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HomeMy WebLinkAbout2003-12-18 MinutesFiremen's Pension and Relief Fund Meeting Minutes December I8, 2003 Page I of 8 Firemen's Pension and Relief Fund Meeting Minutes December 18, 2003 A meeting of the Fayetteville Firemen's Pension and Relief Fund was held at 10:30 a.m. on December 18, 2003 in Room 111 of the City Administration Building. Present: Danny Farrar, Pete Reagan, Robert Johnson, Marion Doss, Ronnie Wood, Mayor Coody, Sondra Smith, Secretary, City Attorney Kit Williams, Marsha Farthing, Steve Davis, and Amber Wood. The meeting was called to order by Mayor Coody. Approval of the Minutes of November 20, 2003: Pete Regan moved to approve the minutes. Ronnie Wood seconded. The motion to approve the minutes passed unanimously. Approval of the Pension List for January, 2003: Earvel Schader passed away, his pension benefits will now go to his widow. Pete Reagan moved to approve the Pension List. Marion Doss seconded. The motion to approve the Pension List passed unanimously. Old Business: A Resolution to approve a 10 year DROP: Mayor Coody: This is going to extend the DROP program from five years to ten. How many people does this affect? Pete Reagan: It will affect 10 people if they choose to do it. Sondra Smith: In your packet there are three pages that accounting completed that explain how this will affect the plan. Employee A, B and C are employees that draw different salary amounts and their payout on a five year DROP versus their payout on a ten year DROP. When they go to a ten year DROP they only draw 75% of their salary and they only draw 1.5% interest on their funds. Instead of paying the difference from five to ten years on a monthly basis we are paying it out in a lump sum distribution. Mayor Coody: Are these numbers per employee? Sondra Smith: Yes. Mayor Coody: So if I was a fireman on a ten year DROP and I qualified then I would get a lump sum check for $656,000? Firemen's Pension and Relief Fund Meeting Minutes December I8, 2003 Page 2 of 8 Kit Williams: At the end of the ten year DROP. Sondra Smith: Depending on your salary, these numbers are just estimates at different pay levels. You could only get $393,618 based on your salary. Kit Williams: What were the last couple of DROP check amounts? Sondra Smith: The last one was about $230,000. Marsha Farthing: They run from $150,000 to $260,000. Sondra Smith: The next page shows the difference they would receive by going to a ten year DROP. The difference would be less than they would actually receive if they had drawn their pension during the five years on a monthly basis. Kit Williams: From the plan? Sondra Smith: Yes, from the plan. Kit Williams: But they are getting their salary. Sondra Smith: Yes. Kit Williams: Are their pension benefits based on the initial retirement age and not on the retirement age after five or after ten years? Pete Reagan: Yes. Marsha Farthing: When they elect DROP. Sondra Smith: So if they receive salary increases during those ten years those increases would not be included, the amount they draw is based on the time they elect the DROP. Marsha Farthing: These are estimated employee wages. Sondra Smith: I think what accounting did was estimate someone at the highest end of the spectrum, the middle and the low end of the spectrum. Marion Doss: What employee was used for Employee A? Marsha Farthing: I would not focus on who it is. This was just a test that was used. Marion Doss: This is a hypothetical employee? Marsha Farthing: These are somewhat based on someone that could be at that level when they retire. Robert Johnson: This could be based on if they start the DROP now. Firemen's Pension and Relief Fund Meeting Minutes December I8, 2003 Page 3 of 8 Kit Williams: If they start later they are going to start at a higher level because of their income. Do we have anyone that has not entered the DROP that is still eligible to enter the DROP? Marsha Farthing: There is one person. Sondra Smith: Probably the more realistic numbers are Employee B and C. Marion Doss: Yes, I think so. A discussion followed on going to a ten year DROP. Sondra Smith: The last page shows how this would affect the General Fund. The net amount that could affect the General Fund because of someone staying on DROP, earning a higher salary than a new employee would be at the maximum about $2,700 per year. Ronnie Wood: That is what it would cost the plan? Sondra Smith: That is what it would cost the General Fund of the city. Kit Williams: It is not going to cost the plan it sounds like; it sounds like the plan will be paying out less. Sondra Smith: The plan will be paying out less, and the city will be paying out a little bit more. Pete Reagan: In these calculations did we figure in hiring someone off the street to fill the position or promoting someone into the position? Marsha Farthing: I am not real sure how that was figured. Kit Williams: I am sure they had to take into account that everyone is going to move but they are not going to have the same step that you are in. Pete Reagan: There is a lot of difference between an entry level position and a current position. Sondra Smith: There are so many variables when you are calculating this. I needed to see how it would affect the plan and the city. It doesn't hurt the plan and it does not affect the city by that much so I really do not have a problem with the ten year DROP. Robert Johnson: The maximum is about $2,700 per person per year. Marion Doss: I don't see how the DROP can hurt the plan at all or I would never have voted for the DROP. A discussion followed on extending the DROP from five to ten years. Kit Williams: Marsha, how does this affect the LOPFI plan, you have someone that will not be contributing to LOPFI because of someone staying on the old plan, so they are not accruing benefits under LOPFI and they are not paying anything, does that have any affect one way or the other on the LOPFI plan? Firemen's Pension and Relief Fund Meeting Minutes December I8, 2003 Page 4 of 8 Marsha Farthing: I don't think so. The LOPFI administrators project what they need for the people to retire Kit Williams: Delaying new members from LOPFI will not make a difference to the LOPFI plan? Marsha Farthing: No. The only problem is if we felt the old plan was in trouble we might have to bring it into LOPFI and that would affect it. Mayor Coody: How many people have not signed up for DROP yet, one? How many of the rest of you would this affect? Pete Reagan: One has not signed up for DROP yet. It would affect all of us, I only know of one person right now that has requested it. Sondra Smith: Not everyone will do the ten year DROP. Marion Doss: Personally I don't plan on going to a ten year DROP. I am happy with the five year, I guess I could change my mind, but I don't plan on it. I think most people when they sign up for DROP as a rule they are ready for it. A discussion followed on the ten year DROP. Pete Reagan moved to adopt the resolution approving a ten year DROP. Marion Doss seconded. The resolution passed 6-1. Pete Reagan, Ronnie Wood, Robert Johnson, Marion Doss, Danny Farrar and Sondra Smith voting yes. Mayor Coody voting no. Kit Williams: Everyone that voted in favor of the ten year DROP needs to sign the resolution. Sondra Smith: Yes. A Resolution to approve a 3% temporary compounded COLA for three years for all Paid Pensioners: Kit Williams: This is for three years? Pete Reagan: Three year temporary as per the Osborn and Carreiro report recommendation. Kit Williams: At the end of three years, does it stay at that level from then on. Pete Reagan: Yes, unless it comes back to this board. Kit Williams: So this board could reduce it back or continue it, other than that it would stay, is this compounded? Pete Reagan: Yes. Steve Davis: I think the actuary ran their assessment based on a compounded COLA. Kit Williams: What affect will this have on the plan Steve? Firemen's Pension and Relief Fund Meeting Minutes December I8, 2003 Page 5 of 8 Pete Reagan: The unfunded approved liability goes down, so it is not a large cost to the plan. Is that right Steve? Steve Davis: With the extended DROP or extended employment the plan is actuarially sound in 2021, with the current plan as it exists; it is actuarially sound in 2020. It never becomes actuarially sound, but based on this report it says "a 3% permanent COLA can NOT be sustained under the current assumptions. As we have discussed, it would need to be a temporary COLA and I would have to see how many years it would be sustainable. A 3% compound COLA for the next three years and then continuing at those benefit levels is projected to have assets sufficient to meet all benefit obligations in the future". Mayor Coody: What assumptions are they using for the rate of return? Steve Davis: They are following the Pension Review Board requirements on rate of return and I believe that is 8%. Mayor Coody: 8%, so if we get an 8% rate of return this may be doable for three years? Steve Davis: That is correct. Mayor Coody: What is the actual rate of return that we have been seeing? Steve Davis: I am not sure. Kit Williams: It has not been 8%. Pete Reagan: We have had years with 27%, 21 % and 18%. Kit Williams: But we have had years when it was down. Pete Reagan: We have had two years of negative. That is the rate of return that was set by the Arkansas Pension Review Board for running these numbers. Steve Davis: They do not have an option in selecting any other rate of return. Mayor Coody: So that is the rule and if the 8% is met then the temporary COLA may work, if that 8% isn't met than this temporary COLA even though we are paying it will hurt the plan. Steve Davis: That is correct. Kit Williams: In the statues they talk about a benefit increase over a 30 year period, does he use a 30 year period? Steve Davis: Under the closed plan the statues allow them to amortize debts over a five year period. LOPFI is allowed to amortize debts over 30. This plan is not allowed to amortize over 30 years by statues only LOPFI, that is my understanding of the difference in the two laws. Kit Williams: I thought this meant that the plan would have to be actuarially sound for 30 years, is that not what they mean? Firemen's Pension and Relief Fund Meeting Minutes December I8, 2003 Page 6 of 8 Steve Davis: No, just able to amortize the debt over that time period. Pete Reagan: When they run these actuary assumptions it is the worst case scenario. Kit Williams: 8% is not the worst case scenario. Mayor Coody: That is pretty best case scenario. Steve Davis: The letter from Osborn and Carreiro, the last projection actually shows both benefit enhancements together. It states these increases together would be considered actuarially sound under the rules of the Arkansas Fire and Police Pension Review Board, even though they are showing in 2027 $2,763,000 in funded accrued actuarially liability under the rules established by the Arkansas Fire and Police Pension Review Board they are still considered actuarially sound. I can only speculate as to why that would be, my guess is that the annual income in each one of those years is sufficient to meet the expenses. Kit Williams: The employer contributions are higher now, then they go down and then they start coming back up again. Is that the millage? Pete Reagan: Isn't that insurance turn back too? Steve Davis: The millage is somewhere between $200,000 and $300,000 so any difference above $200,000 to $300,000 would have to be insurance turn back. Kit Williams: Does it look like the General Fund will not have to use its money to fund this pension? Steve Davis: They have $3,758,000 in assets in 2027 and an actuarial accrued liability of $6.5 million, so through 2027 based on this report General Fund would not have to give the fund any money. Danny Farrar: I would like the resolution to read all pensioners. I would like to include the volunteers. Kit Williams: We have to do what ever they tell us we can do, were the volunteers included? Marion Doss: They included the entire list. Steve Davis: The entire list may have been sent down but I don't know what was included. Danny Farrar: I spoke to the actuary and they said everyone was included. There was a discussion on including all pensioners in the 3% temporary COLA. Mayor Coody: What is the dollar amount we are looking at? Everyone gets annual increases don't they? Sondra Smith: No. Firemen's Pension and Relief Fund Meeting Minutes December I8, 2003 Page 7 of 8 Mayor Coody: If the 3% COLA is enacted and there is only a 6% rate of return who makes up that difference. Sondra Smith: The pension fund. Mayor Coody: If the pension fund doesn't then the city has to, right? Steve Davis: There are several options, it could be turned over to the Pension Guarantee Board of the State of Arkansas and benefits could be adjusted to match whatever resources are available, that is the worst case scenario. When we get to that point there are decisions that have to be made before we will find out if the General Fund has to put money toward the plan. Danny Farrar moved to approve the Resolution of a 3% temporary COLA for three years to include all pensioners. Marion Doss seconded. The resolution passed unanimously. A Resolution to approve working after DROP: Mayor Coody: So you would get your lump sum money from DROP and you keep working, do you keep building retirement? Pete Reagan: No sir, you no longer pay into the fund, the city no longer pays into the fund, your DROP is frozen you can not draw it until you leave employment. It is a cost savings to the fund. Marion Doss: You just keep working and drawing your regular salary. Mayor Coody: What I am afraid of is letting folks work and then you can't get rid of them and they take up space and filling slots that need to be filled by young vigorous strong fire fighters. Is there a chance that that could happen. Marion Doss: I don't think so. Pete Reagan: There is always that chance. Steve Davis: How many people are eligible for this working after DROP? Pete Reagan: Eleven. A discussion followed on working after DROP. Pete Regan moved to adopt the working after DROP resolution. Marion Doss seconded. The resolution passed 6-0. Mayor Coody was absent during the vote. Ashland Management: Postponed until the next meeting. New Business: Firemen's Pension and Relief Fund Meeting Minutes December I8, 2003 Page 8 of 8 Dennis Ledbetter Retirement: Pete Reagan moved to approve Dennis Ledbetter's retirement. Ronnie Wood seconded. The motion passed 6-0. Mayor Coody was absent during the vote. The following items were handed out: • A copy of Earvel Schader's death certificate. • A copy of The Monitor. • A copy of the budget reports. • A copy of the Osborn, Carreiro & Associates report. • A copy of the Arkansas Fire and Police Pension Review Board — 2003 Legislative changes. Pete Reagan moved to adjourn. Ronnie Wood seconded. Meeting adjourned at 11:25 AM.