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HomeMy WebLinkAboutIR 7710 INFORMAL REPORT TO CITY COUNCIL MEMBERS NO. cO ' To the Mayor and Members of the City Council April 13, 1993 t:..J • PROPOSED BENEFIT IMPROVEMENTS FOR EMPLOYEES' 0x Subject: RETIREMENT FUND OF THE CITY OF FORT WORTH im The purpose of this Informal Report is to provide the City Council with background information concerning the proposed benefit improvements studied by the Retirement Board, their recommendations, and the proposal of the Fort Worth Police Officers Association (FWPOA) . i Attached is a copy of the ordinance establishing the retirement system, the retirement plan, and benefits thereunder for employees of the City of Fort Worth. The Retirement Fund was originally established by prior ordinance in 1945. The Fund is a defined benefit plan for the exclusive purpose of providing benefits for the employees of the City. At a Pre-Council meeting on March 16, 1993, the President of the FWPOA requested that the City Council approve an amendment to the retirement ordinance that would allow employees to retire after 25 years of service. The Chairman of the Retirement Board requested that no action be taken until the results of an actuary study had been received. Although the next scheduled meeting of the Board was April 26, 1993, the Chairman agreed to have a call meeting on April 2, 1993 and present its recommendations to the Council no later than the middle of April. In the interim, the City Council requested that the City Manager's staff provide information regarding the number of employees impacted by 025 and Out" and the op , estimated costs, especially as it relates to health insurance. Retirement Fund Background There are currently 7,276 members of the Retirement Fund: 4,806 active employees, 2,369 retirees and beneficiaries, and 101 vested retirees. Active employees pay 5.67% of their salary to the Retirement Fund; the City contributes an amount equal to 8.58 of the employee's salary for a total contribution rate of 14.17%. The normal cost of current benefits is 11.86%, which provides a difference of 2.31% available for consideration of benefit improvements by the City Council. The Council must approve all benefit improvements. Composition of the Board The Retirement Fund is a trust and is administered by a Board of Trustees. The Board consists of ten (10) trustees. Five (5) trustees who are members of the Fund are elected by the employees of the City who are members of the Fund. Four (4) members are appointed by the City Council. And one (1) member is elected by the retiree members of the fund. The chairperson is selected by the Board of Trustees. 1993 Actuarial Report The Retirement Board requested its actuary, the Wyatt Company, to calculate the funding cost of various proposed benefit increases as part of its annual actuarial report. The report was expedited after the Fort Worth Police Officers Association's representative requested the City Council to approve a benefit improvement which would allow an employee to be eligible for retirement on his normal retirement date which shall be the last date of the mon employee's (member) years of Credited Service total twenty-five ( 0FTICIAL RECORD In addition to the 25 and out provision, the independent actua cPP 1R�i{TARY ISSUED BY THE CITY MANAGER OLA2,T INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7710 April 13, 1993 To the Mayor and Members of the City Council Page 2 of 3 PROPOSED BENEFIT IMPROVEMENTS FOR EMPLOYEES' ,rrs Subject: RETIREMENT FUND OF THE CITY OF FORT WORTH provide information relating to the ability of the Retirement Fund to accommodate the following alternative benefits: (1) Minimum Pension. Changes made in 1990 established a minimum pension floor of $150 for each five years of completed service, provided the employee had worked for the City five years. The Board asked the actuary to study the effect of increasing the minimum pension floor by $150 for every five years of service. (2) Survivor Benefits. Currently in order to receive survivor benefits from the Retirement Fund, a spouse must have been married to the retiree for at least one year prior to retirement in order to qualify to receive the 75% survivor's benefit. The Board asked the actuary to evaluate the effect of continuing the spousal benefit after remarriage provided the deceased member i was married to the beneficiary for at least five years prior to the member's death. I c (3) Increasing the Multiplier. Calculation of retirement benefits currently is based on the formula (years of service X highest 5 years' average compensation X 2.50%) . This 2.5% factor is referred to as the "multiplier." The Board asked the actuary to evaluate the effect of increasing the i multiplier from 2.5% to 2.63%, or a combination thereof. Retirement Board Action The Retirement Board, at a specially called meeting on April 2, 1993, heard the report of its actuary. The actuary said the Fund was capable of accommodating either the 025 and Out" retirement plan or the "increase in multiplier," but not both. The Retirement Board voted 1 vote FOR and 8 votes AGAINST the "25 and Out" alternative. At the same meeting, the Board voted 5 FOR and 4 AGAINST a proposal to implement increasing the multiplier to 2.61% and continuing the spousal benefit after remarriage. City Council Action At the Pre-Council meeting, the Chairman of the Retirement Board, reported the above results of the Board meeting and the board's recommendation. Also the President of the Fort Worth Police Officers Association who is the Police representative on the Retirement Board made a request that the "25 and Out" alternative be approved. The City Council directed the City Manager to place the "25 and Out alternative" on the City Council Agenda for its April 13, 1993 meeting. The "25 and Out" Alternative I The "25 and Out" alternative makes employees eligible for retirement after 25 years ►• of creditable service in the retirement system. This alternative primarily benefits those employees who were employed by the City before age �� a provided the following information as of January 1, 1993: t 1. The number of members under age 29 is 807. CITY SECRETARY L FT. WORTH, TEX. ISSUED BY THE CITY MANAGER S O INFORMAL.REPORT TO CITY COUNCIL.MEMBERS No. 7710 April 13, 1993 To the Mayor and Members of the City Council Page 3 of 3 PROPOSED BENEFIT IMPROVEMENTS FOR EMPLOYEES" Subject: RETIREMENT FUND OF THE CITY OF FORT WORTH errs 2. The number of members hired on or before age 29 is 2,770. Of these members, 93 currently meet the Rule of 80, and therefore, are already eligible for retirement. 3. The number of members that have 25 years of service or more on January 1, 1993 is 244. Of these members, 108 meet the Rule of 80. The remaining 136 would qualify for the "25 and Out" provision. 4. The number of members who will never qualify under the 25 and out provision is 2,129. They will qualify for the Rule of 80 or normal retirement at age 65 before the "25 and Out" criteria can be met. Therefore, approximately 445 of employees would not benefit from the "25 and Out" provisions 56% would be eligible for the benefit. This provision will require an I additional 2.27% of the contribution rate or a total of 14.13%. Over a 30 year funding period, this benefit will cost employees and the City $26,670,000. Impact of "25 and Out" Plan on Health Insurance Costs Based on our preliminary analysis, it appears that the increased cost in health o` insurance is offset by the decreased personnel salary costs that occurs when a senior police officer is replaced by a rookie officer. Summary: As requested by the City Council at its Pre-Council meeting on April 6, 1993, the staff has placed an ordinance on the April 13, 1993 agenda amending retirement 1 benefits to allow a "25 and Out" option. cJ� . Bob Terrell City Manager BT:a OFFICIAI. RECORD CITY SECRETARY FT. WORTH, TEX. ISSUED BY THE CITY MANAGER FORT WORTH,TEXAS