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HomeMy WebLinkAbout02/29/2002, PH1 - RESOLUTION OF INTENTION AND INTRODUCTION OF ORDINANCE TO PROVIDE 3% @ 55 RETIREMENT FORMULA FOR FIR council j acEn6a Report PH C I T Y OF SAN LUIS OBISPO FROM: Ann Slate,Director of Human Resources Prepared By: Karen Jenny,Risk Manage` SUBJECT: RESOLUTION OF INTENTION AND INTRODUCTION OF ORDINANCE TO PROVIDE 3% @ SS RETIREMENT FORMULA FOR FIRE SAFETY MEMBERS OF PERS CAO RECOMMENDATION Adopt a resolution of intention and introduce an ordinance to print approving an amendment to the contract between the Board of Administration of PERS and the City of San Luis Obispo to provide the 3% @ 55 retirement formula for Fire safety members. DISCUSSION The 2001-2005 Memorandum of Agreement (MOA) with the International Association of Firefighters, Local 3523 (Firefighters' Union), which was adopted by the Council on July 17, 2001, included a provision to amend the City's contract with PERS to provide the 3% @ 55 retirement formula to Fire safety employees. Discussions were also held with the San Luis Obispo Fire Battalion Chiefs' Association,whose members are included in the PERS contract for fire safety employees. They concur with this proposed change in retirement benefits. Government Code Section 21363.1 allows a contracting agency to provide retirement benefits for Fire safety employees based on.3% of salary at age 55 for each year of service. At the time the Fire contract was approved last July, we were in the middle of the process of amending the PERS contract for military service credit and 1959 survivor benefits for the miscellaneous employees. PERS only allows one contract amendment at a time. That process should have been completed by the time the Fire contract was approved, but it was delayed for two reasons. First, PERS lost our initial request for valuation of the 1959 survivor benefit and we had to request it a second time. Then, a former employee requested specific wording in the resolution of intention, which we were assured was necessary, but which was not acceptable to the contract amendment unit at PERS, so the resolution had to be re-done. Without those two delays, the miscellaneous contract amendment would have been completed when the Fire contract was approved, and we could have initiated the contract amendment for the 3% @ 55 retirement formula soon after adoption of the MOA by the Council. The PERS contract amendment for the miscellaneous employees was effective September 21, 2001. By then, PERS told us it was too late to use the 1999 valuation, on which our negotiations had been based, and we would have to request another one. Although we requested a new valuation based on the June 30, 2000 data in late August, we did not receive it from PERS until December 26, 2001. Council Agenda Report—Amendment of(PERS) Contract to Provide the 3% @ 55 retirement formula for Fire Safety Members Page 2 Government Code Section 7507 requires that the change in benefits of the proposed contract. amendment be made public at a public meeting at least two weeks prior to the adoption of the final ordinance. The City Clerk will certify compliance on a form provided by PERS. FISCAL IMPACT During negotiations with the Firefighters' Union, City negotiators were working with the valuation provided by PERS based on the assets and liabilities in the safety retirement plan as of June 30, 1999. That valuation, which is a snapshot of the funding status of the plan as of the date of the valuation, indicated that there was enough excess funding in the safety retirement plan to cover the cost of the 3% @ 55 retirement benefit for five years. In other words, we could expect the employer's contribution for this increased retirement benefit to remain at 0% for five years. When we received our annual valuation based on the June 30, 2000, data, which is the basis for employer rates for the 2002-03 fiscal year, the City's employer contribution for safety retirement went from 0% to 4.364%, even though the improved retirement benefit had not yet been implemented. There are three major reasons for the change in the value of the City's safety retirement plan and, therefore, the employer contribution rate for 2002-03. First, the "Purchase Power Protection Account" (PPPA) was increased from 75% to 80%.by AB 1009. Retirement and survivor allowances are protected against inflation by PPPA. PPPA benefits are cost-of- living adjustments that are intended to maintain an individual's allowance at 80% (previously 75%) of the initial allowance at retirement, adjusted for inflation since retirement. Second, AB 1009 required that each agency's retirement plan would be responsible for funding its own PPPA adjustments. Previously, agencies had contributed an amount to a PERS fund that paid out benefits under PPPA; under that arrangement some agencies were subsidizing the costs for other agencies. Third, salaries reported to PERS were greater than had been assumed. This is mainly because the City began including the 9% employee contribution rate in Police safety employees' salaries on January 6, 2000. The City began reporting the value of the employee's contribution for Fire personnel in April of 1999, so the impact of a full year's reporting has been realized in the latest annual valuation. In essence, salaries reported to PERS for safety personnel were 9%higher than the previous year because of this change in how the employee contributions were reported. PERS has generally allowed agencies to use 90% of the plans assets to fund the cost of the retirement plan each year. The 10% "cushion" was intended to provide some protection against wide swings in employer contribution rates, i.e., rate increases and decreases were spread over three or more years. Last year PERS allowed agencies to use 95% of assets when they provided a benefit increase; the City did that with an increase to the 1959 survivor benefit and military service credit. With the implementation of 3% @55 for the Fire safety personnel, the City can use 100% of the market value of assets as of June 30, 2000. By using the remainder of the "cushion" to fund the cost of this benefit, the City's employer rate will remain at 0% from the time of implementation until June 30, 2002. Beginning July 1, 2002, the employer rate will go to 4.221%, instead of the 4.364% we had been anticipating (see chart on next page). Without using the remainder of the I Council Agenda Report—Amendment of(PERS) Contract to Provide the 3% @ 55 retirement formula for Fire Safety Members Page 3 "cushion" the employer rate would jump to 8.125% on July 1, 2002. PERS is estimating the employer rate in the following year (2003-04) to be 10.6% with the 100% valuation method, compared to 11.5%with the 95%method, a savings in 2003-04 of 0.9%. Percent Dollar 2002-03 Employer Rate for Safety Retirement Plan prior to 4.364% $ 331,162 benefit improvements (as advised by PERS on 9/24/01) 2002-03 Employer Rate for Safety Retirement Plan with implementation of 3% at 55 for Fire safety members and using 4.221% $ 320,311 100%of plan assets Savings in 2002-03 $ 10,851 By using up the"cushion",we are able to achieve a lower employer rate at this time,when major City revenue sources are flat or declining. However, because of the decline in the PERS retirement plan's investment performance and not having the "cushion" to absorb rate fluctuations, we will likely see larger rate increases in future years to offset the lower initial rate at implementation. However, the ultimate cost for this benefit increase will be about the same, whether we start with a higher or lower initial rate. The financial impact can be delayed until a point that the City revenues rebound to fund the increased employer rate and the increased costs can be included in the next two-year financial plan. Although the 3% @55 retirement formula will be implemented only for Fire personnel at this time,police and fire are combined in one safety retirement plan. The change to the employer rate will apply to both Police and Fire payrolls. The 2001-05 MOA with the Fire Union also calls for implementation of the 3% @ 50 retirement formula on December 31, 2005. Additionally, a new contract with the Police Officers' Association (POA) has not been approved; increases to the retirement formula have been included in proposals exchanged with the POA. The cost to implement this retirement enhancement will be determined at the time it is implemented. ALTERNATIVES Since this change was approved as part of the 2001-2005 MOA, failure to pass this resolution and ordinance would place the City in violation of its agreement with the Firefighters' Union. ATTACHMENTS 1. Resolution of Intention 2. Ordinance l ATTACHMENT 1 RESOLUTION NO. (2002 Series) RESOLUTION OF INTENTION TO APPROVE AN AMENDMENT TO THE CONTRACT BETWEEN THE BOARD OF ADMINISTRATION OF THE CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE CITY COUNCIL OF THE CITY OF SAN LUIS OBISPO WHEREAS, the Public Employees' Retirement Law permits the participation of public agencies and their employees in the Public Employees' Retirement System by the execution of a contract, and sets forth the procedure by which said public agencies may elect to subject themselves and their employees to amendments to said Law; and WHEREAS, one of the steps in the procedures to amend this contract,is the adoption by the governing body of the public agency of a resolution giving notice of its intention to approve an amendment to said contract,which resolution shall contain a summary of the change proposed in said contract;and WHEREAS, the following is a statement of the proposed change: To provide Section 21363.1 (3% @ 55 Full formula) for local Fire members. BE IT RESOLVED that the governing body of the above agency does hereby give notice of intention to approve an amendment to the contract between said public agency and the Board of Administration of the Public Employees'Retirement System, a copy of said amendment being attached hereto as an"Exhibit 1"and by this reference made a part hereof Upon motion of , seconded by and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution was adopted this day of , 2002. } ATTACHMENT 1 Resolution No (2002 Series) Page 2 Mayor Allen Settle ATTEST`. Lee Price, City Clerk APPROVED AS TO FORM: G. rge q Vy Attorney Ca1PERS EXHIBIT California Public Employees' Retirement System AMENDMENT TO CONTRACT Between the Board of Administration California Public Employees' Retirement System and the City Council City of San Luis Obispo The Board of Administration, California Public Employees' Retirement System, hereinafter referred to as Board, and the governing body of the above public agency, hereinafter referred to as Public Agency, having entered into a contract effective July 1, 1952, and witnessed June 9, 1952, and as amended effective October 1, 1962, October 3, 1963, October 1, 1974, June 1, 1976, December 1, 1976, December 20, 1978, January 16, 1980, May 1, 1980, July 1, 1980, July 1, 1983,'July 1, 1986, July 23, 1987, November 16, 1989, August 8, 1993, November 5, 1999, January 7; 2000, July 6, 2000 and September 21, 2001 which provides for participation of Public Agency in said System, Board and Public Agency hereby agree as follows: A. Paragraphs 1 through 12 are hereby stricken from said contract as executed effective September 21, 2001, and hereby replaced by the following paragraphs numbered 1 through 13 inclusive: 1. All words and terms used herein which are defined in the Public Employees' Retirement Law shall have the meaning as defined therein unless otherwise specifically provided. "Normal retirement age" shall mean age 55 for local miscellaneous members, age 50 for local police members, and age 55 for local fire members. 2. Public Agency shall participate in the Public Employees' Retirement System from and after July 1, 1952 making its employees as hereinafter provided, members of said System subject to all provisions of the Public Employees' Retirement Law except such as apply only on election of a contracting agency and are not provided for herein and to all amendments to said Law hereafter enacted except those, which by express provisions thereof, apply only on the election of a contracting agency. �J l� Exhibi} A PLEASE 00 NOt,_,uN "EXHIBIT ONLY" 3. Employees of Public Agency in the following classes shall become members of said Retirement System except such in each such class as are excluded by law or this agreement: a. Local Fire Fighters (herein referred to as local safety members); b. Local Police Officers (herein referred to as local safety members); C. Employees other than local safety members (herein referred to as local miscellaneous members) 4. In addition to the classes of employees excluded from membership by said Retirement Law, the following classes of employees shall not become members of said Retirement System: a. CROSSING GUARDS. 5. The percentage of final compensation to be provided for each year of credited prior and current service as a local miscellaneous member shall be determined in accordance with Section 21354 of said Retirement Law (2% at age 55 Full). 6. The percentage of final compensation to be provided for each year of credited prior and current service as a local police member shall be determined in accordance with Section 21362 of said Retirement Law (2% at age 50 Full). 7. The percentage of final compensation to be provided for each year of credited prior and current service as a local fire member shall be determined in accordance with Section 21363.1 of said Retirement Law (3% at age 55 Full). 8. Public Agency elected and elects to be subject to the following optional provisions: a. Section 21573 (Third Level of 1959 Survivor Benefits) for local fire members only. b. Section 21574 (Fourth Level of 1959 Survivor Benefits) for local miscellaneous members and local police members only. C. Sections 21624, 21626 and 21628 (Post-Retirement Survivor Allowance) for local safety members only. d. Section 20965 (Credit for Unused Sick Leave). PLEASE DO NOT .'N "EXHIBIT A . e. Section 20042 (One-Year Final Compensation) for local miscellaneous members; for those local fire members entering membership on or prior to July 1, 1986; and for those local police members entering membership on or prior to July 23, 1987. f. Section 20475 (Different Level of Benefits Provided for New Employees). Section 20042 (One-Year Final Compensation) is not applicable to local fire members entering membership after July 1, 1986 and to local police members entering membership after July 23, 1987. g. Section 20903 (Two Years Additional Service Credit) for local miscellaneous members only. h. Section 21024 (Military Service Credit as Public Service), Statutes of 1976. 9. Public Agency, in accordance with Government Code Section 20790, ceased to be an "employer" for purposes of Section 20834 effective on June 1, 1976. Accumulated contributions of Public Agency shall be fixed and determined as provided in Government Code Section 20834, and accumulated contributions thereafter shall be held by the Board as provided in Government Code Section 20834. 10. Public Agency shall contribute to said Retirement System the contributions determined by actuarial valuations of prior and future service liability with respect to local miscellaneous members and local safety members of said Retirement System. 11. Public Agency shall also contribute to said Retirement System as follows: a. Contributions required per covered member on account of the 1959 Survivor Benefits provided under Section 21573 of said Retirement Law. (Subject to annual change.) In addition, all assets and liabilities of Public Agency and its employees shall be pooled in a single account, based on term insurance rates, for survivors of all local fire members. b. Contributions required per covered member on account of the 1959 Survivor Benefits provided under Section 21574 of said Retirement Law. (Subject to annual change.) In addition, all assets and liabilities of Public Agency and its employees shall be pooled in a single account, based on term insurance rates, for survivors of all local police members and local miscellaneous members. l-8" J Exhooi � A C. A reasonable amount, as fixed by the Board, payable in one installment within 60 days of date of contract to cover the costs of administering said System as it affects the employees of Public Agency, not including the costs of special valuations or of the periodic investigation and valuations required by law. d. A reasonable amount, as fixed by the Board, payable in one installment as the occasions arise, to cover the costs of special valuations on account of employees of Public Agency, and costs of the periodic investigation and valuations required by law. 12. Contributions required of Public Agency and its employees shall be subject to adjustment by Board on account of amendments to the Public Employees' Retirement Law, and on account of the experience under the Retirement System as determined by the periodic investigation and valuation required by said Retirement Law. 13. Contributions required of Public Agency and its employees shall be paid by Public Agency to the Retirement System within fifteen days after the end of the period to which said contributions refer or as may be prescribed by Board regulation. If more or less than the correct amount of contributions is paid for any period, proper adjustment shall be made in connection with subsequent remittances. Adjustments on account of errors in contributions required of any employee may be made by direct payments between the employee and the Board. B. This amendment shall be effective on thday of BOARD OF ADMINISTRATION '`� CITY COUNCIL PUBLIC EMPLOYEES' RETIREMENT EM CITY OF SAN LUIS OBISPO x� BY BY KENNETH W. MARZION, C PRESIDING OFFI ACTUARIAL & EMPLOYES\RVICES DIVISION O� PUBLIC EMPLOYEES' F� EMENT SYSTEM 'O ©� CS Wim Date F Attest: Clerk AMENDMENT PERS-CON-702A(Rev.8\96) l- 9 ATTACHMENT 2 ORDINANCE NO.. (2002 Series) AN ORDINANCE OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO AUTHORIZING AN AMENDMENT TO THE CONTRACT BETWEEN THE COUNCIL OF THE CITY OF SAN LUIS OBISPO AND THE BOARD OF ADMINISTRATION OF THE CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM WHEREAS, the Public Employees' Retirement Law permits the participation of public agencies and their employees in the Public Employees' Retirement System by the execution of a contract, and sets forth the procedure by which said public agencies may elect to subject themselves and their employees to amendments to said Law; and WHEREAS, one of the steps in the procedures to amend this contract is the adoption by the governing body of the public agency of an ordinance authorizing the amendment and directing the Mayor to execute said amendment. BE IT ORDAINED by the Council of the City of San Luis Obispo as follows: SECTION 1. That an amendment to the contract between the Council of the City of San Luis Obispo and the Board of Administration, California Public Employees' Retirement System is hereby authorized, a copy of said amendment being attached hereto, marked "Exhibit 1", and by such reference made a part hereof as though herein set out in full. SECTION 2. The Mayor is hereby authorized, empowered and directed to execute said amendment for and on behalf of the City of San Luis Obispo. SECTION 3. A summary of this ordinance, approved by the City Attorney, together with the names of the Council members voting for and against it, shall be published at least five days prior to its final passage, in the Tribune, a newspaper published and circulated in this City. This ordinance will go into effect at the expiration of thirty (30) days after its final passage. INTRODUCED on the day of 2002, AND FINALLY ADOPTED by the Council of the City of San Luis Obispo on the day of 2002, on the following roll call vote: AYES: NOES: ABSENT: ATTACHMENT 2 Ordinance No. (2002 Series) Page 2 Mayor Allen Settle ATTEST: Lee Price, City Clerk APPROVED AS TO FORM: Yor ity Attorney Ca1PERS EXHIBIT A California Public Employees' Retirement System AMENDMENT TO CONTRACT Between the Board of Administration California Public Employees' Retirement System and time City Council City of San Luis Obispo The Board of Administration, California Public Employees' Retirement System, hereinafter referred to as Board, and the governing body of the above public agency, hereinafter referred to as Public Agency, having entered into a contract effective July 1, 1952, and witnessed June 9, 1952, and as amended effective October 1, 1962, October 3, 1963, October 1, 1974, June 1, 1976, December 1, 1976, December 20, 1978, January 16, 1980, May 1, 1980, July 1, 1980, July 1, 1983, July 1, 1986, July 23, 1987, November 16, 1989, August 8, 1993, November 6, 1999, January 7, 2000, July 6, 2000 and September 21, 2001 which provides for participation of Public Agency in said System, Board and Public Agency hereby agree as follows: A. Paragraphs 1 through 12 are hereby stricken from said contract as executed effective September 21, 2001, and hereby replaced by the following paragraphs numbered 1 through 13 inclusive: 1. All words and terms used herein which are defined in the Public Employees' Retirement Law shall have the meaning as defined therein unless otherwise specifically provided. "Normal retirement age" shall mean age 55 .for local miscellaneous members, age 50 for local police members, and age 55 for local fire members. 2. Public Agency shall participate in the Public Employees' Retirement System from and after July 1, 1952 making its employees as hereinafter provided, members of said System subject to all provisions of the Public Employees' Retirement Law except. such as apply only on election of a contracting agency and are not provided for herein and to all amendments to said Law hereafter enacted except those, which by express provisions thereof, apply only on the election of a contracting agency. Exhibit A ,R ,N "EXHIBIT ONLY" PLEASE DO NOT ' 3. Employees of Public Agency in the following classes shall become members of said Retirement System except such in each such class as are excluded by law or this agreement: a. Local Fire Fighters (herein referred to as local safety members); b. Local Police Officers (herein referred to as local safety members); C. Employees other than local safety members (herein referred to as local miscellaneous members) 4. In addition to the classes of employees excluded from membership by said Retirement Law, the following classes of employees shall not become members of said Retirement System: a. CROSSING GUARDS. 5. The percentage of final compensation to be provided for each year of credited prior and current service as a local miscellaneous member shall be determined in accordance with Section 21354 of said Retirement Law (2% at age 55 Full). 6. The percentage of final compensation to be provided for each year of credited prior and current service as a local police member shall be determined in accordance with Section 21362 of said Retirement Law (2% at age 50 Full). 7. The percentage of final compensation to be provided for each year of credited prior and current service as a local fire member shall be determined in accordance with Section 21363.1 .of said Retirement Law (3% at age 55 Full). 8. Public Agency elected and elects to be subject to the following optional provisions: a. Section 21573 (Third Level of 1959 Survivor Benefits) for local fire members only. b. Section 21574 (Fourth Level of 1959 Survivor Benefits) for local miscellaneous members and local police members only. C. Sections 21624, 21626 and 21628 (Post-Retirement Survivor Allowance) for local safety members only. d. Section 20965 (Credit for Unused Sick Leave). Elhibif PLEASE DO NOT S :V "EXHIBIT ONLY" � e. Section 20042 (One-Year Final Compensation) for local miscellaneous members; for those local fire members entering membership on or prior to July 1, 1986; and for those local police members entering membership on or prior to July 23, 1987. f. Section 20475 (Different Level of Benefits Provided for New Employees). Section 20042 (One-Year Final Compensation) is not applicable to local fire members entering membership after July 1, 1986 and to local police members entering membership after July 23, 1987. g. Section 20903 (Two Years Additional Service Credit) for local miscellaneous members only. h. Section 21024 (Military Service Credit as Public Service), Statutes of 1976. 9. Public Agency, in accordance with Government Code Section 20790, ceased to be an "employer' for purposes of Section 20834 effective on . June 1, 1976. Accumulated contributions of Public Agency shall be fixed and determined as provided in Government Code Section 20834, and accumulated contributions thereafter shall be held by the Board as provided in Government Code Section 20834. 10. Public Agency shall contribute to said Retirement System the contributions determined by actuarial valuations of prior and future service liability with respect to local miscellaneous members and local safety members of said Retirement System. 11. Public Agency shall also contribute to said Retirement System as follows: a. Contributions required per covered member on account of the 1959 Survivor Benefits provided under Section 21573 of said Retirement Law. (Subject to annual change.) In addition, all assets and liabilities of Public Agency and-its employees shall be pooled in a single account, based on term insurance rates, for survivors of all local fire members. b. Contributions required per covered member on account of the 1959 Survivor Benefits provided under Section 21574 of said Retirement Law. (Subject to annual change.) In addition, all assets and. liabilities of Public Agency and its employees shall be pooled in a single account, based on term insurance rates, for survivors of all local police members and local miscellaneous members. --low C. A- reasonable amount, as fixed by the Board, payable in one installment within 60 days of date of contract to cover the costs of administering said System as it affects the employees of Public Agency, not including the costs of special valuations or of the periodic investigation and valuations required by law. d. A reasonable amount, as fixed by the Board, payable in one installment as the occasions arise, to cover the costs of special valuations on account of employees of Public Agency, and costs of the periodic investigation and valuations required by law. 12. Contributions required of Public Agency and its employees shall be subject to adjustment by Board on account of amendments to the Public Employees' Retirement Law, and on account of the experience under the Retirement System as determined by the periodic investigation and valuation required by said Retirement Law. 13. Contributions required of Public Agency and its employees shall be paid by Public Agency to the Retirement System within fifteen days after the end of the period to which said contributions refer or as may be prescribed by Board regulation. If more or less than the correct amount of contributions is paid for any period, proper adjustment shall be made in connection with subsequent remittances. Adjustments on account of errors in contributions required of any employee may be made by direct payments between the employee and the Board. B. This amendment shall be effective on th_ day of BOBRD OADMINISTRATION COUNCIL RMPLOYEES' RETEMENT EOM CITY OF SANLUIS OBISPO O��y BY BY �r KENNETH W. MARZION, C PRESIDING OFF[ ACTUARIAL & EMPLOYERS ` RVICES DIVISION PUBLIC EMPLOYEES' F2 REMENT SYSTEM � CJ Wiin6teDate Attest: Clerk AMENDMENT PERS-CON-702A(Rev.8196)