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HomeMy WebLinkAbout10/1/2003 - STAFF REPORTS (15) Date: October 1, 2003 To: City Council From: Director of Human Resources via City Manager SUBJECT: CALIFORNIA PUBLIC EMPLOYEES RETIREMENT SYSTEM FIRE SAFETY EMPLOYEES RECOMMENDATION: It is recommended that City Council give notice of its intention to approve an Amendment to the Contract between the Board of Administration of the California Public Employees' Retirement System (CaIPERS) and the City Council of the City of Palm Springs. SUMMARY: City Council adopted Resolution 19875 on July 19, 2000, which approved a Memorandum of Understanding with the Palm Springs Fire Safety Unit (PSFSU). Article 1 of this Memorandum of Understanding agrees to contract with CaIPERS for the 3% @ 50 Full formula for members of the PSFSU effective January 2004. BACKGROUND: Representatives of the Palm Springs Fire Safety Unit (PSFSU) representing the Fire Safety Unit, met with the Municipal Employee Relations Representative (MERR), representative of the City of Palm Springs. On July 19, 2000, the PSFSU signed a Memorandum of Understanding, which agreed to amend the formula for the California Public Employees' Retirement System (CaIPERS) to 3% @ 50 Full formula for local fire members only. The Resolution of Intent and the Ordinance amending the CaIPERS contract are actions that must be certified by City Council to comply with CaIPERS contract amendment procedures. Pursuant to Government Code Section 7507, attached is the amendment actuarial valuation for the proposed contract amendment, which was prepared by CaIPERS. The additional employer contribution rate is 14.654% for local fire members only. Based on this rate increase, the estimated increased cost will be about $610,000 per year. The additional cost is already included in the FY 03-04 adopted budget. SUSAN E. MILLS Director of Human Resources � 1 APPROVED City"V1 '�'�agei REVIEWED BY DK OF FINANCE ATTACHMENTS: 1. CaIPERS Contract Amendment Cost Analysis 2. Resolution of Intention to Approve an Amendment to Contract 3. Ordinance Authorizing an Amendment to the Contract I;tA CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS:JUNE 30,2001 SAFETY FIRE PLAN FOR CITY OF PALM SPRINGS EMPLOYER NUMBER 355 Benefit Description:21362.2,3% @ 50 Full Formula for Local Safety Members Present Value of Projected Benefits The table below shows the change in the total present value of benefits for the proposed plan amendment. The present value of benefits represents the total dollars needed today to fund all future benefits for current members of the plan, i.e. without regard to future employees. The difference between this amount and current plan assets must be paid,by future employee and employer contributions. As such, the change in the present value of benefits due to the plan amendment represents the"cost"of the plan amendment. However, for plans with excess assets some or all of this "cost"may already be covered by current excess assets. As of June 30,2001 Current Plan Post-Amendment Total Assets at Market Value(MVA) $ 38,035,096 $ 38,035,096 Actuarial Value of Assets(AVA) 40,195,163 40,195,163 AVA/MVA 105.7% 105.7% Present Value of Projected Benefits(PVB) $ 44,341,329 $ 48,930,828 Actuarial Value or Assets(AVA) 40.1 55.163 40.1 55 163 Present Value of Future Employer and Employee Contributions(PVB—AVA) $ 4,146,166 $ 8,735,665 Change to PVB 4,589,499 Accrued Liability It is not required,nor necessarily desirable, to have accumulated assets sufficient to cover the total present value of benefits until every member has left employment Instead, the actuarial funding process calculates a regular contribution schedule of employee contributions and employer contributions (called normal costs)which are designed to accumulate with interest to equal the total present value of benefits by the time every member has left employment. As of each June 30, the actuary calculates the "desirable" level of plan assets as of that point in time by subtracting the present value of scheduled future employee contributions and future employer normal costs from the total present value of benefits. The resulting "desirable"level of assets is called the accrued liability. A plan with assets exactly equal to the plan's accrued liability is simply"on schedule"in funding that plan, and only future employee contributions and future employer normal costs are needed. A plan with assets below the accrued liability is "behind schedule", or is said to have an unfearded liability, and must temporarily increase contributions to get back on schedule. A plan with assets in excess of the plan's accrued liability is "ahead of schedule", or is said to have excess assets, and can temporarily reduce future contributions. A plan with assets(AVA)in excess of the total present value of benefits is called super- funded, and neither future employer nor employee contributions are required. Of course, events such as plan amendments and investment or demographic gains or losses can change a plan's condition from year to year. For example, a plan amendment could cause a plan to move all the way frorn being super-funded to being in an unfunded position. January 21,2003 Page 1 of 5 . 9:21 AM CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS:JUNE 30,2001 SAFETY FIRE PLAN FOR CITY OF PALM SPRINGS EMPLOYER NUMBER 355 Benefit Description:21362.2,3% @ 50 Full Formula for Local Safety Members The changes in your plan's accrued liability, unfunded accrued liability, and the funded ratio as of June 30, 2001 due to the plan amendment are shown in the table below. As of June 30,2001 Current Plan Post-Amendment Entry Age Normal Accrued Liability(AL) $ 36,346,950 $ 40,533,540 Actuarial Value of Assets(AVA) 40,195 163 40,195,163 Unfunded Liability/(Excess Assets)(UAL=AL-AVA) $ (3,848,213) $ 338,377 Funded Ratio(AVA/AL) 110.6°Io 99.2% Change to AL 4,186,590 Total Employer Contribution Rate While the tables above give the changes in the accrued liability and funded status of the plan due to the amendment,there remains the question of what will happen to the employer contribution rate because of the change in plan provisions. CalPERS policy is to implement rate changes due to plan amendments immediately on the effective date of the change in plan benefits. This change is displayed as the"Change to Total Employer Rate"on the following page. If the contract amendment effective date is on or before June 30, 2003, the change in the employer contribution rate should be added to the employer's current rate. In general, the policy also provides that the change in unfunded liability due to the plan amendment will be separately amortized over a period of 20 years from the effective date of the amendment and all other components of the plan's unfunded liability/excess assets will continue to be amortized separately. However, your actuary may choose to apply different rules to plans with a current employer contribution rate of zero. The pre-amendment excess assets in these plans were sufficient to cover the employer's normal cost for one or more years into the future. A plan amendment will use up some or all of the pre- amendment excess assets. In order to maintain our goal of providing rates that are relatively stable, while taking into account known or expected future events, your actuary may decide to spread any remaining excess assets over a single number of years. This is known as a"fresh start"and will generally be for a period not less than 15 years, and in no case less than 5 years. You may call your actuary to discuss further alternative financing options. If the amendment uses up all excess assets and creates an unfunded liability (i.e. from being ahead of schedule to behind schedule), the total post-amendment unfunded liability may be amortized over 20 years. In no case may the annual contribution with regard to a positive unfunded liability be less than the amount which would be required to amortize that unfunded liability, as a level percent of pay, over 30 years. The table on the following page shows the change in your plan's employer contribution rate due to the plan amendment for fiscal 2003-2004. A 5 January 21,2003 Page -- 9:21 AM CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS:JUNE 30,2001 SAFETY FIRE PLAN FOR CITY OF PALM SPRINGS EMPLOYER NUMBER 355 Benefit Description:21362.2,3% @ 50 Full Formula for Local Safety Members As of June 30,2001 Current Plan Post-Amendment 2003-2004 Employer Rate Payment for Normal Cost 12.622% 17.458% Payment on Amortization Bases -4.273% 5.545% Payment for 1959 Survivor Benefit Program 0.000% 0 000% Total Employer Rate 8.349% 23.003% Change to Normal Cost 4.836% Change to Total Employer Rate 14.654% Current Amortization Base I Multiple Base Amendment Amortization Base -Fresh Start z N/A -Multiple Base 3 20-year 2003-2004,Employee Rate Total Employee Rate 9.000% 9.000% Change to Total Employee Rate 0.000% 2004.2005 Estimated Employer Rate'(recognizing—6%a 20.0% 34.6% investment return for 2001-2002) Projection Amortization Base Multiple Base Multiple Base 1—Details of the current ammttizatiou base are shown on page 7 of June 30,2001 annual valuation report. If you have adopted any other subsequent amendments,the current amortization base is the schedule after these adopted amendments. 2- If a fixed number of years is shown,it means that the current unfunded actuarial liability is projected and amortized over this fixed number of years This amortization replaces the amortization schedule shown in your June 30,2001 annual valuation and any other subsequent amendments you have adopted. 3- If 20-year is shown,it means that the change in liability due to plan amendments is amortized separately over a 20-year period. This amortization schedule is in addition to the amortization schedule shown in the June 30,2001 annual valuation and any other subsequent amendments you have adopted. 4- Excludes 1959 Survivor Benefit Program rate In the above table,the information shown in the 2003-2004 box represents the actual initial contribution rate that will apply during fiscal 2003-2004 if you adopt the amendment. However,these figures do not incorporate the—6% investment return in 2001-2002. The estimated employer rates shown in the 2004-, 2005 box do take the negative return into consideration and will give you a better estimate of what to expect in 2004-2005. Note that the change in normal cost in the table above may be much more indicative of the long term change in the employer contribution rate due to the plan amendment. The plan's payment on amortization bases shown in the table above is a temporary adjustment to the employer contribution to "get the plan back on schedule". This temporary adjustment to the employer rate varies in duration from plan to plan. For example, a plan with initial excess assets being amortized over a short period of time will typically experience a large rate increase when excess assets are fully amortized. While a plan amendment for such a plan may produce little or no increase in the employer contribution rate now,the change in normal cost due to the plan amendment will become fully reflected in the employer contribution rate as soon as initial excess assets are fully amortized. January 21,2003 Page 3 of 5 9:21 AM CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS:JUNE 30,2001 SAFETY FIRE PLAN FOR CITY OF PALM SPRINGS EMPLOYER NUMBER 355 Benefit Description:21362.2,3% @ 50 Full Formula for Local Safety Members Disclosure If your agency is requesting cost information for two or more benefit changes,the cost of adopting more than one of these changes may not be obtained by adding the individual costs. Instead, a separate valuation must be done to provide a cost analysis for the combination of benefit changes. If the proposed plan amendment applies to only some of the employees in the plan,the rate change due to the plan amendment still applies to the entire plan, and is still based on the total plan payroll. Any mandated benefit improvements not included in the June 30, 2001 annual valuation have not been incorporated into this cost analysis. Please note that the cost analysis provided in this document may not be relied upon once the CalPERS actuarial staff have completed the next annual valuation, that is,the annual valuation as of June 30, 2002. If you have not taken action to amend your contract, and we have already completed the June 30, 2002 annual valuation report, you must contact our office for an updated cost analysis,based on the new annual valuation. Descriptions of the actuarial methodologies, actuarial assumptions, and plan benefit provisions may be found in the appendices of the June 30, 2001 annual report. Please note that the results shown here are subject to change if any of the data or plan provisions change from what was used in this study. Certification This actuarial valuation for the proposed plan amendment is based on the participant, benefits, and asset data used in the June 30, 2001 annual valuation, with the benefits modified if necessary to reflect what is currently provided under your contract with CalPERS,and further modified to reflect the proposed plan amendment. The valuation has been performed in accordance with standards of practice prescribed by the Actuarial Standards Board, and the assumptions and methods are internally consistent and reasonable for this plan, as prescribed by the CaIPERS Board of Administration according to provisions set forth in the California Public Employees'LRetirement Law. rM�r° z✓tn I )be David DuBois,F.S.A. Associate Pension Actuary,CaIPERS Fin Process Ids: Annual-105504 Base-122991 Proposal-122992 January 21,2003 Page 4 of 5 9:21 AM CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS:JUNE 30,2001 SAFETY FIRE PLAN FOR CITY OF PALM SPRINGS EMPLOYER NUMBER 355 Benefit Description:21362.2,3% @ 50 Full Formula for Local Safety Members Summary of Plan Amendments Valued COVERAGE GROUP 74001 Pre-Amendment • The Service Retirement benefit calculated for service earned by this group of members is a monthly allowance equal to the product of the 2% @ 50 benefit factor, years of service, and final compensation. (Final compensation is reduced by$133.33 per month for members with a modified formula). The benefit factors for retirement at integral ages are shown below: Retirement 2%at 50 Ace Factor 50 2.000% 51 2.140% 52 2.280% 53 2.420% 54 2.560% 55 and older 2.700% Post-Amendment • The Service Retirement benefit calculated for service earned by this group of members is a monthly allowance equal to the product of the 3% @ 50 benefit factor, years of service, and final compensation. (Final compensation is reduced by $133.33 per month for members with a modified formula). The benefit factors for retirement at integral ages are shown below: Retirement 3%at 50 Ace Factor 50 3.000% 51 3.000% 52 3.000% 53 3.000% 54 3,000% 55 and older 3.000% 1A14& January 21,2003 Page 5 of 5 9:21 AM RESOLUTION NO, OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, DECLARING ITS INTENTION TO APPROVE AN AMENDMENT TO CONTRACT BETWEEN THE BOARD OF ADMINISTRATION OF THE CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE .CITY COUNCIL OF THE CITY OF PALM SPRINGS. 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 21362.2 (3% @ 50 Full formula)for local fire members only. NOW, THEREFORE, BE IT RESOLVED that the governing body of the above agency does hereby give notice of its 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" and by this reference made a part hereof, as on file in the office of the City Clerk. ADOPTED this day of 2003. AYES: NOES: ABSENT: ATTEST: CITY OF PALM SPRINGS, CALIFORNIA By CITY CLERK CITY MANAGER REVIEWED &APPROVED: ORDINANCE NO. AN ORDINANCE OF THE CITY OF PALM SPRINGS, CALIFORNIA, AUTHORIZING AN AMENDMENT TO CONTRACT BETWEEN THE BOARD OF ADMINISTRATION OF THE CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE CITY COUNCIL OF THE CITY OF PALM SPRINGS. THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, DOES ORDAIN AS FOLLOWS: SECTION 1. That an amendment to the contract between the City Council of the City of Palm Springs and the Board of Administration of the California Public Employees' Retirement System is hereby authorized, a copy of said amendment being attached hereto, marked Exhibit, and by such reference made a part hereof as though herein set out in full, as on file in the office of the City Clerk. SECTION 2. The Mayor of the City of Palm Springs is hereby authorized, empowered, and directed to execute said amendment for and on behalf of said Agency. SECTION 3. This Ordinance shall be in full force and effect January 1, 2004. SECTION 4. The City Clerk is hereby ordered and directed to certify to the passage of this Ordinance, and to cause the same or a summary thereof or a display advertisement, duly prepared according to the law, to be published in accordance with law. ADOPTED this day of 2003. AYES: NOES: ABSENT: ATTEST: CITY OF PALM SPRINGS, CALIFORNIA By CITY CLERK MAYOR REVIEWED &APPROVED: