HomeMy WebLinkAboutIR 7375 IN'FORMAL REPORT TO CITY COUNCIL MEMBERS No. 7375 p .
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10*p To the Mayor and Members of the City Council April 18, 1989
;�x�'. Subject: RETIREMENT ORDINANCE/RETIREES' GROUP HEALTH_
'"' INSURANCE ISSUE V�
Since 1984, the Employees Retirement Fund has annually contributed funds to the City for
the cost of retirees group health insurance premiums. The amounts contributed are as
follows:
RETIREE INSURANCE 1984-85 1985-86 1986-87 - 1987-88 1988-89
General Fund $691,902 $ 825,840 $1,070,388 $1,214,578 $1,736,924
Parking Facilities Fund 0 0 0 1,247 0
Water and Sewer Fund 177,600 214,640 201,718 233,189 325,048
Equipment Services Fund 0 35,520 83,952 51,127 71,677
Solid Waste Fund 68,820 117,660 79,288 153,381 198,363
Golf Fund 0 0 0 2,494 0
Office Services Fund 0 0 0 0 1,667
Airport Fund 23.310 22.200 22.154 23.693 33.338
Total $961,632 $1,215,860 $14 $1,679,709 $2,367,017
The total cost of retirees' insurance projected for the 1989-90 budget is $3,796,390 of which
approximately $2,733,400 is for General Fund retirees.
In November, 1988, the Retirement Fund Board of Trustees voted to advise the City that no
future contributions would be made for retirees' group health insurance costs. In January,
1989, the Retirement Board voted to recommend to the City Council certain revisions to the
Retirement Ordinance. In addition to several "housekeeping" amendments, two other
recommended amendments have an actuarial cost impact on the Fund equal to 1.72% of
payroll. The most significant recommended change is to increase the retirement benefit
formula from 2.00% to 2.15% which has an actuarial cost of 1.26% of payroll. The second
recommended amendment is to provide a vested retirement for any employee who has years
of service plus years of age totaling at least 65 points. This has an actuarial cost to the Fund
of .46% of payroll.
Failure of the Retirement Board to assume responsibility for retiree insurance premiums
will significantly reduce the revenue resources available to budget needs for 1989-90. As
one of the - critical budget issues will be the need to address employee benefits, it seems
appropriate to question the equity of improving benefits to retirees at a time when
improvements to benefits of active employees will be extremely difficult or impossible.
Also, it should be pointed out that decisive action by the Council at this time impacts a
budget issue which will have to be considered by the next City Council.
The staff has identified two alternative scenarios which would alleviate the negative impact
of the General Fund having to absorb the total cost of retiree's insurance for 1989-90. There
may also exist other alternatives which the City Council would wish to investigate.
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No, 7375 P
11,&OT94.a
TORP To the Mayor and Members of the City Council April lb, 1989
X Subject: RETIREMENT ORDINANCE/RETIREES' GROUP HEALTH
$871 INSURANCE ISSUE
The first alternative, identified by the staff, is for the Retirement Board to amend their
position of discontinuing all support for retirees' insurance in the upcoming budget year.
The Board as stated that it's primary concern is not the impact of the historical or current
funding level but rather the impact of funding projected future insurance costs. A multi-
year phase-out of funding by the Retirement Board would seem to address the Board's
concern for the future actuarial condition of the Retirement Fund' and also allow the City
additional time to both absorb and control retirees' insurance costs. A suggested plan is for
the Retirement Board to fund $2,500,000 for 1989-90 and subsequent years, through 1993-94,
to be funded at a reduction of $500,000 each year. This would allow for gradual absorption
in the General Fund budget.
The second alternative is for the City Council to amend the Retirement Ordinance by
reducing the rate of the City's contribution to the Retirement Fund from 11 112% to 9%. The
most recent actuarial study reflected that the level of total contribution (City plus
employee) required to fund pension costs was 2.51% less than the current total contribution
rate of 19.17% of payroll. An option to using this "excess funding" for improved benefits is
to use it to achieve a 2% reduction in the level of City contribution. This would reduce 1989-
90 City expenditures by approximately $2,600,000 while allowing the Retirement Fund to
remain actuarially sound.
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The proposed amendments to the Retirement Ordinance, incorporating the benefit improve-
ment has been requested to be on the April 25, 1989 agenda. The City Council is encouraged
to consider the above alternatives prior to acting on the proposed Retirement Ordinance.
If the Retirement Board does not contribute to the cost of retirees' insurance and the General
Fund is required to absorb this cost, the necessary budgeted expenditure would be equivalent
to a two cent increase in next year's tax rate.
DouglaA 'Rarman
City Manager
ATTACHMENT
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
3
•ATTACHMENT
ow TO: Doug Harman, City Manager DATE. January lb, 1989
FROM: Judson Bailiff, Director of Finance
SUBJECT: Proposed Amendments to Retirement Ordinance
At a special called meeting on January 14, 1989 the Retirement Fund Board
of Trustees unanimously approved recommending to the City Council several
amendments to the Retirement Ordinance.
Two of the recommended amendments have an acturial cost impact. The
other amendments are needed either for clarification or to protect the
position of the Fund in certain possible legal proceedings. The
amendments having acturial cost impact involve (1) a change 'in the
formula used to determine retiree benefits and (2) a change in the vested
retirement provisions of the Ordinance. These two changes are discussed
in more detail below.
Benefit Formula
Retirees presently receive an annual benefit of 2% of compensation base
(average highest five years' earnings) multiplied by total credited
service years. The Retirement Board is recommending that the 2% factor
be increased to 2.15% for an effective increase in benefits of 7 1122.
The last change in the benefit formula was approved in July 1983 when
this factor was increased from 1.8334% to the 2 Z.
Prior to their recommendation the Retirement Board had an acturial study
performed to assess the impact of increasing the benefit factor to 2.25%.
The acturial report reflected that a 2.25% factor could not be funded
within present funding levels; however, an increase of 2.15 % could be
made within established "safety" margins. The 2.15% change has an
acturial cost of 1.26% of payroll.
Vested Retirement
The City of Fort Worth Retirement Ordinance has always contained a
provision recognizing that after a certain number of years of service an
employee achieves a vested right to benefits of the Retirement Fund.
Prior to a November, 1984 Retirement Ordinance amendment, the vested
provision bore a deliberate relationship to the provision for normal
retirement. Prior to the 1984 amendment the provision for normal
retirement resulted in the majority of retirees being age 60 or older.
If a vested employee left the City prior to normal retirement and prior
to age 65, at age 65 that employee was entitled to one hundred percent of
the amount of pension earned to date of termination.
The 1984 amendment provides for normal retirement under the "Rule of 80"
resulting in many employess becoming eligible for retirement at a
mid-fifties age. To retain a relationship between normal retirement and
op,, vested retirement similiar to that existing prior to 1984 an amendment
to the vested retirement provision should have been included in 1984;
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however, this was inadvertently omitted.
The Retirement Board believes that an appropriate recognition of
long-term employees' equity in the Fund can be achieved with a "65 point
vesting". Under this provision once an employee achieves 65 points (years
of age plus years of service) that employee may terminate with the right
to one hundred percent of the amount of pension earned to the date of
termination with payment to begin at whatever future date that employee
would have achieved 80 points. On an individual employee basis this
provision costs the Fund less money than retirement at "80 points" as it
results in-the individual receiving a smaller benefit but over the same
period of time. The increased acturial cost results from a projection
that more employees will exercise a vested option that currently do so.
The acturial study performed for the Board concerning this issue studied
vested retirement at 60, 65 and 70 points. The results were an acturial
cost of .64%, .45% and .26% respectfully.
If you should require additional information on the proposed retirement
amendments please let me know.
City of Fort Worth, Texas REVIEW & APPROVAL
RECOMMENDED M&C COMMUNICATION (1a414ate regalted ttvi—a by%,0)
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RECOMMENDATION:
The Board of Trustees of the Employees' Retirement Fund recommends that the
City Council adopt the attached ordinance amending the City Code pertaining
to the Employees' Retirement Fund of the City of Fort Worth.
DISCUSSION:
On February 6, 1989, the Board of Trustees of the Employees' Retirement Fund
of the City of Fort Worth voted to recommend:
1) to increase the annual compensation benefit payable from 2% to 2.15% for
every vested member who retires and for all persons previously receiving
retirement benefits which will increase their base pension by 7.5%; and
2) to amend the termination provisions to provide for a vested retirement
pension to a member who resigns or is terminated, upon or after the
accumulation of 65 points (years of age and years of service), to
receive a vested right of one hundred percent (100%) of the amount of
pension earned to date of termination payable in full upon what would
have been that member's retirement date if he had remained employed by
the City.
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The actuarial valuation of the Fund dated January 1, 1988 and a special study
dated January 10, 1989 indicate that both changes can be added to the system
without jeopardizing the actuarial soundness of the Fund.
RECOMMENDED M&C COMMUNICATION (Continued)
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The actuarial report of January 1, 1988 reflected that there was a margin
(2.51X) between the current contribution level and the contribution level
required to support the benefits of the system. The required contribution
rate as per actuarial calculation was 16.66% of pay, whereas the actual
current contribution rate is 19.17% of pay. Consequently, the above two
changes are within the actuarial limits.
The recommended amended ordinance will strengthen the disability provisions
by requiring annual medical examinations by one or more physicians appointed
by the Administrator after a disability pension has been granted unless
deemed not necessary by the Administrator due to the retiree's condition.
Disability pensions may be denied upon application or revoked by the Board as
a result of falsification or omission of prior conditions or injuries on any
part of the employment application for which disability retirement is sought.
Disability ot in line of duty pensions.
y y pensions shall be annual life
The amended ordinance will codify the Board's practice of not granting
disability pensions until all Workers' Compensation claims have been settled
or can no longer be appealed or set aside by any court. Otherwise, the City
could admit liability for a pending claim by granting a disability pension
before a case is tried or can be settled. The previous ordinance required a
determination of total and permanent incapacity by the industrial Accident
Board; in current practice, such determination may never occur.
Lastly, the ordinance has been amended to authorize the Fund to honor a
divorce decree as stated in the ordinance. State law provides that retirement `.
benefits are community property which our ordinance cannot contravene. Upon a
member's death, no further monthly pension benefits shall be paid to the
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RECOMMENDED MAC COMMUNICATION M=t1nua}
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member's former spouse. Death benefit pensions shall be paid to the member's
eligible surviving spouse, dependent children or dependent parents as
presently provided in the Code, in which case the former spouse shall receive
nothing. No lump sum payment shall be made to the former spouse except where
the member's contributions are to be divided between the member's estate and
the former spouse upon the member's death. No court order will be honored if
it provides for any type or form of benefits or option not otherwise provided
by the Fund, or if it requires the payment of benefits to a former spouse
that are required to be paid to another former spouse. This provision will
not enlarge the death benefits beyond those presently payable.
All changes would become effective upon passage of the ordinance except that
increases in the annual compensation benefit of persons already retired as of
the date of the passage of this ordinance will become effective upon July 1,
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198 Tim-w++4 facilitate implementation of the increases.
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