City Retirement Plan Presentation (May 3 2016) FINALRETIREMENT PLAN
PRESENTATION 1
CITY OF SOUTH MIAMI
RETIREMENT PLAN HISTORY
The City has offered a retirement package to
employees dating back to the 1950’s . In 1965 it
opened its first defined benefit pension program.
Management of this pension from roughly 1990 until
2008 was poor at best, making nominal investment
returns to the pension (if at all).
Combination of previous pension mismanagement and
the recession, created a huge impact on the police &
general employee’s required contribution, along with
the City’s required contribution.
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CITY OF SOUTH MIAMI
RETIREMENT PLAN HISTORY
In haste to react to a tough economy, which was exasperated by the history of mismanagement, the City Commission closed the Defined Benefits (DB Pension) plan to all new general employees, offered existing employees the option to “opt out,” and opened up a Defined Contribution plan which does NOT require the employees, nor the City, to contribute to their future.
This resulted in many employees either dropping or severely reducing their pension coverage. From a public policy standpoint this was shameful and needs to be changed.
Current DB Pension plan is now attaining at least market rate of return and is operated conservatively by a Pension Board that has retained professional consultants, money managers and top quality plan administration. 3
WHAT IS A RETIREMENT PLAN?
A retirement plan is a retirement savings vehicle
to replace employment income upon retirement.
These plans may be set up by employers,
insurance companies, trade unions, the
government, or other institutions.
Two Most Common Retirement Benefits Are:
Defined Benefit (DB)
Defined Contribution (DC)
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WHY IS IT IMPORTANT FOR THE CITY TO HAVE A
RETIREMENT PLAN FOR EMPLOYEES?
Our employees are one of the City’s greatest assets. –
Retention is the key to corporate stability and resident
satisfaction.
Hiring the best talents - City struggling to regain a level of
respect and desirability as an employer and to compete
for the best employee talent, benefits can make the
difference between securing the recruitment.
Keeping & managing employee’s turnover - Employee
turnover can be costly. Various sources estimate it can
cost anywhere from 30% to 200% of an employee’s
annual salary to replace them.
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DEFINE CONTRIBUTION (DC) PLAN
A defined contribution (DC) plan is a retirement plan in
which the employer, employee or both make contributions
on a regular basis.
Retirement income for employees is dependent on the
employees investment strategy and market returns.
DC Plan provides employees no incentive to stay and be
loyal to the City and therefore its residents.
DC Plans places the burden of an employees retirement
income on the Employee, who may not see the wisdom of
participating in a retirement plan.
A large number of SM employees do not take advantage
of the current ICMA 7% match the city offers.
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DEFINED BENEFITS (DB) PLAN
DB Plans offer a guaranteed retirement income
based upon the employee's earnings history,
tenure of service and age.
The greater number of years with the City, the
greater guaranteed income.
DB Plan offers employees a strong incentive to
stay and be loyal to the City and its residents.
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DEFINED BENEFITS (DB) PLAN
Employee Pension Contribution – The amount that the Employee must contribute from their paycheck.
Normal Retirement Age – The age that employees may retire without any reduction in benefit.
Number of Years to Vest – The minimum years required for employees to be eligible to obtain a Pension Benefit.
Final Avg. Compensation – The annual salary used to calculate the guaranteed retirement income.
Multiplier – A multiplier is the pension formula factor that determines the size of the lifetime annuity a pensioner receives.
COLA on Pension Benefits – Cost of Living Adjustment on the lifetime income to maintain the value of the pension benefit relative to inflation. 8
FINAL AVERAGE COMPENSATION EXAMPLE
Year 1 $36,000
Year 2 $38,000
Year 3 $40,000
Year 4 $42,000
Year 5 $44,000
$200,000
Divided By 5-Years 5
Final Avg. Compensation $40,000 9
MULTIPLIER’S USE AND
CALCULATION EXAMPLE
Number of Years Worked at the City 30
Pension Plan Multiplier 1.6%
Percentage of Final Avg. Compensation 48%
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PENSION BENEFIT
CALCULATION EXAMPLE
Final Avg. Compensation $40,000
Percentage of Final Avg. Compensation 48%
Lifetime Annual Pension Income $19,200
Monthly Benefit Amount $1,600
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CITY’S CURRENT RETIREMENT PLANS
Police DB Plan
General Employees
DB Plan (Prior to 2011)
DC Plan (Post 2011)
Department Heads DC Plan
Elected Officials Retirement
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Police Defined Benefit Plan
Employee Pension Contribution
(From Employee Paycheck) FY 16 - 12.1%
Normal Retirement Age 60 or 25-years of Service
Number of Years to Vest 10-years
Final Average Compensation Highest 5-years
Multiplier 3%
COLA on Pension Benefits Yes
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General Employee City
Defined Benefit Pre–2011
Employee Pension Contributions
(From Employee Paycheck) FY 11 - 13.7%
Normal Retirement Age 55
Number of Years to Vest 10-years
Final Avg. Compensation 5-years
Multiplier 2.75%
COLA on Pension Benefits Yes
ICMA City Investment Plan N/A General Employees
Mgmt. Class 7% Match 14
General Employees City
Defined Benefit Post-2011
Employee Pension Contribution
(From Employee Paycheck) FY 16 - 7%
Normal Retirement Age 60
Number of Years to Vest 10-years
Final Avg. Compensation 5-years
Multiplier 2.25%
COLA on Pension Benefits No
ICMA City Investment Plan
New & Opted-Out General
Employees &
Mgmt. Class Up-to 7%
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Elected Officials Retirement
Sec. 2-4.5. - Voluntary retirement of elective officers.
a)Whenever any elective officer of the City of South Miami has held any
elective office of the city or town for a period of twenty (20) years or
more consecutively except for one period not exceeding six (6)
months…
(Ord. No. 732, §§ 1—3, 9-17-71)
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FLORIDA RETIREMENT SYSTEM (FRS)
FRS is a retirement option for State, County
and City employees.
FRS serves approximately 1.2 million
government employees within the State of
Florida and is incredibly financially sound.
The current mandatory employee contribution
for the FRS program is 3% of an employee’s
salary for all employee classes. 17
FLORIDA RETIREMENT SYSTEM
APPLICABLE CLASSES
Regular Class
Special Risk Class
Senior Management Service Class (SMSC)
County or City’s Elected Officers – EOC
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PROPOSED NEW CITY RETIREMENT PLAN
General Employees
Opening the DB to all current employees,
revamping the plan, and requiring
participation of all new employees.
Adopting plan benefits which are similar to
FRS.
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ITEMS DEFINED City Defined Benefit
Pre - 2011
City Defined Benefit
Post - 2011
Employee Pension Contribution
(From Employee Paycheck) FY 11 - 13.7% FY 16 - 7%
Normal Retirement Age 55 60
Number of Years to Vest 10-years 10-years
Final Avg. Compensation 5-years 5-years
Multiplier 2.75 2.25
COLA on Pension Benefits Yes No
ICMA City Investment Plan N/A General Employees
Mgmt. Class 7% Match
New & Opted-Out General
Employees & Mgmt. Class
Up-to 7%
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Proposed 2015 Plan
Items Defined
City Defined Benefit
General Employees
City Defined Benefit
Admin Mngt. Class
Employee Pension Contribution
(From Employee Paycheck)
3% Contribution for
Employees Joining the
New Proposed Plan & a
Cap of 10% for
employees remaining in
the current pension plan
7% Contribution
Normal Retirement Age 65 or 33-years of Service 65 or 33-years of Service
Number of Years to Vest 10-years 3-years
Final Avg. Compensation 8-years 8-years
Multiplier 1.6% 3.0%
COLA on Pension Benefits No No
ICMA City Investment Plan
Opted-Out General Employee
3% Employee Contribution with
a City 7% Contribution-Vesting
After 1-year
Opted-Out Admin Mngt. Class
3% Employee Contribution with
a City 7% Contribution-Vesting
After 1-year
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COST BENEFIT ANALY SIS
The proposed changes to the City’s pension program
provides:
$47,000 Savings in the first-year over the existing DB
Plan*.
$347,000 savings over 5-years over the existing DB
Plan*.
$3.6 million Savings over the 30-years over the
existing DB Plan*.
While ensuring that all of our employees have a responsible
retirement program that will provide essential benefits to our
employees after their service to the City.
* Gabriel Roeder Smith & Company Actuarial Projection Study
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