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04-16-2002 (.) () Edgewater Firefighterts Pension Fund Regular Meeting TuesdaYt April16t 2002 Station 57 t 2628 Hibiscus 5:30 p.m. Call To Order: Chairman Jollie called to order the regular meeting of the Edgewater Firefighters' Pension Fund Board on Tuesday, April 16, 2002 at 5:30 p.m. at Station 57. Roll Call: Members present were Chairman Jim Jollie, Mr. Gary Butt, Ms. Laura Reilly, Mr. Ron Hayward and Mr. Marty Tse. Also present were Mr. Ward Foster of Foster & Foster Actuaries, Mr. Lance Powers of SunTrust Financial SeIVices, Ms. Dianne Garcia of SunTrust Financial SeIVices, Ms. Debbie Sigler of Personnel, Mr. Jon Williams of Finance and Recording Secretary Lisa Miller. Approval of Minutes: The minutes of the January 15, 2002 meeting were submitted for approval. Ms. Reilly moved to approve the minutes as submitted. Mr. Butt seconded. Motion carried 5-0. Presentation: Chairman Jollie welcomed the guests to the meeting and introduced Mr. Ward Foster of Foster & Foster Actuarial SeIVice to give the actuarial report. Mr. Foster went over the annual actuarial report for the Board and noted that the return net of investment expenses for the year ending September 30,2001 was 0%. He noted this was less than what TRUSCO would report as he had to take out the investment related expenses. Mr. Foster stated they hoped the investors would meet the 8% assumption but they have reported investment losses to other boards as low as -20% so the 0% return is a good thing for this period. Mr. Foster stated the City's contribution as a percent of payroll would be 16.5% and noted that salary increases were less than they expected them to be, and they had to "load" the funding requirements for anticipated non-investment expenses. Mr. Foster stated this meant they had to estimate any expenses that the Board would have other than investment expenses (actuarial fees, legal fees, investment advisory, etc.). Mr. Foster pointed out there was a change in the method they used to develop costs. He added they now use a smoothing technique. Mr. Foster stated in the past, to develop contribution amounts and to measure the funding progress, they used the pure market value of the fund; whatever the custodial statement said the assets were on September 30th of the year. Mr. Foster stated they now use a four-year asset smoothing technique. He stated it makes very little difference in the contribution amount, but this way of figuring contributions keeps it as smooth and predictable as possible without any big fluctuations in the percentage of payroll contribution amount. Mr. Foster stated this smoothing technique minimizes the impact of an extremely good year or an extremely bad year as far as contribution rates. He added the effect of this would be a much more stable funding rate. Chairman Jollie asked Mr. Foster about several years ago when we had to drop the fund's assumption rate from 8% to 7.5% because of a couple of bad years u U Edgewater Firefighters' Pension Fund Regular Meeting 04/16/02 Page 2 investment return. Mr. Foster stated that was correct and they could anticipate that being changed back up to 8% after a couple of years. Chairman Jollie stated that since we have annexed more property into the City they need to make sure that the money from homeowners' insurance policies is getting to the right account in this area. Mr. Foster stated there is a 3 digit number that the insurance companies use to report the premium tax monies collected and if you contact Patricia Shoemakers' office, they can tell you what the three digit code is for this area. Mr. Foster stated a lot of Boards get the cities to put a flier in the water bill or something that every resident would get that says there is a funding source for the firefighters' retirement plan that is a tax on the frre insurance premium and to make sure that your agent is using the following three digit code for purposes of reporting the premium taxes to the insurance carrier. Chairman Jollie stated he would follow up on this. Mr. Foster continued to go over the rest of the report stating it was a well- funded plan. He added if they wrote a check to everyone in the plan for the amount of benefits they had earned so far it would be $840,000 but the market value of the fund is $1.2 million so they are about 150% funded. Mr. Foster stated Trusco was doing a good job and that it was good move. Mr. Butt moved to approve the actuarial report from Foster & Foster and also approve the use of the asset smoothing technique used by the actuaries. Mr. Tse seconded. Motion CARRIED 5 TO O. Mr. Foster presented their bill in the amount of $3,650.00. Mr. Butt moved to pay Foster & Foster's bill in the amount of $3,650.00. Chairman Jollie stated this bill was not only for the annual actuarial valuation, but also for several studies that were done for possible improvements to the plan. Mr. Tse seconded. Motion CARRIED 5 to O. Mr. Lance Powers from Trusco Capital Management brought the board up to date on the investment returns for the first quarter of the year. It was noted the value of the investment portfolio as of March 31, 2002 was $1,417,597.88. New Business: Chairman Jollie moved pension payouts to previous employees from the Old business to be discussed. He noted the plan had three employees that had left the City and wanted their money and they were not vested. Chairman Jollie stated he was glad this came up, as there was some confusion as to what information to give to Trusco and Foster & Foster. He introduced Dianne Garcia from Trusco and she discussed lump sum payouts. She noted that employees that left before they were vested only got the amount they had put into the fund minus any payments for disability, etc. that they had taken. Ms. Garcia stated that the money the employees were putting in was on an after tax basis which makes for a different process for distribution than a pre-tax basis and they must let her know whether the employee had been taxed on their money so they would not be taxed twice on it. There was discussion on how the fund was set up originally. Firefighter Hayward left at this time to respond to an emergency incident. 2 () 0 Edgewater Firefighters' Peimron Fund Regular Meeting 04/16/02 Page 3 Mr. Foster stated they recommend that the funds switch to a pre-tax member contribution program because there is no benefit to having an after tax contribution. He added what it does is changes the withholding, instead of having withholding on 100% of your salary as it is with the current situation it would be withholding on 94% of your salary so you end up with an increase in take home pay because your withholding is lower. He added that FICA was still taken out on the whole thing so that there would not be a reduction in your Social Security benefit. Chairman Jollie stated that when he left Daytona he had the option of taking his money and rolling it over into an IRA or 457 plan, as it was pre-taxed or have the option of taking it and paying tax. There was discussion regarding the taxing methods and its impact on the plan and the City. Mr. Williams stated he wanted some guidance from the Board as to which direction they would like to go, see the plan document, hear what the membership thought about it, and to see what additional manpower it would take to track the changes. Mr. Foster stated it might be a good idea to get Mr. Sugarman's opinion on it. Ms. Garcia stated there were some good benefits to it. Ms. Sigler stated if the plan document did not specify that it had to be post tax then they won't have to recommend any changes to the plan document. There was discussion regarding Chapter 175 and the additional ordinances that made up the plan. There was discussion regarding the tracking of pension monies and the procedure for figuring the amounts when employees leave. There was discussion regarding the payouts to previous employees and their options for rolling over and reinvesting the monies. Chairman Jollie stated he would like to do some more investigation on the subject and go to the members to see how they felt about it. Ms. Reilly moved to allow Chairman Jollie to check with the members and to talk with the other groups involved to figure out the pros and cons of pre and post tax contribution. Mr. Butt seconded. Motion CARRIED 4 to O. Chairman Jollie stated that two of the Board members' terms were up for expiration: Marty Tse and Laura Reilly. He noted they had both turned in letters of intent to be considered for another term. There was discussion regarding the upcoming Council workshop on board appointments. Mr. Butt moved to approve the reappointment of Mr. Tse and Ms. Reilly subject to the outcome of the Council workshop. Chairman Jollie passed the gavel to Mr. Tse and seconded. Motion CARRIED 4 to O. Mr. Tse passed the gavel back to Chairman Jollie. Old Business: Mr. Foster made a presentation on the actuarial studies he had done for the board. Mr. Foster stated they looked at three things: 1) providing future retirees with $100.00 per month benefit supplement. This would apply to service retirees, early and normal retirees, and beneficiaries receiving pre- retirement death benefits. It does not apply to disability retirees because they get a well-subsidized benefit and there are some minimums that apply. 2) Provide a $20.00 per month benefit for each year of service with the City as a volunteer frrefighter. Ex. 10 years as a volunteer would equal $200.00 per month in addition to the benefit they would get for their full time paid position as a frrefighter. Mr. Foster stated service credits as a volunteer would also count for eligibility for normal retirement. 3) Provide $100 monthly supplement and a 3 <.) Edgewater Firefighters' pe~n Fund Regular Meeting o4i16/02 Page 4 $20.00 per month per year of service volunteer benefit. Mr. Foster stated the third option would actual increase the total required contribution in the amount of $33,000.00 or 4.6% of payroll. He added that most of the cost increase was from the counting of volunteer service toward the eligibility for retirement. He stated when you include the volunteer time it shortens the average future working lifetime and requires them to accelerate the payments. Mr. Foster stated the benefits are not bigger they will just be attained earlier. There was discussion regarding State monies that could only be used for additional benefits to the plans and some of the options the Board could consider for those additional benefits. There was discussion regarding the possibility of the City helping to fund the volunteer benefits as the volunteers had served the City for free. Mr. Foster stated another option that could be considered was the purchase of military time. He added this would require that the member fund the entire cost of providing the service credits. Mr. Foster stated that they could do a credit to service buy back ratio grid that would allow members with military service to get an idea of what it would be. He added the cost for them to come up with the grid would be $125.00 as it is different for every plan and it is good unless there is a change in the plan. Mr. Foster stated this would keep the members from incurring a cost for each of them to figure out what it would be and then decided not to do it. There was discussion regarding options to buy back the time. Chairman Jollie requested the Board's permission to take these items to the membership to see how they felt about the options. Ms. Reilly moved that the Chairman take the options to the membership for their input. Mr. Butt seconded. Chairman Jollie asked the motion be amended so that if the membership approved the changes he could have the authority to negotiate with the city. Ms. Reilly amended the motion. Mr. Butt seconded. Motion CARRIED 4 to O. Chairman Jollie asked about the City putting out requests for proposals for fiduciary liability and investment analysis. Mr. Williams stated that there were pretty strict guidelines that had to be followed so any company interested should contact the City. There was discussion regarding fiduciary liability for the Board. Ms. Sigler stated she would ask the City Manager to have the legal department send out invitations for bids for the insurance. There was discussion regarding who should hold the policy, the Board or the City. Mr. Foster stated that this is an autonomous, independent, legal entity and the Board members are fiduciaries as opposed to sitting on an advisory board. Mr. Foster stated that the Board needed to have the fiduciary liability insurance to protect the fund and more importantly, they need a waiver of recourse, which is a rider to the policy that protects the individual board members. He added if the insurance company has to pay a claim, the next thing they do is go back after the board members and their personal assets are at risk unless you have the waiver. Mr. Foster stated that they deal with companies that write this type of insurance for the board and can help if they would like them to. Mr. Foster stated the premium needs to be paid out of the fund, but the waiver of recourse premium can't be paid by the fund it has to be paid by the City. Mr. Williams questioned when the board hires a company to manage the investment, does the fiduciary liability fall to the investment company as it takes it out of the 4 Edgcwater Firefighters' Pe~n Fund U ~egular Meeting 04/16/02 Page 5 Board's hands. Mr. Foster stated they are fiduciaries, but because any member of the plan for any reason can sue the board they should have insurance. There was discussion regarding other plans that had been sued. Mr. Foster stated it was unlikely that they would be sued, but they really did need to get that protection. Mr. Foster stated he would give the Chairman the names of some of the agents they could contact for prices. Ms. Garcia stated that Trusco itself had liability insurance, so the board only needed insurance to protect them. Mr. Foster stated they had not changed their fee schedule since they incorporated in 1979. Mr. Foster stated the new fee schedule for all clients would be a flat $2,500.00 plus $40.00 for each member included in the valuation. He added they would charge $100.00 for a full-blown benefit calculation with all of the options and to do the annual report to send to the Department of Insurance it would be $1,000.00. Mr. Foster stated the Board did not have an actual contract with them, so he gave the Board a draft actuarial serves agreement for their consideration. Mr. Foster stated this was exactly the same contract they had with everyone they work with. DiscussioD Items: There were none at this time. AdjourDmeDt: There being no more business to come before the board at this time, Mr. Butt moved to adjourn. Ms. Reilly seconded. Meeting adjourned at 7: 15 p.m. Minutes respectfully submitted by: Lisa R. Miller Recording Secretary 5