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RES-8820 Amendment to Contract with Board of Adminstration of Public Employees' Retirement SystemRESOLUTION NO. 8820 A RESOLUTION OF INTENTION OF THE CITY COUNCIL OF THE CITY OF ORANGE TO APPROVE AN AMENDMENT TO THE CONTRACT BETWEEN THE BOARD OF ADMINISTRATION OF THE PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE CITY OF ORANGE TO PROVIDE THE 2% @ 55 FULL AND MODIFIED FORMULA (4% EMPLOYEE SHARING COST OF ADDITIONAL BENEFITS) FOR THE CITY'S FULL TIME AND BENEFITED PART-TIME NON- SAFETY EMPLOYEES.WHEREAS, the Public Employees' Retirement Law permits the participation of public agencies and their employees in the Public Employees'Retirement System by the execution of a contract, and sets forth the procedure by which said public agencies may elect to subject themselves and their employees to amendments to said Law; and WHEREAS, one of the steps in the procedures to amend this contract is the adoption by the governing body of the public agency of a resolution giving notice of its intention to approve an amendment to said contract, which resolution shall contain a summary of the change proposed in said contract; and WHEREAS, the PERS actuary has indicated the cost to the City of Orange will be approximately $1.28 million over 20 years, which is composed of a $4,026,788 unfunded liability less a savings of approximately $2.747 million to the City since employees are paying 4% of their salary towards the cost; and WHEREAS, the following is a statement of the proposed change:To Provide Section 20516 (4% Employee Sharing Cost of Additional Benefits) Applicable to 2% @ 55 Full and Modified Formula for Local Miscellaneous Members.NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Orange does hereby give notice of intention to approve an amendment to the contract between the City of Orange and the Board of Administration of the Public Employees' Retirement System, a copy of said amendment being attached hereto, as Exhibit "A" and by this reference made a part hereof.ADOPTED this 23'dday of ATTEST: 1A1~~ (' n-k~. d-City Clerk of th ity of Orange I hereby certify that the foregoing Resolution was duly and regularly adopted by the City Council of the City of Orange at a regular meeting thereof held on the 23rd day of September, 1997 by the following vote:AYES: COUNCIL MEMBERS: MURPHY, SLATER, COONTZ, SPURGEON NOES: COUNCIL MEMBERS: NONE ABSENT: COUNCIL MEMBERS: ALVAREZ Cu-d~tt~City Clerk of th ity AGENDA ITEM September 23, 1997 Meeting TO: Honorable Mayor and Members of the City Council THRU: David L. Rudat, City Manager FROM: Steven V. p~a , -1L Personnel! ~s \~ Director City Manager Finance Director To Be Presented By: Steven V. Phaill 11. SUBJECT Resolution No. 8820, A Resolution of Intention of the City Council of the City of Orange to Approve an Amendment to the Contract Between the Board of Administration of the Public Employees' Retirement System and the City of Orange to Provide the 2% @ 55 Retirement Program for the City's Full Time and Benefited Part-time Non- Safety Employees. 12. RECOMMENDATION Staff recommends that the Orange City Council adopt the attached Resolution of Intent and Ordinance to amend the City's contract with the Public Employees'Retirement System providing the 2% at age 55 retirement benefit formula for miscellaneous employees.13. FISCAL IMPACT The City's non-safety employees have agreed to have 4% deducted from their salaries to pay for funding the ongoing cost of the increased benefit. The City's contribution will not be an out-of-pocket expense, but rather would be based upon utilizing a portion of our current and future surplus with the Public Employees'Retirement System.With the 4% cost-sharing by the employees, the City's cost for this program, to be paid from the City's future surplus with PERS, represents roughly $1.28 million over a 20 year funding horizon, or roughly $64,000 per year for 20 years. This cost figure was developed by a PERS actuary, and a copy of this actuarial analysis is provided as Exhibit "8." There are two ways of showing the $1.28 million cost to the City for this benefit, as noted in the table below: Unfunded Liability Total Cost Total $4.027 Million $8.243 Million Employee Share $2.747 Million $6.963 Million Employer Share $1.280 Million $1.280 Million Column "A"Column "8" In Column "A," the Employer Share of the $1.28 million cost consists of the following components: 1) the retroactive unfunded liability to the City of $4,026,788; and 2) a future savings to the City of $2.747 million because employees are paying 4% of their salary towards this cost. In Column "8," the total cost (including the retroactive unfunded liability plus the cost of future benefits) is roughly $8.2 million, with employees paying $6.96 million and the City paying $1.28 million. The City's cost, paid out of our surplus account with PERS, retroactively covers service credit for past employees who have left the City of Orange but have not yet retired. An analysis of the City's surplus account with PERS, as estimated by PERS, is indicated in the table below: Current Surplus $2.8 million Surplus Applied to 2% @ 55 $1.3 million Future Surplus $1.5 million There is no impact on the City's General Fund because going to a 2% @ 55 benefit with 4% employee cost-sharing would still leave the City's retirement account with assets in excess of all employer liabilities. According to the PERS actuarial, this surplus is estimated to be roughly $1.5 million after implementation of the new benefit. In addition, the PERS actuary estimates that the City's employer contribution rate will decrease by 0. 055%.14. AUTHORIZATION/ GUIDELINES The Public Employees' Retirement Law permits the participation of public agencies and their employees in the Public Employees' Retirement System by the execution of a contract, and sets forth the procedure by which public agencies may elect to amend their contracts.5. DISCUSSION and BACKGROUND During the meet and confer process in 1996, the issue of implementing the PERS 2%at Age 55 retirement program became an item of discussion at the various bargaining tables. Through this process, the City agreed to conduct a vote asking all affected employees if they wish to increase their current retirement benefit from the 2% at Age 60 formula to the 2% at Age 55 formula, under the condition that the employees pay the ITEM PAGE 9/23/ cost for the increased benefit. If the majority of the affected employees voted "yes" to pay the cost for this increased benefit, management committed to present this package to the City Council for consideration. The City Council would then determine whether the City would amend its contract with PERS to provide this increased benefit formula. On Thursday, August 21, 1997, an employee vote was conducted through the City Clerk's Office. The results of this vote showed that 81 % of the employees who voted were in favor of paying for the PERS 2% at 55 retirement program. OBJECTIVES If approved by the City Council, staff believes this enhanced retirement program will accomplish the following objectives: 1. The 2% at 55 program will speed up the goal of the City's Organizational Transition Plan (OTP). This will occur by reducing upper management positions and replacing them either with line-level workers that will have a direct service impact to the community, or not replacing them at all.2. Unlike previous retirement incentives provided to qualified employees in the past,this program will have no out-of-pocket cost to the City.3. This program will enhance the City's ability to attract qualified applicants for future positions throughout the organization.4. From a morale standpoint, this program will recognize the contributions of our non-safety employees who have accepted a 10% salary cut during the past 5 years of the work furlough program.DESCRIPTION OF THE 2% AT 55 RETIREMENT BENEFIT Currently, the City of Orange has two retirement plans for its employees; Local Safety which is the 2% @ 50 formula, and Miscellaneous which is the 2% @ 60 formula. The 2% @ 55 formula for miscellaneous members has been a contract option for approximately 5 years and during this time, approximately 200 agencies, including approximately 25% of all California cities in the PERS system, have amended their contracts to provide this level of benefit.In Orange County, the cities of Garden Grove, Placentia, and Santa Ana have already adopted such programs, where the employer pays the majority of the cost for the benefit, as indicated in the table below:Agency City Pays Employees Pay Garden Grove 1. 943% 1.0%Placentia 4. 187% 0.0%Santa Ana 2. 266% 1.0%ITEM PAGE As noted earlier, if adopted in Orange, our employees will pay 4.0% of their salary to offset the costs for this benefit. In addition, at least two other Orange County cities, Costa Mesa and Huntington Beach, are actively considering adopting this benefit for their miscellaneous employees as well. The PERS Retirement program is a defined benefit plan and is calculated as follows: Years of Service x % of salary = Retirement Benefit In any of the PERS formulas, the percentage will vary by the retiree's age at the time of retirement. The 2% @ 60 plan means if a PERS member with 35 years of service retires at age 60, the percentage in the formula will be 2%. This member would multiply 2% by the number of years of service in PERS (35) to calculate their retirement benefit, which would be 70% of final salary. In the 2% @ 55 plan, if a PERS member has 30 years of service and retires at age 55, this member would multiply 2% by the years of service (30) to calculate their retirement benefit, which is 60% of their final salary. For members who retire earlier, the percentage of pay is reduced to 1.426% at age 50, which gradually increases for each attained age to the maximum of 2.418% at age 63. Members age 63 or older would receive the same allowance as under the 2% at 60 formula. If the 2% @ 55 plan were to be adopted, the following would occur: 1. All current City of Orange non-sworn eligible employees would automatically be enrolled in this plan and all previous years of service with the City of Orange would be credited with the new plan. Years of service at another PERS agency would still be credited at that agency's plan rate. Former City of Orange employees that are now working at another agency or otherwise have not started drawing their retirement would also have their service with Orange credited at 2% @ 55.2. All future eligible City of Orange employees would be enrolled at the time of hiring in the 2% @ 55 plan for their subsequent time with Orange. If they came from another agency, the time accrued with that agency would not be affected, and the retirement credits for that time would be at the existing contract rate that agency had with PERS.CONTRACT AMENDMENT PROCESS In order to formally amend the contract with PERS, the City, during a regular Council meeting, must adopt this Resolution of Intent, adopt an ordinance amending the contract, estimate the total cost of the amendment, provide for any public comment,and then publish such notice in a local newspaper.The Council may approve the Resolution of Intent and approve the first reading of the Ordinance during the same Council meeting. The Government Code requires that the ITEM PAGE 9/23/ second reading of the Ordinance must be at least twenty (20) days after the first reading. The second and final reading is scheduled to occur on the October 14, 1997 City Council agenda. The contract amendment would become effective with PERS on December 7,1997. 16. ATTACHMENTS Resolution No. 8820 Ordinance No. 21- 97 Exhibit "A," Amendment to Contract Between the Board of Administration of the Public Employees' Retirement System and the City Council of the City of Orange Exhibit "B," PERS Actuarial Analysis dated March 11, 1997 ITEM PAGE 9/23/ CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM Actuarial and Employer Services Division Public Agency Contract Services P.O. Box 942709 Sacramento, CA 94229- 2709 916) 326-3420 CERTIFICATION OF COMPLIANCE WITH GOVERNMENT CODE SECTION 7507 I hereby certify that in accordance with Section 7507 of the Government Code the future annual costs as determined by the System Actuary and/or the increase in retirement benefit(s) have been made public at a public meeting of the City Council governing body)of the City of Orange public agency)on September 23. 1997 date)which is at least two weeks prior to the adoption of the Resolution/Ordinance.C4A1-DA- 1~ ~ ~.AA" A"'.r Clerk/ Secretary City Clerk Title Date September 25 I 1997 CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM Actuarial and Employer Services Division Public Agency Contract Services P.O. Box 942709 Sacramento, CA 94229- 2709 916) 326-3420 CERTIFICATION OF GOVERNING BODY' S ACTION I hereby certify that the foregoing is a true and correct copy of a Resolution adopted by the City Council governing body) of the City of Orange public agency)on September 23, 1997 .date)CA~AlAALJ~ J rlt- Ac-ad Clerk/ Secretary City Clerk Title EXHIBIT "A" AMENDMENT TO CONTRACT BETWEEN THE BOARD OF ADMINISTRATION OF THE PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE CITY COUNCIL OF THE CITY OF ORANGE The Board of Administration. Public Employees' Retirement System. hereinafter referred 10 as Board, and the governing body of above public agency. hereinafter referred 10 as Public Agency. having entered into a contract effective July 1. 1958, and witnessed May 13, 1958, and as amended effective October 1. 1966, October 7. 1971. January 16. 1977, August 26, 1979. April 1. 1982, July 24, 1983, March 31. 1985. December 3 L 1989 and July 23, 1991 which provides for participation of Public Agency in said System, Board and Public Agency hereby agree as follows: A. Paragraphs 1 through 12 are hereby stricken from said contract as executed effective July 23, 1991, and hereby replaced by the following paragraphs numbered I through 12 inclusive: I. All words and terms used herein which are defined in the Public Employees' Retirement Law shall have the meaning as defined therein unless otherwise specifically provided. "Normal retirement age" shall mean age 55 for local miscellaneous members and age 50 for local safety members. 2. Public Agency shall participate in the Public Employees' Retirement System from and after July 1. 1958 making its employees as hereinafter provided, members of said System subject to all provisions of the Public Employees' Retirement Law except such as apply only on election of a contracting agency and are not provided for herein and to all amendments to said Law hereafter enacted except those, which by express provisions thereof, apply only on the election of a contracting agency. 3. Employees of Public Agency in the following classes shall become members of said Retirement System except such in each such class as are excluded by law or this agreement: a. Local Fire Fighters (herein referred to as local safety members); b. Local Police Officers (herein referred to as local safety members); c. Employees other than local safety members (herein referred to as local miscellaneous members). 4. In addition to the classes of employees excluded from membership by said Retirement Law, the following classes of employees shall not become members of said Retirement System: NO ADDITIONAL EXCLUSIONS 5. The percentage of final compensation to be provided for local miscellaneous members for each year of credited prior and current service shall be determined in accordance with Section 21354 of said Retirement Law, subject to the reduction provided therein for service prior to September 30, 197 I, termination of Social Security, for members whose service has been included in Federal Social Security 2% at age 55 Full and Modified). 6. The percentage of final compensation to be provided for each year of credited prior and current service as a local safety member shall be determined in accordance with Section 21362 of said Retirement Law (2% at age 50 Full). 7. Public Agency elected and elects to be subject to the following optional provIsIOns: a. Sections 21624, 21626 and 21628 (Post-Retirement Survivor Allowance).b. Section 21573 (Third Level of 1959 Survivor Benefits).c. Section 20042 (One-Year Final Compensation).d. Section 20903 (Two Years Additional Service Credit).e. Section 20516 (Public Agency and its employees have agreed to share the cost of the following benefit):2% @ 55 Full and Modified formula for local miscellaneous members.From and after the effective date of this amendment to contract the miscellaneous employees of Public Agency shall be assessed an additional 4% of their compensation for a total contribution rate of 11 % pursuant to Government Code 8. Public Agency. in accordance with Government Code Section 20790. ceased to be an "employer" for purposes of Section 20834 effective on January 16, 1977. Accumulated contributions of Public Agency shall be fixed and determined as provided in Government Code Section 20834, and accumulated contributions thereafter shall be held by the Board as provided in Government Code Section 20834. 9. Public Agency shall contribute to said Retirement System the contributions determined by actuarial valuations of prior and future service liability with respect to local miscellaneous members and local safety members of said Retirement System. 10. Public Agency shall also contribute to said Retirement System as follows: a. Per covered member, $1.50 per month on account of the liability for the 1959 Survivor Benefits provided under Section 21573 of said Retirement Law. (Subject to annual change.) In addition, all assets and liabilities of Public Agency and its employees shall be pooled in a single account. based on term insurance rates, for survivors of all local miscellaneous members and local safety members. b. A reasonable amount, as fixed by the Board, payable in one installment within 60 days of date of contract to cover the costs of administering said System as it affects the employees of Public Agency, not including the costs of special valuations or of the periodic investigation and valuations required by law. c. A reasonable amount, as fixed by the Board, payable in one installment as the occasions arise, to cover the costs of special valuations on account of employees of Public Agency, and costs of the periodic investigation and valuations required by law. II. Contributions required of Public Agency and its employees shall be subject to adjustment by Board on account of amendments to the Public Employees' Retirement Law, and on account of the experience under the Retirement System as determined by the periodic investigation and valuation required by said Retirement Law. 12. Contributions required of Public Agency and its employees shall be paid by Public Agency to the Retirement System within fifteen days after the end of the period to which said contributions refer or as may be prescribed by Board regulation. If more or less than the correct amount of contributions is paid for any period, proper adjustment shall be made in connection with subsequent remittances. Adjustments on account of errors in contributions required of any employee may be made by direct payments between the employee and the Board. B.This amendment shall be effective on the day of 19_ BOARD OF ADMINISTRATION PUBLIC EMPLOYEES' RETIREMENT SYSTEM CITY COUNCIL OF THE CITY OF ORANGE BY PRESIDING OFFICERBY KENNETH W. MARZION, CHIEF ACTUARIAL & EMPLOYER SERVICES DIVISION PUBLIC EMPLOYEES' RETIREMENT SYSTEM Witness Date Attest: Clerk AMENDMENT PERS-CON-702A (Rev.