OFFICE OF
THE CITY COUNCIL
CHERYL L. BROWN 117 WEST DUVAL STREET,
DIRECTOR 4TH
FLOOR, CITY HALL
OFFICE (904) 630-1452
FAX (904) 630-2906
E-MAIL: CLBROWN@coj.net
PENSION WORKSHOP MINUTES
August 8, 2011
1:00 p.m.
Location: City Council Chamber, 1st floor, City Hall –
In attendance: Council Members Stephen Joost, Ray Holt, Johnny Gaffney, Doyle Carter, John Crescimbeni, Matt Schellenberg, Robin Lumb, Bill Bishop, Reggie Brown, Lori Boyer, Jim Love, Warren Jones, Bill Gulliford and Greg Anderson
Excused: Council Members Kimberly Daniels and Clay Yarborough
Also: Cindy Laquidara and Steve Rohan – Office of General Counsel; Kirk Sherman – Council Auditor’s Office; Mickey Miller – Administration and Finance Department; Chris Hand, Ronald Belton and Jessica Deal – Mayor’s Office; John Keane and Dick Cohee – Police and Fire Pension Fund; Jeff Clements – City Council Research; Steve Patterson – Florida Times-Union; David Chapman – Financial News and Daily Record; Tony Bates, Joe Andrews
Meeting Convened: 1:04 p.m.
President Joost convened the meeting and stated that the objective of the workshop is to develop a factual basis for understanding how pensions work – the nuts and bolts of contributions, accrued actuarial liability, assumed rates of return, etc. The purpose is not to talk about policy or strategy, but merely to give everyone the same base of information about how the plans currently work.
General Counsel Cindy Laquidara stated that the City’s pension system, as defined in the Ordinance Code, includes the General Employees Pension Plan (GEPP), the Correctional Officers Pension Plan (COPP), and the Police and Fire Pension Fund (PFPF). All civil service employees must be in the pension system; elected and appointed officials have the option to be in the pension or not. The City has a Section 218 exemption from participation in the Social Security System which is very rare and is no longer being approved by the federal government. She urged the council members to be extremely cognizant of this exemption and to ensure that any change made to the pension plans does not jeopardize this exemption in any way.
The Pension Board of Trustees operates the GEPP and the COPP via a delegation of authority from the City Council. All matters involving pensions should go through the Pension Board before any changes are made. The final decision is the Council’s but only after consultation with the Pension Board, which should be a team effort. The COPP hires outside counsel to represent it even though that’s not what the City Charter says, but the relationship between the COPP’s counsel and the Office of General Counsel has always been good. The OGC hires outside counsel to deal with specific pension matters when necessary in order to get an expert opinion.
The PFPF board has a different structure and different powers than the Pension Board because it was set up that way by state law. The COPP is different still because there are physical condition requirements that apply to potential members.
Ms. Laquidara urged that before taking any action on pension matters, the Council take into consideration: 1) the City Charter, 2) the Ordinance Code, 3) state law, and 4) IRS regulations.
In response to a question, Ms. Laquidara stated that membership on the Pension Board of Trustees involves particular qualifications – some City officials as ex officio members, several citizen members with specific qualifications, and active employee and retiree members elected by those constituencies. Their fiduciary responsibility is to the trust itself, abiding by the rules set forth by City Council. They run the day-to-day operations of the system and make recommendations to Council for any needed changes. None of the members are paid except for the ex officio City employees. In response to a question about whether it is possible to get out of the defined benefit plan, Ms. Laquidara stated that it was possible within limited parameters. In response to a question about the state’s involvement in the PFPF, she reiterated that the board was established that way by the Duval Legislative Delegation via a J-bill that the City opposed.
In response to a question from Council Member Boyer about the City’s ability or inability to diminish pension rights of existing employees, Ms. Laquidara stated that there are different ways to interpret that scenario and a full legal opinion would be needed to address a specific set of facts. In general, future application of changes to new employees is very different than retroactive application to existing employees. The City may certainly adopt a new set of rules and apply them to future hires who would not have any claim to the rules and benefits that apply to current employees. President Joost stated that 70% of the City’s workforce is unionized, so the City can’t just change anything it wants, even for future employees, without collectively bargaining it with the unions, and that process limits what Council can do and when in the process.
John Keane, Executive Director of the Police and Fire Pension Fund, distributed printed materials and made a presentation about the fund’s history and operations. The PFPF was created by the State Legislature in 1937 and is funded in part by funds generated pursuant to Chapter 175 and 185 of the Florida Statutes (insurance premium funds). Mr. Keane explained the history of the settlement agreement between the City and the PFPF which resulted from a lawsuit filed in the aftermath of state changes to Chapters 175 and 185 and a disagreement over what those changes meant to the City and the PFPF. In 2000 a restated agreement was approved that committed $30 million in Chapter 175/185 funds to pay for a specific bundle of pension benefits through 2030. Chapter 112 of the Florida Statutes requires that pension plans be operated and funded in an actuarially sound manner and that an actuarial study be done every 3 years. The new state actuary in the Division of Retirement is currently not approving any actuarial studies with assumed rates of return exceeding 7.75%; the PFPF plan assumes 8.5%.
Dick Cohee, Deputy Director of the PFPF, made a presentation on the history of City funding contributions to the GEPP and PFPF. Contributions to the GEPP were much higher than those to the PFPF from 1978 to 2000; since 2000 the ratio has swung the other way. Unfunded accrued actuarial liability (UAAL) has varied widely up and down for both pension plans over the years, from very low funding percentages to well over 100% funded, depending on a variety of factors, primarily the performance of the investment markets. The stock market collapses in 2000 and 2008-9 have seriously undermined the funding ratios in the last decade. The City’s use of Pension Excess Contribution (PEC) funds to make the employer’s pension contributions from 1995 to 2006 facilitated the series of continual millage reductions in those years, but at the cost of the investment earnings that regular contributions from the General Fund would have produced over those years. The PFPF estimates that the use of PEC to make the employer contributions cost the GEPP and PFPF a combined $275 million through 2006 and an estimated $315 million through 2012.
The PFPF agreed with former Mayor Peyton on a pension reform
package that provided for future benefits that are fair, reasonable and
competitive. The fund surveyed 10 other
comparable Florida cities and counties and found that Jacksonville’s pension
plan is less rich than most in that it does not offer a 401(K) option and does
not cover employee participation in Social Security, but that it does offer a
better cost of living adjustment (COLA) and better surviving spousal benefit
than most other plans. Overall the PFPF
plan is fairly comparable with others in
Council Member Brown asked for information on the costs of
the spousal benefit, stating that it seemed like a fairly generous benefit
since the spouse did not pay into the plan.
In response to a question, Mr. Cohee indicated that other jurisdictions
offer a spousal benefit but frequently require that the employees pay some of
the cost by opting for a lower employee benefit if there is to be a spousal
benefit after the retiree’s death. In
response to a question from Council Member Boyer, Mr. Cohee stated that the
City has consistently made the employer contributions determined by the
actuarial studies. Ms. Boyer speculated
that some of the liability for current the UAAL should logically lie with the
pension boards and actuaries since they approved the use of assumptions that
have proven to be insufficient to keep the pension plans fully funded. In response to a question from Council Member
Crescimbeni, Mr. Cohee stated that the PFPF publishes its rate of investment
returns on a monthly basis in its retiree newsletter and also produces a
quarterly money manager report showing its rate of return and comparing
CAO-designate Ronnie Belton introduced himself to the
committee and then called on current CAO Mickey Miller to make a presentation
on the mechanics of pension systems and funding. Mr. Miller stated that his presentation was a
generic “Pensions 101” overview of the operation of pension systems in general,
not of
Mr. Miller stated that pension contributions change for one or more of 4 factors: 1) changes in benefits, 2) changes in plan assumptions or methods, 3) demographic experience, 4) asset experience. The best way to dig out of a UAAL hole is through a level percentage of pay contribution method and long term amortization of the UAAL, but it takes many years to work and starts with several years of negative amortization during which the UAAL grows before beginning to shrink.
In response to a question from Council Member Gulliford, Mr.
Miller stated that the guaranteed spousal benefit had a substantial effect on
the contribution rate. In response to a
question from Council Member Anderson he stated that
Cindy Laquidara encouraged the council members to ask any detailed questions of members of the administration or of the PFPF. She will deal with further specifics in the context of future shade meetings.
The meeting was adjourned at 3:25 p.m.
Jeff Clements, Council Research Division
8.12.11
Posted: 5:00 p.m.