.
nArll:ltnl!'l!:l! if pension plans haw equal benefit policies and equal employee ctmmcteristics but
one Is pereent 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 down its unfunded liablllty. Plan sponsors do not
make up entire unfunded portion of the liability ln e single year. Jn most cases, that
wooid be too oostiy to pay in full. Instead, a professional actuary establishes
a payment allows sponsor unfunded portion of the liability ovar as
many as 30 with large liabilities will more pension
297
requirement and payment for of the
required oontrlbutlon (ARC) that the City ls required to
year. Typically, this is eJ<pressed as a percent of the
to allow eomparabllity from year to year, es wall as, to
1
as of the 1011/10 valuation
Fire and Pollee ...... n•ann
Miami Beach
Nnrm~1 Cost:
Em!OlO'.!'ees ~.eotirAn1&:><nt Plan runrTnl'll
Pollee P<:>lr'I~Jr\n are Under Utigatton.
r..~"''"1•M•u~:~r the pi'OJ'eCtions and Pension PJan reo1aroma the Impact
"'"'~''"''"''"«:! oolleetivety bargained for new employees were minimal. in aCit~mon ~~'~"'.,'"'''m all actuarial
orc•iec:tlm;s were met from FY 2010/11 forward, the as a nAr,~g,ny to
~ ... ,.,, . .,.,.c.a to 81.05'Vo by Fiscal Year 2017 contribution.
Miami Employees (MBERP) Actuary projected changes to
plan for new employees would decrease the unfunded liability payment by approximately
mi!Hon .. 5.78% of payroll after 10 years. Even with this decrease, and assuming all actuarial
were met from FY 2010111 forward, the ARC as a percent of payroll is projected to
''"'""''.coa•~c to 37.12% by Fiscal Year 2017 * declining each year thereafter.
Total annual em
Jurisdiction
Fort
Hialeah
101112007-315/2008
32.59%
Pollee: 84.41%
Fire 127.03%
{Piillns am now frozen and new
plans with lower benefits
2
298
new hlres
u ti n I nd
191
299
Pension plans require annual contributions from plan sponsom (i.e •• municipal governments) and
participants in order to maintain their funding levels. Ideally. tho~e contributions a«l only necesury to
pay for future benefits that wem earned by participants ln the current year. That amount is mferred to
as the normal contribution. Norrnat contributions loorHsa as plans provide mo«l generous benefits,
h411lnl~nm avanao~e to more Individuals the number of someone
will bsgln
require an additional contribution in order to eventually eliminate their
pension plans are underfunded, annual contributions nnd to Include the
normat contribution and an additional contribution to pay down the unfunded portion of the liability.
Therafo«l, if two pension ptans have equal benefit policies and equat ampbyaa eharactwtics but
one ts 75 percent funded and the other is 100 percent funded, the plan that Is 75 wiU
require a larger annual contribution In ordar to pay unfunded liability.
have to make up the entire unfunded portion of the liability a slng1e year. In
amount would ba too costly for governments to pay in full. IMtud, a profMSkmal ftM''"""' es~ilbt!Eitlas
a payment sch&duie allows the sponsor to pay off ~ unfunded the uam>~lml
many as SO years. fn plans With large unfunded liabUitie~ will more in
The combination of the normal cost funding requirement and 'the payment for amortization of the
unfunded liability rasutm In a oombinad annwaJ mqui~ oontribution (ARC) that the City hl required to
pay to eaeh pension ptan for the next fiscal year. Typically, this is expressed as a peroont of the
payroll appUcable to the particular pension plan to allow oompambilfty from year to year, as wen as, to
other pension plans.
300
tM negotiated changes to Fire and Ponce Pension Plan am under litigation.
projections provided by the and Pollee Pension Pian actuary regarding the impact
of ebarQM td\d~y b'M'Qa\ned for~ ~6YE!IM ~m m\n\ma\. \n addb, a"wm\ng '1!\\ ~uariii\\
projections were met from FY 2010/11 forward, as a Is oroJ1ect•:Kt
increue to 81.05% by Fisoai Year 2017 contribution.
The Miami Beach Employees Retirement Plan (MBERP} am ... ,.,.. proJiec~~
the plan for new employees would decrease tM unfunded m:an,m1V pa~rmem
mil!ton .. 5. 78% of pa~tl after 1 o years. Even With
proJtealtons were met from 2010111 taNn~~rd
~ ................. -to 37.12% by 2017, ctec:lll'lll'IQ
183
301
closed for new hlms
10}1/2007-31512008
32.59%
19.56% 711/12
3
302
Ci~ Beach
Budget Advisory Committee
Pension Reform:
Poflcy Guideline Statements
POUCY STATEMENT:
o The City smw to maintain a funded ratio of at lmud 80 ~nt for each of its defined
ben~ftt penman plans.
GUIDEUNE STATEMENT(S):
mlo (actuarial wtue of asaets m!nus actuarial iilbfilties) of either City cf Miami
pention plarw falls below 70 percent, City should strom to implement approaches to
........... ,...."""' the funded to that level over ftva { 5)
Background/Rationale:
Each year. tile City receives independent actuarial reports for each of the City's two pension plans.
The actualili wtuatlon of tile pension ptan i$ a mati1ematical determination of tila financial condition
of ti1a ptan, which Includes: tile oomputation of the present monetary value of bineftta payable to
prennt member$, tile present monetary value of future employer and employee contributions,
considering tile expatled mormllty rates among emplayMs and rallrlls. rata~ of dlssbility, retirement
age, withdrawal from service, utary increases~ Investment eamlng1 and value of useta.
As part of tile annual act!Jirlal valuation for each plan band on plan data as of October the
Actuary evaluates how the actual data for tile preceding year oompaffld to the actuarial valootloo for
that year, Any differences are retlected as gains or lanes In unfunded flabilfty. The unfunded ilablllty -----
for a plan is the difference between the benefits earned (accrued) and the asaets of the plan on a
glV&n datal and is typically amorti!:ed and funded over 30 years. The amortimtlon rnetilodo\ogy
vanes by plan. In the Fire and Poli~ Pen1loo Plan, the amortluticm Is based on lncrealed payments
In pr<>portlon to assumed Mure payroll growth. In tha an assumption of mvef amortimtion
payments is used.
11'le unfunded lability of tile plan Is tile actuarial aeeruad llablity •'!he plan actuarill ~. This
amount is ~ to haw year..t>y..year fluctuations: however. It the p~art·s assumptioM are oonsiant
wfth the plans lang.-term ~rianee. tile changes In the unfunded lia~ should ~ owr the ife
of the pian. tn contrut to the market value of the pension plan ~ts. the acltiarial value of the pension
p\an a~ 11 equal to the market value of the uaets at a apedflc data, adjusted to refl.ed s fl~
~ (or smoothing) of any · 1oM. The ~ smoothing of pension plan
anet value means that only 20 that 1M fund ~ences In any one
year is recognized Immediately for the purpose of determining the aduaria! wlue of tile plan and the
annual ~wad ~n.
TM ~t of tna acti.Ji'lmt ~~ lmbillt¥ f~ ~s a ~Ufe of a ml!lll.lkm fund's flsoal he:alth. 1
compares anetl to pension obligetiorli. A percentage over 1W-' means more money
than it Mads to meet Its obligations at 1hat palm In time.
186
303
FRS
(lnclud• Cuoonut Creek,
Cooper City, Miami Gardens,
Miami-Dade County, Miami
Lakes, Pinecrest and WUton
304
87.1%
(7/1111)
City of Miami ~ea1c1
Budget Advisory Commlttee
Pension Reform:
Policy and Guideline Statements
• The e.ggregate prefund!ng for ~· pensions In 2008 was allo 79 pen:::ent From 2001
through 2009, state gowmmootst aggregate penllon pmfundlng ranged tmm 59 to 90
percent.
The Government Ac:oountabillty Offloo (GAO) reported ~t many experts ccmsider least 80 pef'C.:~Snt
prefundlng to be sound for government pensions. (Soon:::e: The GAO's state and local Government
Retiree Benefits Cuf'f&nt Funded (5); The GAO's state and Local Government Retiree i"!AftAtltiii<
Current Funded Status of Pension and Hedh Benefits, January 2008.)
The Act of 2006 o:msiders pen~ prefu~ at leu 'than 70 peroent as being
•at risk" and attempts protect 1uch plans by commencing mtrletlons on corpt~mte pension funds
only when pmfundlng ts below 80 ll'\l:ll"f-.:onv
2011 report prepared by the Leroy Coilins Institute at University ~Mion
systems across florida asslgned the following grades to pension plana on pef'C.:~Snt funded.
The following cmes scored an •p grade, according to the institute's study: Boynton Beach, Gocloor
City, Fort Myers, Hollywood, Homestead, Jawonville. Miramar, Oakland Park, Ocala. Oviedo,
BeaQh Gardens, Panama City, Parkland. Plant City, Port Orange, Tamtm\c, Temple Terra~. Venlce
and Winter Haven. 1l'm highest rated was Melboum&'6 generat emplo~ plan With 190.1 percent
funding* while Cooper City~ general employee and police pen&ion fund sat at ihe bottom with 35.48
percent funding. Pension funds that exceeded the 100% funded mark .... Tallahassee's general.
Clearwatefs flrefightars, Gainesville's general, Key gEJMral, Cout's firefighters,
Plantation's firefighters and Rockledge's general and police funds-mom enough money
in the bank to ~r p~cted payouts to former and eurrent emr,lfi'VIMS_
The federal government has funded Its combined Civil ServiCE~ Retinmumt S~m (CSRS) and
Federal EmpiOYH R~rement lyltem (FERS) pension obligations at only 41 percent of Uablltties
and the military's pmfundlng for ~nslons is only 24 peroant (Source: us Postal Service Offlee of The
Inspector General Report of Pension Fundtng, 2010).
187
305
year. the City receives Independent actuarial report~ for each of the City's two pension plans.
actuarial valuation of tM pension plan Is a matMmaticaf determinatiOn of the financial oondffion
of the plan, which includes: the oomputatfon of the present mone&ary vstua to
present members, the present monetery value of future employer and employee oorttrlt~uti<)M.
considering tha expected mortellty rams among employees and retlreas. rates of disability, ....................... .
age, withdrawal tom service, salary incraesas,lnvestment amlngs and value of
experience "gains" prior
tM prior year. oonvemely, rnr<.r~~U!li~ the <=~J"!tl>t.al'l.:~l
l"' ........ .th is more than the actuarial assumption
unfunded liablllty of tha ptan.
Salary growth can result from merit inCJituu~es, automatic stap adjustments to salaries
of fMng adjustments Impacting all Of' subsets or employees (COLA's)*
salary ranges based on compensation mi.H.III:i!lll.
1
306
15 1----___ ........... __
pension board for l!Vn::n:::n..-reoontly sannmw'lfl
1/11 valuation downturn A#'.ro.nl"'l''''"'
liketymto
Not Applicable
307
• an experienee study of of the aty's pension ptan•s .,....., .. ar~'"''
ndU'fl"'1"111'\l!UI by en actuary that is Independent from the pension board. 1"he 4!11X1'11Aml~n~
conducted at IHst once every three (3} yeam, to eompare actual ~~~:a'!lnAn~•nt"A
usumptions. actuary shan make recommendations for
assumptions of the atudyi and any nAw~att ....... ft
assumptions be City Committkm.
of
Changes to pian benefits can affect
"""""'"' "'""""""""""'"negatively. If pian benefits are Increased.
anticipated to be peid to pian membe~ fn Mum,
although payments would be amortlted over the 1nnrt.t~~~:arm
With aU alae belng equal, the plan will sea a tmJuwu•
Not Applfooble
9
190
308
an experl~~ W,!dy ctty'l -n,~~:~nn
~"~Arfnl"''r~Ari by an actuary that Ia independent from the 1'\AI'I!~tl ... n
conducted at lust once every t:hree (S) years; oompam
•ac•eo .. .,..•"'fln•-m independent actuary shall make recommendations for
on the results of the t'!lxperienoo study, end $l1Y d&viations from
pension board shall be justified to the City Commission.
Changes to ptan benefits ~n affect the actuarial "'~""'"' ..... lh•hll~tv
negatively. tf plan benefits are lnorused, the mathematical \.iCIIII..>I.IIll!~lu•'a
antlolpated to be pald to plan members ln the Mum.
although payments would be amortized over the fong-tenn. YUflvurmtSlv
with at! else being equa1, the plan w!U see a radudlon In
191
309
shoWd strlv'e to provide 1 retirement benltit that ott"JI.Nii=~
a at least equivalent to Social Security plus a annl<=:~mli'l,ntllll
Wlndfa.U Bfmlnatloo Provlaion
who worked mainly in a job not covered by Soctet .o;JII:II.iurnv had their Social~
ba'l1MH:I crucuat~ac! as If they ware iOng..tem~, low.-wage workers. They advantage of me:alving a
Sods! Security bsneflt m~ntlng peMlon from a Job where
did not pay Social Security taxes. Congress passed the WlndfaU Provtston to remove ht
receiv& a pension from a federal, state or local gavem~nt based on work
security taxes. your Soda1 Seoortty spouu*s or 'NidOW's or 'Nidowsr's be~m
11'1M'1o..Ynlirt'l!ll of your pension.
(Source: Sootat Security website: ht!Q:[fmvw.§sa.go\(/pu~U/1 OQ~5JJtml
--bttp;/lwwyt.ssa.ggv/pybs/1 0045.html httg://www.ssa.gov/pubs/1 0007.html)
192
310
311
Beginning in
legislation
usted periodlootly after retirement to
~tJUmiiT l>ri~lll Index for Ail Workem
pen•mannwlly.
s~ art«:! automatic annuat COt..M. The ~~mn~ was ana'cted by
"""""~~ to til$ annual mores~& In the CPI·W.
Employaes hired before 10/1/10 .. 2.5%
Emp1oyus hired on or after 1011/10 -1.5o/c> with first adjuttmant cMfecl'fed to 1
end of DROP or 2 mandatory 0 DROP COLAs"
194
312
Fort
North Miami
Cooonut ~.
Miami Gardens.
County. Mtami
Piru~cn:~rSt and
13
313
salary ranges for Job daaslficatlooo In City of Mieml
intemalequity and extema1 competitiveness. Internal equity
responsibliitles, salary, tenure. ate.} between posHions within the tam& nrnRnb~Irm
refers to the relationships (duties, lave! of rasponsibil1ties, oew1~ C!Oiiiti011S
the external labor mari<et. in both. the public and nli\imtA ~~tnR
In the past. psrticulsr1y during periods of low unemployment rates when rorriPitiltitln nu been tight. the City has targeted to set salaries in the 75'fll peroentl!e
and to provide benefits similar to neighboring jurisd!ettons.
In addition. the 2009 r.IAjlll.~tlflNrtl•"'l"'
the City of M'mml City's NlltiJIIlllom~t wn~em:.
appropriate considering employae 8 peroant contribution to
------~t>therJudl\lJ<;Uot» ~~,Y~.~nJt!h~~!'lout Ronda).
196
314
to
-. at{~ a.mtri~ to 11. defm~ ~ne.\Gt'\ ~1\t ~tan e~~' 25 ~am\ o1 payr<.\tl fOf
general employees and eo paroent of payroll for hlgh~k employees. the employe contribution
should ~viewed.
Comparison
______ Jurladlctlons:
the City bears
....... .., ..... sector panslon
10/112001..a/51200S
'15
191
315
(Includes Coconut Creek.
Cooper Cityi Miami
Gardens. Mlami-Oade
County, Miami Lakes,
Pinecrest and Witton
1
16
198
316
w ~ .....,. "'" Police and Fire of Miami Beach Valuation Data for Cltv's Pensi()n Plans Pollce&fim Projected PensionablE~ I% of Unfunded Actuarial the
.AC:HIVtFNrr 4
IEO::f\11' CHANGES TO MIAMI lEACH PENSION PI.AI\IS
All P:mJ~IO'tlree$
No retiree cost of IMng adjustment ~COLA) least 2 years for participants the deferred retirement option plan (DROP}
latter 9/'l/12 (Years 3 and 4 of DROP}
Off·duty compensation pensloMble/slck leave sell back up to the overtime compensation cap
Additional Reductions for tmployees Hired attar 10/1/10
Minimum retirement Age of 48 for Rule of 70
Pushed back Increase In multlpl!er from 3% to 4% so that lt occurs in year 20 iflStead of year 15
Rna! AVerage Monthly Earning (FAME) increased from or last 2 to 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 for Fire and Polite
Pension Plan employees were minimal, with anlnltlal cost increase included in the actuarial impact statement, to be
offset In the future by a of approximately $6S1,3£2., The estimated by Actuarial Concepts Inc., the Oty's .. u.u<trv.
d·umges for new fire and Police Pension Plan a Net Pres~nt Value of $.32.8 mtllion over 30 years;
I
All Em;olo\lees
Increase employee pension contribution by 2%
5 yt1or fino! averaging period (phased in)
Additional reduced pension benefits 1or em,oltntees hired after 10/1/10:
,..,., • .., .... r1 normal retlrement age
m~.<tlu~mt:l from 3% to 1.5%
retiree COLA from 2.5% to 1.5%
The savings estimated based on the changes to ME!ERP was million in year one.
Impact ofthe ch;mges to maw MBERP employees was estimated as $900,000 !n the first year, and "'"r'""'"m·'""'v $6 million per
318
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