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Home My WebLink About5/19/2004 - STAFF REPORTS (9) DATE: May 19, 2004 MEMO TO: City Council FROM: Director of Finance & Treasurer RE: Merger of Police, Safety & Fire Safety pension plans RECOMMENDATIONS: It is recommended that the City Council authorize the merger of the Police Safety and Fire Safety pension plans with CalPERS. There are no additional costs to the City. SUMMARY: The City has three pension plans administered by CalPERS: Police Safety, Fire Safety and Miscellaneous Employees. The latter covers all City employees who are not sworn safety personnel CalPERS has determined that all plans with less than 100 members will be assigned to a risk pool. Since both Safety plans have less than 100 members each, the City's options are either to merge the plans or to have them pooled with other agencies in the State with similar plans. BACKGROUND: CalPERS has been working toward implementing the pooling of small plans for several years. Their goal is to reduce the administrative burden of servicing hundreds of small plans by combining these into a few large plans. The City's Police Safety Plan currently has 84 members, and the Fire Safety Plan has 58. The benefits provided by the two plans are virtually identical, and the relevant statistics of each plan — average age, average service, average entry age and average pay— are very close. The expected rate for the combined plan is within a tenth of a percent of the rate for either of the existing plans The major disadvantage noted by the CalPERS actuary was the potential loss of bargaining flexibility. If the Police Safety Unit negotiated a future enhancement to their pension benefits, it would have to be implemented for the Fire Safety Unit, whether or not they had negotiated for it. However, both units currently have the same benefits, and it appears unlikely that these benefits will change significantly in the foreseeable future. Combining the Safety plans will allow the City some measure of control over the administration of the plan that might not be available if the two plans are placed in statewide pools. If approved, the combined plan would be effective July 1, 2005. Approved Submitted by: David H. Ready Thomas M. Kanarr City Manager / Director of Finance & Treasurer Attachments: Resolution; Letter w/attachments from CalPERS 7)q Actuarial & Employer Services Division P.O. Box 942709 Sacramento, CA 94229-2709 Telecommunications Device for the Deaf-(916) 326-3240 Ca1PERS FAX (916) 341-2744 April 5, 2004 Mr. Tom Kanaar, Director of Finance City of Palm Springs P O Box 2743 Palm Springs, CA 92263 RE: Potential merger of Police and Fire Safety Plans Dear Mr. Kanaar: Attached is a study which shows the approximate rates you would pay if your safety plans were merged. This study is only approximate because if we merged your two safety plans, we would also perform a "fresh start' to fund your unfunded liability over the number years which produces the closest possible cost to what you would pay if there were no merger. In the case of Palm Springs, we would use a 13 year fresh start to produce a rate of 37.630% (rather than the 37.429% shown) The projected rate effective 7/1/2005 is even more approximate. Also attached is a letter, authorization form, and self-addressed envelope that we are sending out to all agencies that may potentially merge their separate police and fire plans to avoid pooling. The letter explains some of the drawbacks of merging. If, in spite of the drawbacks, you decide to merge your two safety plans, please complete and return the authorization form to me in the self-addressed envelope. Sincerely, oa,vkd a ►✓0.6 David DuBois, Senior Pension Actuary Actuarial & Employer Services Division TO: AFFECTED PUBLIC AGENCIES SUBJECT: Option to Combine Safety Plans to Avoid Risk Pooling CaIPERS' staff has been working toward implementing risk pools for the last few years. The implementation is fast approaching. Mandated participation is required for all rate plans with less than 100 active members. Pooling will help reduce fluctuation in employer contribution rates caused by unexpected demographic events. Please refer to CaIPERS' Circular Letter 200-140-04 for more information on risk pooling. You currently have separate safety fire and safety police rate plans. According to our records, one or both of these plans will be subject to mandated participation into risk pools since it has less than 100 active members. However, you may choose not to pool your smaller plan(s) and instead combine your two safety plans into a single safety plan which would have more than 100 active members. The combined safety plan would not be subject to mandated participation into risk pooling. You should be aware that different actuarial assumptions will continue to be applied to fire and police. Rate volatility due to demographic gains and losses will potentially be greater in your combined safety plan than if you do separate each into larger pools at CaIPERS. If you decide to combine your two rate plans into a single safety rate plan, note that your employer contribution will be based on a single contribution rate beginning with the 05-06 fiscal year, and not on two different rates. If you choose to combine your safety rate plans, you may also want to consider the potential loss in bargaining flexibility before making this important decision. If you choose to combine your safety plans, you must notify us before June 1, 2004. Please use the attached election form and return envelope to notify us of your decision. Your CalPERS actuary will call you shortly after you receive this letter to discuss this issue. If we are unable to reach you and if we do not hear from you by June 1, 2004 or receive your election form, we will proceed to move one or both of your safety plans into the appropriate pool. If you have any questions contact the Actuarial & Employer Services Division at 1-888-CaIPERS (1-888-225-7737). Sincerely, OOL""4 a David DuBois, Senior Pension Actuary ?193Actuarial & Employer Services Division City of Palm Springs Safety Rate Effective Date: 7/1/2004 Valuation Basis: 6/30/2002 Fire Police Combined #of Status 1 58 84 142 #of Status 2 20 8 28 #of Status 3 1 5 6 #of Status 5 59 120 179 Total 138 217 355 Average Age 40.02 40.14 40.09 Average Service 14.29 12.81 13.41 Average Entry Age 25.73 27.33 26.68 Average Pay 69,376 70,436 70,003 Annual Payroll,Valuation Basis 4,023,830 5,916,637 9,940,467 Projected Payroll at Eff.Date 4,493,699 6,607,531 11,101,230 Present Value of Benefits 53,614,874 80,217,770 133,832,644 Accrued Liability 44,174,412 67,100,251 111,274,663 Market Value of Assets 34,397,029 51,322,493 85,719,522 Actuarial Value of Assets 37,836,732 56,421,742 94,258,474 Unfunded Liability/(Excess Assets) 6,337,680 10,678,509 17,016,189 Funded Status 85.65% 84.09% 84.71% Normal Cost % 17.514% 18.461% 18.078% Amortization of UAL % 19.795% 19.049% 19.351% Total ER% 37.309% 37.510% 37.429% Average Amortization Period 12 14 13 Normal Cost S 787,026 1,219,816 2,006,843 Amortization of UAL S 889,514 1,258,695 2,148,209 Total ER S 1,676,540 2,478,511 4,155,052 Effective Date of Projected Rate 7/1/2005 Projected Normal Cost % 17.514% 18.461% 18.078% Projected Amortization of UAL % 22.652% 22.699% 22.680% Projected Total ER % 40.166% 41.160% 40.758% Projected Normal Cost S 816,540 1,265,560 2,082,099 Projected Amortization of UAL S 1„056,,G" 1,556,088 2,612,172 Projected Total ER S 1,872,624 2,821,647 4,694,271 y Rate Plan Recombination.xls, Summary Report Output Printed on:4/1/2004 Name of Agency City of Palm Springs Employer ER Number 0355 Contact Name Check Box X I choose to combine my safety plans as described in the attached letter. I choose not to combine my safety plans as described in the attached letter. Authorized Signature for Agency Date RESOLUTION NO. OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, AUTHORIZING THE CITY MANAGER TO INFORM CALPERS OF THE CITY'S ELECTION TO COMBINE THE FIRE SAFETY AND POLICE SAFETY PENSION PLANS, EFFECTIVE JULY 1, 2005. WHEREAS, the City of Palm Springs provides pension benefits for its employees via CaIPERS; and WHEREAS, CalPERS has determined that all plans under their administration with less than 100 active participants will be merged to form larger pooled plans; and WHEREAS, the City's Fire Safety Plan and Police Safety Plan each has less than 100 active participants; and WHEREAS, the City believes that combining the two Safety Plans is preferable to having each Plan assigned to a State-wide pool; NOW THEREFORE BE IT RESOLVED by the City Council of the City of Palm Springs to hereby authorize the City Manager to inform CaIPERS of the City's election to combine the Fire Safety and Police Safety pension plans. ADOPTED this day 12004. AYES: NOES: ABSENT: ATTEST: CITY OF PALM SPRINGS, CALIFORNIA By City Clerk City Manager REVIEWED & APPROVED AS TO FORM 713