13 - Memo Impact Statement AFSCME Agreement PensionCITY OF SOUTH MIAMI
OFFICE OF THE CITY MANAGER
INTER-OFFICE MEMORANDUM
To: The Honorable Mayor & Members of the City Commission
From: Hector Mirabile, Ph.D., City Manager
Date: October 31, 2011 Agenda Item No.: 13
Subject: An Ordinance amending the South Miami Pension Plan, providing for an amendment to
Section 16-12, Definitions, Section 16-13, Eligibility, to Section 16-14, Pension Benefits
and Retirement Dates, Section 16-19, Contributions to comply with current City policy
concerning the definitions of annual compensation and final average compensation;
and also amending Section 16-13, Eligibility.
ACTUARIAL IMPACT STUDY BY GABRIEL ROEDER SMITH & COMPANY (GRS)
BACKGROUND: Attached please find the Actuarial Impact Statement, providing the financial impact
associated with the proposed changes in the Pension Ordinance, incorporating the most
recently approved AFSCME (American Federation of State County and Municipal
Employees) agreement.
Below please find an outline of the proposed changes which were taken into account in
the October 31, 2011 Actuarial Impact Statement:
− Close the Plan to future General Employees.
− Current accrued benefits of General Employees will be frozen and payable under
the current terms of the Plan at the currently defined normal retirement date –
the later of attainment of age fifty-five (55) and completion of ten (10) years of
credited service.
− Future benefit accruals, including increases due to increases in the Final Average
Compensation (FAC), of General Employees will be payable at the proposed new
normal retirement date – the later of attainment of age sixty (60) and completion
of ten (10) years of credited service.
− Allow current General Employees to discontinue membership in the Plan, receive
a refund of their member contributions from the Plan and participate in a defined
contribution (DC) plan. GRS assumed all General Employees with less than seven
(7) years of service will be electing to participate in the DC Plan and receive a
refund of their member contributions.
− Reduce the benefit accrual rate to two and a quarter percent (2.25%) per year for
future credited service for General Employees.
− Eliminate the supplemental benefit (annual cost of living adjustment based on the
consumer price index – maximum 3%) for General Employees on future benefit
accruals, including increases in the accrued benefit due to increases in the FAC.
− Change the definition of FAC for General Employees for future benefit accruals to
the average of the final sixty (60) months of basic compensation, but not less than
current FAC. Basic compensation excludes commissions, overtime pay, bonuses
and any other forms of additional compensation outside of base wages.
ADDITIONAL INFO.: In the 30-year projections for General Employees, the total contribution for the Defined
Benefit (DB) Plan is expected to increase in the 26th year because we assumed the impact
of the proposed Ordinance (which results in a negative amortization) will be amortized
over a 25-year period.
Once the impact of the proposed Ordinance has been fully amortized, the negative
amortization goes away, thereby increasing the total DB contribution by approximately
$200,000. The employees’ share of this increase is approximately $100,000, and since
covered DB payroll for General Employees is projected to be much smaller in 26 years
than it is today (because it is a closed group), the member contribution as a percent of
pay increases significantly.
The City contribution (as a % of pay) did not increase as much as the member
contribution because the City contribution includes the City’s 7% contributions to the
new DC Plan (for all new General Employees), and 26 years from now, the covered
payroll for new General Employees is projected to be much higher than covered payroll
for DB covered General Employees.
GRS expects some changes would occur (i.e. combing of amortization bases) prior to the
26th year to even out the discontinuity of DB contributions.
SUPPORT: Gabriel Roeder Smith & Company (GRS)
Actuarial Impact Statement