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Pension04-20-10Min BOARD OF TRUSTEES Florida Municipal Trust Fui nd Retirement Han and Trust for the Firefighters and Police Officers Longwood City Commission Chambers 175 West Warren Avenue Longwood, Florida RFGIULA!t MEETING MINUTES April 20, 2010 7:00 p.m. Present: Marc McLarnon, Chair Robert Redditt, Vice Chair Chris Kempf, Secretary Peter Katauskas, Member H. Lee Delmer, I:,oard Attorney (Arrived at 8:02 p.m.) Paul Shamoun, Florida League of Cities Jon C. Williams, Financial Services Director Linda F. Goff, Recording Secretary Absent: Richard Griffin, Member 1. Call to Order. Chair McLarnon called the meeting to order at 7:03 p.m. 2. Pledge of Allegiance. Chair McLarnon led in the Pledge of Allegiance. 3. Certify e- Election off Trustee — Firefighter Chris Kempf. It was the consensus of the Board to certify the re- election of Firefighter Chris Kempf. 4. Approval of Minutes: January 19, 2010 Regular Meeting. Chair McLarnon moved to approve the Minutes of January 19, 2010. Seconded by Secretary Kempf and carried by a unanimous voice vote with Member Griffin absent. 5. Review of Agenda Packet Material. A. Actuarial Valuation. Mr. Paul Shamoun reviewed the Actuarial Valuation as of October 1, 2009. He referenced page 1 -1 and said this page develops how they arrive at the contribution rate for the City for the current year. He explained everything refers to the group of employees on September 30, 2009. The total Present Value. of Future Benefits was $8,529,225, and Present Value of Future Expenses was $255,877. He said the Present Value of Future Normal Costs would be $5,772,531. He advised the Minimum Required Contribution Rate is 25.46% of payroll and nets the actual State receipts against that. He Pension 04- 20 -10 /1 affirmed if the City puts this amount in all year, then they will over fund. He stated the City doesn't know how much money will come from the State until late August. Fire money is based on homeowner premiums and Police money is based on auto premiums. He said there will likely be ongoing ramifications due to the economy. He reviewed the Sensitivity Analysis graph that indicates changes in the long -term investment return. Chair McLarnon suggested looking at that for Longwood's Plan based on historical information would be helpful to the City. Mr. Shamoun advised the fund's annual return for the last ten years was approximately 3.6 %. He said the City was currently using 7.5% as the rate of return. IIe stated this was a legitimate long term number. He referenced page 1I -2 and reviewed the Governmental Accounting Standards Board (GASB) Disclosures. He said the City contributed 93% in 2009 and used a small amount from the $1.4 million in, excess contributions. He reported the fund was in good shape and was being fi properly. Secretary Kempf inquired if the Plan Members would receive statements now that the Actuarial Valuation was done. Mr. Shamoun said he should be receiving those statements very soon. Chair McLarnon moved to approve the Actuarial Valuation as presented. Seconded by Vice Chair Redditt and carried by a unanimous voice vote with Member Griffin absent. Mr. Shamoun advised the Board should also approve the Annual. Report. B. Plan Account Statements. The Plan Account Statements for December 2009, January 2010, and February 2010 were reviewed. Chair McLarnon moved to approve the Plan Account Statements. Seconded by Secretary Kempf and carried by a unanimous voice vote with Member Griffin absent. C. Investme,u t Performance Review. Mr. Shamoun reviewed the Investment Performance Review ending December 3.1, 2009. He said the Bond Fund underperformed over the last year, but over the last ten years it was a positive 6.18%. He stated that we have a diversified portfolio. He advised the Small Cap Fund will be changed in a month to a Small Mid Fund. He said this ,would provide more leeway for the manager to hold onto companies as they grow. Pension 04 -20 -10/2 Chair McLarnon inquired if our Fund would be affected by the expanded ability for more International Funds. 1VIr. Shamoun said there were no plans to increase the International allocation at this time. Mr. Shamoun inquired if the Board would. like for him to discuss the Cost Study at this time. It was the consensus of the Board to move ahead on the Agenda for discussion of Item 6 B and review it with Mr. Dehner when he arrives. 1. Invoices, Vice Chair Redditt moved to approve the invoices as submitted. Seconded by Member Katauskas and carried by a unanimous voice vote with Member Griffin absent. L. Ordinance Amending and Re- stating Ordinance No. 03-1671 as subsequently amended; and Re- stating the City of Longwood Police Officers' and Firefighters' Pension Truest Fund. Mr. Dehner said he would address any comments or questions the Board may have. He gave an overview of what has been incorporated in the Ordinance and said the inception of it carne with the passage of the Pension Protection Act that required all Plans to be amended for Federal Tax compliance. Another purpose was to consolidate all of the prior Plan ordinances into one document. He stated incorporated in the Ordinance are • the items allowed by the adoption of Senate Bill 538 which expands buy back opportunities, proposes a four (4) year Trustee term rather than a two (2) year term, and the 25% maximum in Foreign Securities. He advised by virtue of the way the Statute is drafted, the Board has the authority through an amendment to the Investment Policy to go beyond 10% if the Board chooses to, but this is also reflected in this document. It also incorporates provisions on what would have to occur if the Plan was ever to be terminated. He explained the Statute requires if the Plan were to be terminated the City would have to fund enough money in the Plan to cover the value of all earned benefits by vested and non - vested members. This could be paid in an annuity or lump sum and this would be the Board's decision. Mr. Definer inquired if the Board would like the DRAGO Plan incorporated in this document, or keep it as a separate document. Chair McLarnon said they needed to keep it as a separate document. Mr. Williams said the Board was considering this new impact analysis and Pension 04 -20 -10/3 the changes in salary for Firefighters. He inquired if that should be • incorporated in this document. Chair McLarnon said they have spent a lot of time working to get this draft document to the point where it is and he would like to get this presented to the City for consideration as some of these are items that have been on the table for nearly two (2) years now. He stated he would like to get this in place. He said they can always make an amendment specific to the Paramedic incentive pay. Secretary Kempf said he would want the City to review impact analysis first and then come back with their response to the Board. It was the consensus of the Board to move forward on the proposed Ordinance. Mr. Dehner said he would prepare the Ordinance in f nal form to send to the Commission. He stated he would prepare a cover letter to Mr. Williams identifying the changes. Mr. Williams pointed out on page seven (7) under "Salary" it lists total compensation for Police and Fire. He stated this seems to be inconsistent with how it is currently written. Mr. Definer said he would check this as they don't want the new definition included. Chair McLarnon said they need to have this as how it is currently defined. Member Katauskas said that was the change they were talking about. He stated there is a budget factor associated with it and caution would be appropriate. Chair McLarnon moved to have Mr. Dehner prepare the draft document in Ordinance for and submit it to the City along with a summary page of the changes as proposed that will assist the City Commission in understanding these changes and why. Seconded by Vice Chair Redditt and carried by a unanimous voice vote with Member Griffin absent. 6. • ther usiness. A. Appointment of the Fifth Trustee. Secretary Kempf moved to re- appoint Chair McLarnon as the Fifth Trustee. Seconded by Vice Chair Redditt and carried by a unanimous roll call vote with Member Griffin absent. Pension 04 -20 -10/4 B. Impact Statement — Firefighter Plan Compensation. Mr. Shamoun said there was a request regarding adding an additional compensation into the Firefighters compensation used for Pension purposes. He stated at this time there is pensionable salary and total salary which is W -2 wages. The request was made to look at what it would cost to amend the Plan to include Paramedic incentive pay. He said he had the Actuary calculate what it would cost at different percentage increases and had him calculate what it would cost at 10 %, 15 %, and 20% increases since he had no idea what the increase would be. He stated in looking at the analysis from Mr. Williams, the differential in pay on average is approximately 6.75% of pay and would be less than the first calculation fbr a 1.0% increase. Secretary Kempf said if the total amount it would cost the City for 10% was $54,000, they would be looking at roughly half that amount for the Firefighters asking to be up to par with the Police. He stated they were looking at a $27,000 to $30,000 cost per year. He inquired if this could be taken out of the excess funds above the $302,000. Mr. Shamoun responded in the affirmative and stated the City has recently been receiving in excess of the $302,000 each year. Secretary Kempf said what he understood was rather than the excess going into the Defined Retirement Accumulation Group Obligation (DRAGO) Fund. it would go toward this increase in compensation. Mr. Shamoun said there would have to be bargaining between the Union and the City on this amendment to the Plan because it is a condition of employment. IIe stated the Board's roll. would be to talk with their attorney about drafting this amendment and the Board can recommend to the City Commission they entertain this change to the Plan. It would be the Commission deciding whether to amend the Plan to add this for the Firefighters. He stated the function of the Board would be to facilitate the gathering of information, and then make a recommendation. Chair McLarnon inquired if other cities include the incentive pays in their compensation. Mr. Shamoun said some cities do and some consider it part of the base compensation. He reiterated all of these are a function of collective bargaining. Secretary Kempf said only 50% to 60% of the Firefighters are Paramedics. Mr. Shamoun said the Board could present an ordinance to the Commission. for consideration and copy the Union Representative. Pension 04-20-10/5 Chair McLarnon said the Board ha.s a number to work with and could take this under advisement. He stated he was not comfortable making a recommendation to the City to approve or deny this as it is. Vice Chair Redditt said the Board should run this by Mr. Dehner and get his opinion on the best way to proceed. Member Katauskas said as he understood the discussion, the provision of the extra pay was already being done for the Police and not the Firefighters. He stated they were in this Pension Plan together and he would be in favor of pursuing further information. He said they owe it to the Firefighters to investigate this further. He agreed they should run this by legal and have the City look at this information. Secretary Kempf said even if the Board were to make a recommendation, the City does not have to approve it. He stated it would be a recommendation that the Board feels the Firefighters should be up to par with the Police. If the Board would feel comfortable with making this • recommendation, then they could let the City decide. • Mr. Shamoun said another option would be to write a letter stating this has come up through the employment to the employee representative of the Board as an issue within the Plan, and the Board has researched the costs involved with this and bring it to the attention of the City and Union Letting the two of them decide what to do. Secretary Kempf suggested providing the information to the City to review. He said the next meeting the Board could hear from the City on how they feel about this and decide whether to make recommendation. Chair McLarnon asked Mr. Williams if he could take this information and run itthrough Finance. Mr. Williams said he could take this information and discuss it with the City Administrator and prepare a report for the Board's next meeting. It was the consensus of the Board to have Public Participation at this time. Mr. Dehner arrived at this point in the meeting. C. Christiansen ,.. Dehner Fee Adjustment. Member Katauskas moved to approve the Fee Adjustment for Christiansen & Dehner. Seconded by Vice Chair Redditt and carried by a unanimous voice vote with Member Griffin absent. Pension 04-20 -10/6 Mr. Dehner said he had prepared an Addendum to the contract for the Chair and Secretary to sign. The Recording Secretary advised the Board had not approved the 2009 Annual Report. Chair 1VIcLarnon moved to approve the 2009 Annual Report as presented. Seconded by Member Katauskas and carried by a unanimous roll call vote with Member Griffin absent. 7. Board Attorney Report. Mr. Dehner reviewed information. that was distributed to the Trustees on a Deferred • Retirement Option Plan (DROP) versus a .Partial Lump Sum Option (PLOP) which are two options for a limp sum without compromising the integrity of their Normal Retirement Benefit. He explained with the DROP, when you reach Normal Retirement Age you can retire for Plan purposes and elect to go into the DROP. The benefit is calculated based on annual compensation at that time. He stated when the DROP participation begins the monthly annuity payments are credited to the DROP account and the Actuary typically keeps track of the DROP deposits. In addition, earnings .and /or interest are accrued. The retiree will eventually receive a lump sum in addition to a regular annuity. He said as long as DROP plaits do not allow early entry, they can be designed to be cost- neutral. The DROP participation in most plans is for a maximum of five years, some have extended this to six or seven years. At the expiration of the DROP participation, then you must terminate employment. He explained that a PLOP is simply adding another optional benefit much like a ten year Life Annuity or a Joint and Survivor Annuity. Most prevalent would be the option to chose a lump sum of five (5 %) to twenty five (25 %) percent. The advantage of the PLOP is that you do not need to make a decision until you are ready to retire and terminate. If you chose the PLOP then you would receive a percentage in a l sum and the remainder percentage would be used for the annuity calculation. He advised that you can combine PLOP and DROP. If these are allowed to be combined, upon retirement for plan purposes, and participation in the DROP, if the PLOP is selected as an optional form, the first credit to your DROP account is going to be whatever the percentage of the h sum value is, plus the monthly annuity payment. Chair McLarnon said in addition to the current pension benefits, the City also has the DRAGO Plan and asked Mr. Definer to explain it. Mr. Delmer said this was essentially a part of the Plan where the excess State monies go. The benefit is paid with accordance to the Ordinance. He stated this was locking up where the State money goes. Chair McLarnon inquired if the DRAGO Fund was a lump sum paid at retirement. Pension 04 - -20 -10/7 Secretary Kempf responded in the affirmative. Member Katauskas said as he understands, the City participated in the .Florida Retirement System (FRS) up to 1996 and then went to the Local Law Plan. Mr. Dehner advised establishing the Local Law Plan entitles the City to receive the State monies derived from the insurance premium tax. He explained in the case of Police Officers it is 0.85% of casualty insurance and Firefighters it is 1.85% of property insurance. Mr. Williams pointed out that pages two and three of the Actuarial Statement has an explanation of the DRAGO Fund and states, "Upon retirement from active employment, the retiree is entitled to receive a pro -rata share of the DRAGO Fund balance as of his date of retirement, where his pro -rata share is determined by dividing the retiree's credited service as of the October 1 preceding his last day of • employment by the total credited service for all active employees on that date." It was the consensus of the Board to go back to Item 5 E and review the proposed Ordinance at this time. Mr. Dehner provided a Legislative update. He said if the Health. Care Enhancement for Local and Public Servants (HELPS) II Legislation in Washington passes they would not need to make available the ability to make a direct transfer from the Pension Plan to the insurance provider with regards to the $3,000 tax exclusion for health insurance long term care and accident insurance premiums. He reported most significantly now in Tallahassee is Senate Bill 1902 with a companion House Bill 1319 which is not moving. He said this was the worst pension legislation from the standpoint of a pension member retiring, to the Pension Board standpoint, and the City. He said this was being driven primarily by the Florida League of Cities (FLC). IIe stated for several years the FLC has sent representatives to various cities, fire districts, and plan sponsors to encourage the adoption of Defined Contribution Plans. He said the FLC was affiliated with many providers of products and services and they do provide administrative services for some Plans, particularly smaller plans. He stated they do represent the cities and funding costs have gone up over the last several years. He said the primary protection against Defined Contribution Plans for Firefighters and Police Officers is the State money. IIe advised if a Defined Contribution Plan were to be adopted under current law, we would not be entitled to future State monies any longer and this had been a major impediment. He stated the first thing they talk about when comparing Defined Contribution to Defined Benefit Plans is who bares the risk of loss. IIe said with the Defined Benefit Plan it is the Plan sponsor and with a Defined Contribution Plan it is the Member that has the risk of loss. IIe advised that it is typically in the interest of Plan Members to have a Defined Benefit Plan. Also, disability is funded through the Defined Benefit Plan and this is less expensive. He reported that Senate Bill 1902 set out to remove the impediments from going to Defined Contribution Plans and provide encouragement or make it attractive for a Member to want to go to a Defined Contribution Plan. He advised it does not Pension 04-20-10/8 mandate those changes, but it would remove impediments. He said action would still have to be taken by the City to make the change or whoever the Plan sponsor is. Essentially the provision is that if you go to a Defined Contribution Plan or merge into FRS which also has pending proposed amendment to go to a Defined Contribution. If this is to be permitted, then the Defined Benefit Plan would go on as a closed Plan and any new employee would go into the Defined Contribution Plan. Ile stated the encouragement part of this, which is the mandatory portion, is that there is a provision in Florida Statutes 112.65 that sets a maximum amount of benefit that can be paid from the Pension Plan. It currently is and has been since 1980 for all participants that the maximum benefit is one hundred (100 %) percent of average final compensation as average final compensation is defined in your Plan. He said in this case for Police it would be total compensation and for Fire it would be fixed compensation. The proposed change that would affect Plans that have total compensation would be to set the sealing at one hundred (100 %) percent of average final compensation, but on and after July 1, 2010, you would not be able to receive for those years after anymore than fixed compensation. He suggested the Board may want to consider contacting their local representative. He said the Legislative session adjourns the end of April. Mr. Dehner said once the proposed Ordinance is adopted he will do a new Summary Plan Description. The Board can then decide if they want to file with the Internal Revenue Service for a favorable determination letter. Secretary Kempf said the City was going to review the cost study and come back with their input at the next meeting. He stated based upon their input the Board will go over this and make a recommendation. He asked Mr. Dehner to have some input on this at the next meeting. He stated that NIr. Shamoun said the overall increase was 6.75% increase in Firefighter compensation and it would roughly be a $27,000 to $30,000 increase per year. Mr. Dehner.advised the minimum requirement for Chapter 175 in terns of salary definition was fixed compensation and for Police Officers it was total compensation. He said this was why the difference in the Plan exists. Secretary Kempf said they were in this Plan together and it was a big difference. He stated they wanted to get into the same benefit. Mr. Dehner said a majority of Plans have total compensation for Firefighters. 8. Member Comments. None. 9. Public Participation. Tim Byfield, Firefighter Plan Member, said he was the one that brought to the Board's attention the 1% they were paying into the fund. He stated the way it initially read was fixed monthly compensation. He said the Firefighters thought they were receiving pension on their base salary. He stated as he reviewed Pension 04 -20 -10/9 • paperwork he found that they were not pa Ge11tives ol other than their the Paramedic , but their paying on the overtime, holidays and incentive. He said that Mr. Williams was going ts match Ong that p ay1 that pay and it came back at the next meeting hat the City was He stated if the City was matching their 1% with the 8% ihes the on yi n ot out is the Paramedic incentive. He reiterated saying they were receiving everything but the Paramedic s time for hIt rea t are is to based on a fixed monthly income. He said when hly income. He they going to look at that and base the p o be writt r to wh ere it reflects what the affirmed that was their concern and it s Firefighters and the City are actuay s and each i on the Plan. He stated there were currently eighteen (18) Parame a Mr. Shamoun explained the benefit was not just funding that current Trent year, it funds the benefit paid out in the future and assumes the bei upon Mr. B field said it was still important to have the language so that it reflects the way they are now. Chair McLarnon said that was the direction they f first time they e been able to a�rive having this report from the Actuary was the at what the impact is and how it will affect the City and what it will do for the Firefighters going forward. 10. Adjournment. Chair M.cLarnon adjourned the meeting at 8:53 p.m. ATTEST: • j Linda F. Goff, CMC, Recording Secretary • Pension 04 -20 -10/10