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Home My WebLink About0343.094-, I 'I • .. , : .~., -.:",,.;,._--.-.. ' Juno: 23, 1994 HONORA9LE CITY COUNC1L Palo Alto, California Members of the council: 17 In November 1993, the Public Employees Retirement System (PERS) initiated billings to contract agencies for liabilities resulting frorl o:c.ployeo decisions to elect converoion of their final Veal" retiro~ont system contributions to compensation. staff estimates tho total cost of these conversions for July 1993 to January 1995 'Will be $833,000. Funding is av.ailable within the City's PERS account for the $181 s 000 liability attributed to non-saf.oty (n1.scellaneous) employee retirements and $192,000 is available for safety employee retirements. The purpose of this report is to r.equest an additional $460,000 appropriation in the General Fund 1994-95 budget, for payment of the remaining liability that has reBulted from final year salary conversions elected in the retirement of safety employees. BlptglO!!.rul 'Since 1988, the city of Palo Alto, in its three labor agreements and ~anagement co~pensation plan, has allowed employens to convert tha city-paid employeD PERS contributions to a salary adjustment fol' the final twelve months irnmediately prior to retirement. The benefit of such a conversion to the employe.e is a highe,r final compensation on which retirement benefits are calculated. PERS 'Widely allo\>,'ed such conversions, beginning in the early 1980's, More recently, in an effort to curb what can be considered to be pension abuse and to ensure accountability, the PERS Board adopted a policy late in 1992 which would disallow the report.ing of sllch conversions as "compensationll for the calculation of retirement CHR:343:94 \ \ I I \ i I i benefits, effectively neqatlng the value of the tinal year conversion. The option. to make this conversion will sunse.t on June 30, 1994, unl-ess the city il'llplEll:l.onto this benofit on a pre funded basis. Efr-actiVo. July 1. 1994, 89 53 ",-'as Elnacted, 'Which allows the city to continoo this benofit. by amending the contract "itil PERS and by pre funding tho benefit. The e"ployer contribution rate will be adjustod to reflect this benefit, co~ftl~ncing with tho effoctive: date of the amendment to the contract, For conversions cOl"pleted prior to June '30, 1993, PERS has adjusted eraployer contribution rat438 to provide tor the increased retiremsnt beneUts. PERS i. requiring that unf'Jnded liabil1tiea resulting fron converai-ons completed after July 1, 1993 must bo patd from s\lrplu& asset aCColmtn {if any) bofore any othor method can be considorcd~ If no surplIJ9 ~ccount exists ~N_Q.R:r.iill N,P.W.§L9X..Q..Y.Q, ngcIlciof); h~vQ boon (jiven four-options tor funding the U.ahility: hU::;p gun paYl=lent; anortlzation over a period of up to 60 rtonth8-, with intorest accruing; adjustment of the employer ra.to; or a conbin.'ltion of theRe pa}'l1ent Ilothods. In essence, the City J!1ay elect to aither pay in lu~p SUI'!l, fully funding the liability incurred to date COl" cetircJlcnt bonefitsj or spread the co~t into future periodo, and pay int~rest Oh the deferral of full paY:il:ent. Althouqh PERS required that the City elect a payment :method. for pftynontB on these bills pt"ior to .Karch 15, additional time for chooainq a payt'lllnt aothod ""as granted, pendJ.nq the receipt of information froN PERS OIl the total of all the retirernants which would bo covered (CHR 213:94). In lnte April 199-4, the city received fl'oJll PERS a calculation of the unfunded liability l"esulting tro1'll the final year conversion option. ,'This calculation included five non-public safety (J!liscellaneoufl) retiraos and nix Gafety retirees, who began conversions on July 1. 1992 and ret1r~d prior to Hay 1994. The are:ount of unfunded liability ia $94,000 foX' the niscellaneous retirees .and $310~ 000 tor, tho safety retiroas. Thoro are eloven other elUployees who elected final year convarslon Rnd will be rot iring trOll Hay 1994 to January 1995, who -were not included in these calculations, An ostimate of these unfunded liabilities, based on pay rates and datas of retirement, is $87,000 for miscel1atlcous. employeos and $-340,000 for .safety employees. The total unfunded liability resultinq from final year conversions is thsrefore ostimated to be $833,000: $181,000 for miscellaneous and $652,000 for safety. PERS noted that the unfunded liabilities billing is an ongOing process and, as retirees are identified and conversions are verified, the City will be billed on a quarterly basis. CHR: 343: 94 2 L , \ ,. ,-.\' ., .-n' .... "" ", '., .,-': .. .. ' ',' ..... _--~- Appliqation o( surplus ~C99unt On May 19, 1994, the city received its Actuarial ValuQtion Report for F~ 1994/95 from PERS. The report indicates th.t tho City has a balance of $2.3 million in ito surplus aSBot account for nQn safety (miscellaneous) eroployees. The surplus is the result of PERS system-wide chan98s in actuarial assumptions. PERS ",,111 require that payment for the unfunded liability for non .... s"'foty e~ploy8es for final year convorsion ($161,000) be ~ade fro~, this account, and has sta.ted that further inotructiono as to how the remainder of the surplus lIIay be \lBed 'Will be pt'Q'/ided in JUly 1994. The City currently has $192,000 in the. Gurplu's asset account for the safety members category. Tho. city must select one of the fOUl" payment 1lletl1ods provided by PERS to pay the r .. maining (o"tin.t.od) $460,000 ullfunded liability for safety retiroments. Which&Vel' method the City cheoses will apply to all of th,s-City's unfunded liabilities attributed to the final ye~r s",l.,ry conversion option fol' safoty members. §..J.lJl9llin O~Dnt Option Staff recomrnencis til at the balance or tht! unfunded 1 iahllity [or safety membere' retirement of approximately $460,000 b(! ptdd in lump sum to PERS, for two :main re8sons: Z,'irst, t.his 'Would avoid any interest costs being added to the cost of the unfundad liability. Socond, this approach to funding long-torn l1abilitiot; (to the extent possible) is consistent with tho City's ~tte~pts to accurately present its financial position and cloClrly distinguish current co~ts of operations from those of previou9 pet·loda.. It is important to note that tho city must rely 011 tho tlctu2It""ial determinations from PERS as the nost accurate inforbtltlon currently available with regard to its retlre~ent costs. In recent y.ears, minor changes in actuarial assumptions have alloHed calculated liabilities to fluct\.\ate to such a larqo degree that cltlployers often elect to a.llocate any overagea. or shortages in theh-accounts over the longest future period allovod. While this approach may argu!llbly minimize the inpact -of actuarial chang-os, lump-sum p1!lyment of the liabilities created by these final year conversions recognizes that these are clearly prior year costs, and should not inflate the City's ongoing retirement ratos. 89 Comm.n~ 0 t io n staff recommends that Council approve the attached Budget AnendnuHlt Ordinance for $460,000 to pay the final year retirement conver&ions in the safety employee category, estimated for July 1993 thr.o\\9h January 1995. CMR:343:94 3 l/ , I, ' Respactfully submitted J Uzul f0r;,uvli CAROL ~ERR~LL A~'CO ~tlng.Manaqer ~. I/~ EM! Y HARR~SO . JD :r o~h~nc. l!FL ~~, ty Manag:; (J Attachtuent: BudgBt Amendment Ordinance CMR:343:94 4 ! .j 'j ORD1N1\NCE NO. QRl'lJNANCE OF THE COUNCIL OF TH& CITY' OF PALO ALTO AMENDING THE BUDGET FOR ~'HE FISCIIL YEAR \993-94 TO PROVIDE AN ADDITIONhL APPROPRIATION TO PAY' THB PUBLIC EMPLOYEE. RETIRf21ENT SYSTEM (PERS) FOR 1993-94 FINAL SAt"MY CONVERSIONS WHEREAS. pursuant to the provisions of Section 12 of Article IIr of the Charter of the City of Palo Alto, the Council on June 20. 1994 did adopt a budget for fiscal year 1994-95; and WHERE?-AS~ the City of Palo Alto. in its three labor and monagement compensation plan. has allowed employees the City-paid employee contributions for PERS to adjuscment for. the final year prior to retirement; and agreements to convert a salary WHEREAS. the Pf<:RS Board adopted a policy late in 1992 which would disalIo\,I the reporting of such conv()l"sions as ·compensation for the calculation of retirement benefits and which will now require agencies to pay for the liabilities resulting from final year conversions; and WHEREAS. staff estimates the total cost of these conversions fOt' employees who retire between July 1993 and January 1995 to be $833.000. of which $373.000 is already available within the City'S account with PERS due to favorable actuarial assumptions; and WHEREAS. an additional $460, 000 is requested to pay for the remaining liability that has resulted from final year salary conversions elected in the retirement of safety employees during the time period above. NOW. THEREFORE~ the Council of the City of Palo Alto does ORDAIN as follows: S.&CTIQN 1. The sum of ~'our Hundred Sixty Thousand Dollars ($460.000) is hereby apPTopriated as follows: a) $420.000 is appropriated to Employee Salaries in the Fire Depar~ent. b) $40.000 is appropriated to the Employee Salarie-s in the Police Department . SECTION Stabilization 17. 1994. ...2.. This transaction Reserve from $10,859.024 \. ... will reduce to $10.399.024 the Budget as of June I I I [ ". ~ . ·, . ,;:.'~ SECUQtLl. As spocified in Alto Municipal Code, a t""'o-thirds required to adopt this ordinance. Secticn 2.28.080(a) of tho Palo vote of the City Council is SECl'lON 4. The Cour:cil of the City that the enactmont of chis ordinance is California ~"nvironmental Quality Act and, tal ifnl.."-act' assessment is necessary. of Palo Alto hereby finds not a proj ec t under the therefore. no environrnen~ .st=QtL.5.. Huni61pal Coda, adoption. As provided in Section 2.04,3'15 of the Palo Alto thi8 ordinance shall become effective opon UlI'RODUCED A}m PASSED: JlYES , NOP,s , AOS-rPJl1"IONS: ABSfarr: City Clork APPROVED AS 'i"O l-'ORMI APPROVE!), ~ .. APPROVED: ----------_._--- Hayor \