HomeMy WebLinkAbout3/19/2003 - STAFF REPORTS (7) Date: March 19, 2003
To: City Council
From: Director of Human Resources via City Manager
SUBJECT: CALIFORNIA PUBLIC EMPLOYEES RETIREMENT SYSTEM
POLICE 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 19873 on July 19, 2000, which approved a Memorandum
of Understanding with the Palm Springs Police Officers Association (PSPOA). Article
34.1 of this Memorandum of Understanding agrees to contract with CaIPERS for the 3%
@ 50 Full formula for members of the PSPOA effective June 2003.
BACKGROUND:
Representatives of the Palm Springs Police Officers Association (PSPOA) representing
the Police Safety Unit, met with the Municipal Employee Relations Representative
(MERR), representative of the City of Palm Springs. On July 19, 2000, the PSPOA 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 police
members. 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 contract amendment cost
analysis prepared by CaIPERS, reflecting an additional 5.182% to the employer
contribution rate, with an estimated total employer rate of 22.303% for local police
members only. Based on this rate increase, the estimated increased cost will be about
$325,000 per year.
SUSAN E. MILLS
Director of Human Resources
APPROVED:
City Manager ��
ATTACHMENTS: CaIPERS Contract Amendment Cost Analysis
Resolution of Intention to Approve an Amendment to Contract
Ordinance Authorizing an Amendment to the Contract 8/?
CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS:NNE 30,2001
SAFETY POLICE 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) $ 56,407,355 $ 56,407,355
Actuarial Value of Assets(AVA) 60,835,528 60,835,528
AVA/MVA 107.9% 107.9%
Present Value of Projected Benefits(PVB) $ 72,401,438 $ 74,907,693
Actuarial Value of Assets(AVA) 60M5.528 60,835 528
Present Value of Future Employer and Employee
Contributions(PVB—AVA) $ 11,565,910 $ 14,072,165
Change to PVB 2,506,255
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 unfunded 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 from being super-funded
to being in an unfunded position.
January 21,2003 Page 1 of 5 WJ
9:20 AM
CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS:JUNE 30,2001
SAFETY POLICE PLAN FOR CITY OF PALM SPRINGS
EMPLOYER NUMBER 355
Benefit Description: 21362.2,3% @ 50 Full Formula for Local Safety Members
Tlie`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) $ 60,553,997 $ 62,643,456
Actuarial Value of Assets(AVA) 60,835,528 60,835,528
Unfunded Liability/(EXCess Assets)(UAL=AL-AVA) $ (281,531) $ 1,907,928
Funded Ratio(AVA/AL) 100.5% 97.1%
Change to AL 2,089,459
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.
Ca1PERS 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.
January 21,2003 Page 2 of 5
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I
CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS:JUNE 30,2001
SAFETY POLICE 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 16.240% 18,231%
Payment on Amortization Bases 0.881% 4.072%
Payment for 1959 Survivor Benefit Program 0.000% 0.000%
Total Employer Rate 17.121% 22.303%
Change to Normal Cost 1.991%
Change to Total Employer Rate 5,182%
Current Amortization Base 1 20-year
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% 31.0%
36.2%
.- investment return for 2001.2002)
Projection Amortization Base Multiple Base Multiple Base
1—Details of the current amortization base me 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. 8 ^Z/
ao
January 21,2003 Pe 3 of 5
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CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS:JUNE 30,2001
SAFETY POLICE 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 CalPERS Board of Administration according to provisions set forth in the
California Public
Pblic Employees' Retirement Law.
,
David Du Bois,F.S.A.
Associate Pension Actuary,CaIPERS
Fin Process Ids: Annual-107161 Base-122996 Proposal-122997 �� C
January 21,2003 Page 4 of 5 J
9.20 AM
CONTRACT AMENDMENT COST ANALYSIS-VALUATION BASIS:JUNE 30,2001
SAFETY POLICE 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 75001
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 3% @ 55 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 55
Ace Factor
50 2.400%
51 2.520%
52 2.640%
53 2.760%
54 2.880%
55 and older 3.000%
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%
January 21,2003 Page 5 of 5
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California
Public Employees' Retirement System
AMENDMENT TO CONTRACT
Between the
Board of Administration
California Public Employees' Retirement System
and time
City Council
City of Palm Springs
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
January 1, 1957, and witnessed December 3, 1956, and as amended effective July 14,
1965, January 14, 1973, January 1, 1975, September 5, 1976, July 10, 1977, October
15, 1978, April 29, 1979, February 27, 1983, July 1, 1984, June 29, 1986, April 18,
1998, August 23, 1998, April 18, 1999, August 19, 2001 and April 28, 2002 which
provides for participation of Public Agency in said System, Board and Public Agency
hereby agree as follows:
A. Paragraphs 1 through 13 are hereby stricken from said contract as executed
effective April 28, 2002, and hereby replaced by the following paragraphs
numbered 1 through 14 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 and age 50 for local safety
members.
DU NOT SIGN "E�fi' 91B1 ( UN"D,
2. Public Agency shall participate in the Public Employees' Retirement
System from and after January 1, 1957 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.
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:
NO ADDITIONAL EXCLUSIONS
5. The percentage of final compensation to be provided for each year of
credited prior and current service for local miscellaneous members in
employment before and not on or after April 28, 2002 shall be determined
in accordance with Section 21354 of said Retirement Law, subject to the
reduction provided therein for service prior to December 31, 1974,
termination of Social Security, for members whose service has been
included in Federal Social Security (2% at age 55 Full and Modified).
6. The percentage of final compensation to be provided for each year of
credited prior and current service for local miscellaneous members in
employment on or after April 28, 2002 shall be determined in accordance
with Section 21354.5 of said Retirement Law, subject to the reduction
provided therein for service prior to December 31, 1974, termination of
Social Security, for members whose service has been included in Federal
Social Security (2.7% at age 55 Full and Modified).
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 21362 of said Retirement Law (2%
at age 50 Full).
0��
8. 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 21362.2 of said Retirement Law
(3% at age 50 Full).
9. Public Agency elected and elects to be subject to the following optional
provisions:
a. Sections 21624, 21626 and 21628 (Post-Retirement Survivor
Allowance).
b. Section 21024 (Military Service Credit as Public Service), Statutes
of 1974.
C. Section 20042 (One-Year Final Compensation).
d. Section 20965 (Credit for Unused Sick Leave) for local fire
members only.
e. Section 21574 (Fourth Level of 1959 Survivor Benefits).
10. Public Agency, in accordance with Government Code Section 20790,
ceased to be an "employer" for purposes of Section 20834 effective on
September 5, 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.
11. 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,
12. 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 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 miscellaneous members and local safety members.
b. 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.
306y
Y
l
C. 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.
13. 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.
14. 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 the day of
BOARD OF ADMINISTRATION CITY COUNCIL
PUBLIC EMPLOYEES' RETIREMENVSYSTEM CITY OF PALM SPRINGS
4+hyy'
BY `' BY 4,
KENNETH W. MARZION, GRIEF PRESIDING OFFI� R
ACTUARIAL & EMPLOYER,6ERVICES DIVISION r� s
PUBLIC EMPLOYEE,5;�RETIREMENT SYSTEM 4"
F�hh:. Ceti.
Witness 6a#e
Attest`,
Clerk
AMENDMENT ER#0355
PERS-CON-702A(Rev.8\02) � n�
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 police
members.
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:
V
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 thirty(30) days after passage.
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: