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HomeMy WebLinkAboutOrdinance 6393 ORDINANCE NO. JaLl AN ORDINANCE AMENDING ORDINANCE NO. 5226, SAME BEING AN ORDINANCE ESTABLISHING AND PROVIDING FOR A RE- TIREMENT PLAN AND BENEFITS THEREUNDER FOR CERTAIN OFFICIALS AND EMPLOYEES OF THE CITY OF FORT WORTH, BY ADDING TO SECTION 2 THEREOF A DEFINITION OF "PRICE INDEX, " BY AMENDING SECTION 6, CREDITED SERVICE, AND BY ADDING TO SECTION 9 PROVISIONS FOR COST OF LIVING ADJUSTMENTS; PRESCRIBING THE MANNER OF COMPUTING BENEFITS; MAKING THIS ORDINANCE CUMU- LATIVE OF ALL OTHER RETIREMENT ORDINANCES; PROVID- ING A SEVERABILITY CLAUSE, AND NAMING AN EFFECTIVE DATE. BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF FORT WORTH, TEXAS: SECTION 1. That Section 2, Definitions, of Ordinance No. 5226 be and the same is hereby amended by adding thereto Paragraph 16, a definition of "Price index," so that hereafter Section 2 shall be and read as follows: SECTION 2. DEFINITIONS 1. "Credited service" shall mean the number of years and completed months of service for which a participating employee receives com- pensation from the City of Fort Worth up to the date of his actual retirement. 2. "Employees eligible for participation" in the Retirement Fund shall include all regular employees of the City of Fort worth except the following employees who shall not be eligible for participation in the Retirement Fund: a. Elective officers and non-salaried, appointive members of administrative boards and commissions, except em- ployee members of such boards. b. Persons employed under contract for a definite period or for performance of a particular, special service. c. Employees serving on a part-time basis of less than one-half time. d. Employees who are paid in ,part by the County, State or other governmental agency, and only in part by the City. e. Employees of the Board of Education, f. Employees who retain membership in any other local municipal or State Retire- ment Fund. g. Persons carried on the payroll as tem- porary employees. Whether or not any employee is a temporary or permanent employee shall be determined by the record of the appointment. Any employee, the department head or any other in- terested person may appeal to the Board of Trustees of the Retirement Fund for a determination as to any person's eligi- bility to become a member of the Fund. 3. "City" shall mean the City of Fort Worth, Texas. 4. "Fund" shall mean "The Employees' Retirement Fund of the City of Fort Worth, Texas." 5. "Board" shall mean the Board of Trustees of the Employees' Retirement Fund of the City of Fort Worth, Texas. 6. "Administrator" shall mean the individual ap- pointed by the City Manager, subject to the approval of the Board of Trustees, to super- vise the operation of the Fund. 7. "Members" shall mean the eligible employees of the City of Fort Worth who are members of the Retirement Fund. 8. "Beneficiary" shall mean any ,person in receipt of a retirement benefit or any other benefit provided in the ordinance. 9. "Regular interest" shall mean interest at the rate of two ,per cent (2%) per annum, compounded annually, from the end of the Plan year in which each contribution is made up to the end of the Plan year preceding the date upon which such interest becomes payable. 10. "Retirement benefit" shall mean a ,pension for life, as provided in the ordinance, payable each -2- year in twelve (12) equal monthly installments, beginning as of the date fixed by the Board in accordance with the provisions of this ordinance. 11. "Actuary" shall mean the individual or organi- zation retained by the City to provide annual actuarial valuations of the Retirement Fund. 12. "Actuarial tables" shall mean such tables of mortality, interest rates, turnover discounts, salary scales, etc., as shall be used by the Actuary with approval of the Board. 13. "Termination of employment" shall mean com- plete severance of employment of any member as an employee of the City by any act or means except death, total disability or re- tirement. 14. The masculine pronoun, wherever used herein, shall include the feminine pronoun. 15. "Fiscal year" shall mean the ,period from Octo- ber 1st of one year through September 30th of the following year. 16. "Price index" shall mean the annual average for each year ending September 30th of the Consumer Price Index (all items - United States City Average) published monthly by the Bureau of Labor Statistics, U. S. Depart- ment of Labor or its successor in function. SECTION 2. That Section 6, Credited Service, of Ordinance No. 5226 be and the same is hereby amended so that the same shall be and read as follows: SECTION 6. CREDITED SERVICE Pension credits shall be granted for all years and completed months of service for which a member of the Fund receives compensation from the City up to the date of his actual retirement, subject to the following regulations pertaining to service breaks: a. Authorized service breaks up to ninety (90) days shall not be deducted from credited service, provided member contribu- tions are continued during such ,periods, -3- in which event City contributions shall also be continued. b. Periods of absence in excess of ninety (90) days shall be deducted from credited service, and no contributions shall be made bymem- bers or by the City during such periods. c. An absence of twelve (12) or less consecutive months due to layoff or authorized leave shall be permitted without loss of prior service credits; a period of absence exceed- ing twelve (12) months (except for bona fide illness or military service as hereinafter provided for) shall cancel all prior service, except, however, if a member is absent for a period exceeding twelve (12) months but not exceeding five (5) years, he may regain his prior service credits by remaining in active City employment for a period equal to or greater than five (5) times the period of absence and repaying the total amount of all contributions withdrawn, plus two per cent (21A) compound interest from the date of with- drawal to the date of repayment. d. A member who is absent because of bona fide illness shall not lose his eligibility for retirement, disability or death benefits, nor suffer loss of prior credited service while so absent, even though such absence ex- ceeds twelve (12) months. Such absences be- yond ninety (90) days shall, however, be de- ducted from years and months of service in computing percentage pension credits and in determining total years of service to be credited in computing a minimum pension. e. A member absent for service in the Armed Forces of the United States, with the excep- tion of those employees involuntarily recalled to active duty in time of a National Emergency', shall be granted service credit for such ab- sence for a period not to exceed two (2) years, provided that any such member shall not have withdrawn his contributions to the Fund. Mem- bers involuntarily- recalled to active duty in the Armed Forces during a National Emergency shall be granted service credit tor such ab- sence provided that such member resumes his employment with the City within one hundred twenty (120) days after date of his first be- coming eligible for release to inactive duty or discharge, and provided further that such member has not withdrawn his contributions to the Fund. -4- f. For purposes of this section, service for fifteen (15) or more days in any month shall constitute a completed month of service; absence for fifteen (15) or more days in any month shall constitute a completed month of absence. SECTION 3. That Section 9, Retirement Pensions, of Ordinance No. 5226 be and the same is hereby amended by adding thereto Paragraph 3, providing for cost of living adjustments and the manner of computing benefits, so that hereafter Section 9 shall be and read as follows: SECTION 9. RETIREMENT PENSIONS 1. Pension Commencing on or after Normal Retire- ment Date A member who retires on or after his normal retirement date, or who retires early and requests commencement of his pension at normal retirement date, shall receive an annual life pension, the amount of which shall be one and two-thirds per cent (1-2/3%) of his compensation base multi- plied by his total credited service to date of actual retirement, payable on the first day of each month commencing with the month following the last month for which such member receives compensation from the City. 2. Pension Commencing at Early, Retirement Date A member who retires early in accordance with the provisions of Section 7 and who elects to receive retirement income commencing prior to his normal retirement date shall receive a monthly life pension, the amount of which shall be one and two-thirds per cent (1-2/3%) of his compensation base multiplied by his total credited service to date of early re- tirement, reduced by, five-twelfths per cent (5/12%) for each month by which commencement of the pension antedates the earlier of mem- ber's reaching age sixty (60) or completing thirty-five (35) years of credited service. Such pension shall be payable on the first day of each month commencing with any month fol- lowing the last month for which such member receives compensation from the city. -5- 3. Cost of Living Adjustments a. Effective January 1, 1971, all re- tired members of the Fund and those entitled to benefits as survivors of members thereof will receive a cost-of-living increase in their base pension in accordance with the fol- lowing table: Members Who Were Retired Percentage Increase or of Survivors Who Became Entitled to Benefits Base Pension On or before September 30, 1966 10 per cent During the year ended September 30, 1967 8 per cent During the year ended September 30, 1968 6 per cent During the year ended September 30, 1969 4 per cent During the year ended September 30, 1970 2 per cent b. Annually, effective January 1, 1972, and on the first day of each January, thereafter, a cost-of-living adjust- ment shall be made on all base pen- sions of all members of the Fund who have retired, or their survivors who have become entitled to benefits on or before September 30th of any pre- ceding year, by adjusting the base pension up or down by the amount of the change in the price index over the previous year, or by two per cent (20/0 , whichever is the smaller; pro- vided that in no event shall any member's pension or any survivor's benefits be reduced below the base pension. SECTION 4. The provisions of this ordinance shall be cumulative of and in addition to all other ordinances of the City of Fort Worth relating to pensions, which ordinances are hereby pre- served and continued in force and effect, provided, however, that in the event of any conflict, the provisions of this ordinance shall control. SECTION 5. If any provision, section, part, subsection, sentence, -6- clause, phrase or paragraph of this ordinance be declared in- valid or unconstitutional, the same shall not affect any other portion or provision hereof, and all other provisions shall remain valid and unaffected by any invalid ,portion, if any; and the City Council now says that if it had known at the time of the passage of this ordinance that any, portion of said ordinance was invalid, it would not have adopted such invalid part. SECTION 6. The City Council finds that all acts, conditions and things required by the provisions of the Constitution of Texas and the Charter and ordinances of the City of Fort Worth ,precedent to and in the adoption of this ordinance have been done, have happened and have been performed in proper and lawful time and manner. SECTION 7. This ordinance shall be in full force and effect from and after the date of its adoption, and it is so ordained. APPROVED AS TO FORM AND LEGALITY: City Attorney Adopted this _ G day of /10 tlel1','/�c�r 197�. -7- i u CITY OF FORT WORTH RETIREMENT FUND SPECIAL REPORT ON COST-OF-LIVING ADJUSTMENTS i r September 23, 1970 A. S. HANSEN, INC. Atlanta * Boston a Chicago a Dallas * Denver * Fort.Worth Houston a Los Angeles a Memphis a Milwaukee a New York a Oklahoma City General Offices: Lake Bluff, Illinois r r A. S . Hansen inc. r ' COST-OF-LIVING ADJUSTMENTS In our report dated November 8, 1968, we presented the following summary of our cost-of-living analysis: An annual adjustment related to the Consumer Price Index but limited to 2% would seem appropriate based on recent inflationary trends. An initial increase of 2% per year retired would also be desirable. The cost of these com- bined adjustments would be $409,334 in the current year and would gradually increase as the number of retired members increased. When added to the $240,000 present imbalance, the actuarial soundness of the fund would be jeopardized. If the additional cost could be financed, either by additional contributions or additional income, we would again regard the fund as essentially sound. A In making our current analysis, we have concentrated on three factors which were significant elements leading to 1968 conclusions, namely: 1. The actuarial status of the present retirement system, 2. The investment rate of return of the fund, and 3. The form of the cost-of-living adjustment. The $240,000 deficit in annual funding as of September 30, 1967was reduced to $174,000 as of September 30, 1968 and $145,000 as of the most recent valuation. This is a noteworthy improvement in the funding status of the basic system. Our 1968 measurement of the investment return on the fund was based on an historical comparison of dividend and interest income and realized capital gains with the cost value of assets. Since 19681 two major studies of techniques for measuring investment results have been completed. These studies, by the Bank Administration Institute and the National Foundation of Health, Welfare, and Pension Plans, have resulted in general agreement among fund sponsors and managers on certain principles. _ It is now commonly accepted that because market value is the best available estimate of the true worth of a fund's assets, the soundest approach to the measurement of s tw A. S . Hansen , inc. r^ performance is to develop rates of total investment return based on market value. Total return, which includes unrealized appreciation and depreciation as well as interest and dividend income and realized capital gains and losses, is attributed to the period in which it is obtained. This eliminates distortions occurring in rates which ignore un- realized investment increments. w In preparing our current analysis of the cost-of-living question, we have applied the principles developed in these studies. We would have preferred to base our measurement of the fund's recent rate of return on quarterly data. However, sufficient information was not readily available on this basis and, consequently, our analysis is based on the annual data supplied by your auditor. Because of the fairly regular cash r' flow in the fund throughout each year we do not feel that this deficiency impairs the validity of our conclusions. Table I shows the rate of return for each of the five years from October 1, 1964 to September 30, 1969 on the bonds, stocks, all other investments, and the total fund. To conform to the available data, bonds include both ordinary and convertible issues, and preferred stocks are included with common stocks. "Other" investments are generally of a fixed income type, including VA and FHA mortgage loans and Farmers Home Administration notes, which have generally accounted for about 10% of the fund. TABLE I a TIME WEIGHTED RATE OF RETURN Years Ended September 30 Bonds Stock Other Total _ 1965 3.95% 7.80% 1 .08% 4.97% 1966 -5.89 -12.09 5.36 -6.98 1967 3-.70 29.39 11 .40 16.43 1968 2.35 15.86 5. 12 9.83 1969 -7. 17 - 6. 13 5.59 -5.42 1965-1969 -0.73% 5.93% 5.66% 3.38% -2- A. S . Hansen , inc . The rates of return shown for the five-year period are time-weighted. That is, the rates of return for each individual year have been geometrically linked and converted to an equivalent annual rate of return. The five-year rates of return, therefore, do not reflect increases or decreases in the volume of assets in any particular category. To evaluate probable future investment return requires an examination of each segment of the fund individually. Table II compares the annual rate of return on the stock portion of the portfolio with the returns which would have been achieved had the some amount of money been "invested" in the Standard & Poor's 500 Stock Average. This comparison indicates that the stock portion of the City Retirement Fund "outperformed" this recognized index over thefive-year period by 18%, returning 5.93% versus 5.01%. The performance for the period October 1, 1967 through September 30, 1968 contributed significantly to this result. TABLE II EQUIVALENT LEVEL RATES OF RETURN — TIME WEIGHTED Years Ended September 30 Actual Fund Stocks S & P 500 1965 7.80% 9.91% 1966 -12.09 -12.69 1967 29.39 29.91 1968 15.86 9.70 1969 - 6. 13 - 6.63 1965-1969 5.93% 5.01% An examination of the bonds reveals that the five-year rate of return was the ' equivalent of a small net loss. That is to say, the market value over this period declined by an amount sufficient to offset the interest income. In projecting the future earnings of the fund we must examine the relationship between current market values, annual interest payments, and future maturities. First, it is noted that the interest -3- A. S . Hansen , inc . r• yield on current market values is 6.379/b. In addition, if each bond is held to maturity, it will presumably be redeemed for its face value which in most cases will be in excess of the present market value. This increase from current market to ultimate redemption value will constitute a capital growth which might properly be anticipated if the intention is to retain these securities. On the basis of the present distribution of bonds by maturity date, we estimate this capital growth as the equivalent of an additional 1.50% annual return. Thus, the present bond portfolio has a future potential return of between 7.75% and 8.00% per year. TABLE III • ESTIMATED TOTAL RATE OF RETURN Distribution Rates of Return _ Bonds 36.7% 7.75% Stocks 54. 1 5.93 Other 9.2 5.66 Total 100.00/0 6.57% In projecting what the future earnings of the total fund might be, we have assumed W that the bond portfolio will yield 7.75% and that the stocks and other investments would earn at the rate which they have demonstrated over the past five years. Weighting each assumed rate of return according to the distribution of assets in the fund as of March 31, 1970 (Table III), we arrive at an indicated aggregate rate of return of 6.57%. The following is a typical cost-of-living provision which might be applied to the City of Fort Worth retirement plan: Pension payments for all pensioners retired prior to October 1, 1970wilI be increased, commencing on January 1, 1971, by 2% for each full year elapsed between the date of the .. member's retirement and January 1, 1971, subject to a maximum increase of 10%. -4- A. S . Hansen , inc . Pension payments for all pensioners will be adjusted on January 1 of each year beginning January 1, 1972, by an amount equal to the percentage increase or decrease in the Consumer Price Index for the twelve-month period ending on the September 30 immediately preceding the date of such adjustment. No annual adjustment shall exceed 2%. In no event shall the amount of pension payable to any pensioner be reduced as a result of such adjustments below the amount payable on January 1 , 1970 or, if later, the date of his initial payment. The foregoing provision, if added to the system as of September 30, 1969, would have added approximately $401,000 to the "Contribution to pay current cost" as de- scribed in our annual report. Thus there would be an annual deficit in funding of approximately $546,000 ($401 ,000 plus $145,000). The valuation results described in our annual report, and the $145,000 deficit, are based on the assumed rate of return of 4.50%. Other actuarial assumptions entering into the valuation were chosen following an analysis of the actual experience of the City Retirement Fund, and are therefore, realistic appraisals of the expected results. If the current indicated rate of return of 6.57% can be realized, there will be, in relation to the current assumptions, excess investment return averaging approximately 2% of assets. The excess would currently amount to approximately $650,000. Thus, the deficit of $546,000 could be financed from this excess. In summary, under the conditions described above, a cost-of-living adjustment of the type shown could be added to the system without jeopardizing actuarial soundness. ow Our remarks have been limited to the cost-of-living provision shown. We have calculated the cost of some other alternatives and will provide these results as requested. It should also be noted that our projections of the rates of return are based on the stated facts and assumptions. Revised projections should be considered as experience develops and also in the event of a change in investment policy, objectives, or strategy.. -5- ow A. S . Hansen , Inc. MW