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HomeMy WebLinkAboutIR 10155 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10155 To the Mayor and Members of the City Council June 5, 2018 Page 1 of 2 RL i7 Y *a SUBJECT: PENSION REFORM SCHEDULE AND STEPS FORWARD rFrn Yg7'3 The City Manager's Pension Task Force has been working for several years on the next round of pension reforms to restore the solvency of the Fund. In November 2017, the City Manager presented a proposal that assumed both employer and employee contribution increases while also modifying the cost-of-living adjustments for current and future retires. The plan differentiated among employee groups and between service under the old benefit formula and service under the current benefit formula. At the request of Task Force members, a variety of additional scenarios continue to be evaluated. The Task Force continues to work on different scenarios and will meet again later in June. At the same time, the City Manager has outlined a schedule to meet several objectives. The objectives include: • Identifying solutions (employer contributions)which may need to be included in the FY2019 recommended budget; • Scheduling an employee vote to occur before December 2018, so that the city knows whether a non- legislative solution is possible prior to the 2019 legislative session; and • Developing solutions which can be implemented on or before January 1, 2019. A key component of the schedule is the 90-day notification of intended pension changes to the Fort Worth Employees' Retirement Fund(FWERF) as required by State statute. The recommended schedule is a follows: June 12, 2018 Notification of potential pension changes to the FWERF August 7, 2018 City Manager's recommendation to the City Council September 18, 2018 Ordinance identifying potential pension charges approval by City Council, to be effective upon a successful employee election November 2018 Employee vote for contribution increases First Quarter 2019 Pension changes effective In order to ensure that an employee vote is possible this fall prior to the upcoming legislative session, it is necessary for the City to proceed with providing 90-day notice to the Fund that benefit modifications are being considered. What follows are the pension modifications which have been evaluated by the Task Force; they include: I. To reduce or eliminate future accruals of Cost of Living Adjustments (ad hoc and 2%) for all Participating Retirees,Participating Members,Vested Terminated Members and for all Beneficiaries; 2. To eliminate future accumulated future sick leave and major medical leave from the calculation of credited service for leave accumulated; 3. To increase minimum retirement age upon which both current and future members become eligible to draw benefits; and ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10155 To the Mayor and Members of the City Council June 5, 2018 Page 2 of 2 RL i7 Y *a SUBJECT: PENSION REFORM SCHEDULE AND STEPS FORWARD rFrn Yg7'3 4. To extend the Rule of 80 upon which both current and future members become eligible to draw benefits. We anticipate that not all of these options will be adopted. However, staff will present a resolution on June 12, 2018,recommending that the City provide notice on all of the options currently being considered. This will provide maximum flexibility as discussions with the Task Force continue and a final recommendation is formulated. Background As a reminder, over the course of the last decade, the City Council increased the City's contribution by a combined 9% of payroll during the last eight years while not requiring additional contributions from members. Benefits were reduced for future service of existing employees and new employees, resulting in a sustainable benefit structure for future liabilities. However, the accrued unfunded liability still presents a challenge as the Fund has continued to fall short of projected investment returns. As a result, the City Manager's Task Force was formed to determine what additional reforms are necessary to ensure sustainability of the Fund. In this light, the group was provided a 25-year context of decisions made that led to this situation to point out the challenges of decreases in contributions,retroactive increases in benefits, and optimistic long-term rate-of-return assumptions. During the past two years, the City's credit-rating was downgraded twice, primarily due to the Unfunded Liability of the pension and the projection that the Fund will run out of money in 2040—2050 timeframe. As noted, the June 12th City Council agenda will include a resolution signaling 90-day notice to the Fund of changes that are still under consideration. This does not reflect a final decision; rather it starts the clock to reserve adequate time in the fall for a final ordinance, a contribution increase vote among members, implementation of changes so as to be effective, January 1, 2019, and preparation for the legislative session if needed. The adoption of the ordinance will be scheduled on September 18th Please let me know if you have any additional questions. David Cooke City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS