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HomeMy WebLinkAbout10156RESOLUTION NO. 10156 A RESOLUTION TABULATING THE VOTE OF THE CITY COUNCIL RELATING TO THREE PROPOSED AMEND- MENTS TO THE STATEWIDE DEFINED BENEFIT PLAN FOR NEW HIRES IN THE PUEBLO POLICE AND FIRE DEPARTMENTS WHEREAS, the City Council of Pueblo voted on June 14, 2000 concerning whether to approve three proposed amendments to the Statewide Deferred Benefit Plan for New Hires (uniformed employees hired after April 8, 1978) in the Pueblo Police and Fire Departments; and WHEREAS, the votes on each proposed amendment to the Statewide Defined Benefit Plan was separately tabulated and the results thereof are set forth in this Resolution; NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF PUEBLO, that: SECTION 1 The City Council finds that the members of the City Council voted on June 14, 2000 whether to approve the proposed amendments to the Statewide Defined Benefit Plan (applicable to New Hires in Pueblo Police and Fire Departments), which amendments are set forth in Resolution No. 2004 -4 of the Board of Directors of the Fire and Police Pension Association ( "FPPA "). With respect to each of the proposed amendments, as set forth below, upon tabulation of the votes, the votes were as indicated below for each proposed Amendment. Amendment One - allowina retirees to self direct investment of monies in member SRA accounts 6 "Yes" votes in favor of approval of the amendment, and 1 "No" votes against approval of the amendment An Amendment receiving four (4) or more "Yes" votes shall be deemed to have been approved by the City Council. Amendment Two - allowingl2ayment from member DROP accounts after eligibility to be paid over time rather than in a lump sum if no election concerning method of payment is made within 30 days of retirement 6 "Yes" votes in favor of approval of the amendment, and 1 "No" votes against approval of the amendment An Amendment receiving four (4) or more "Yes" votes shall be deemed to have been approved by the City Council. Amendment three - allowing retirees to use monies in SRA and DROP accounts at retirement to purchase a monthly benefit 1 "Yes" votes in favor of approval of the amendment, and 6 "No" votes against approval of the amendment An Amendment receiving four (4) or more "Yes" votes shall be deemed to have been approved by the City Council. INTRODUCED: June 14, 2004 By: Robert Schilling OUNCERSO APPROVED: P ESI NT OF THE TY COUNCIL ATTESTED BY: CITY CLERK -2- E e Background Paper for Proposed RESOLUTION AGENDA ITEM # 3,"�, DATE: June 14, 2004 DEPARTMENT: Law Department TITLE RESOLUTION TABULATING THE VOTE OF THE CITY COUNCIL RELATING TO THREE PROPOSED AMENDMENTS TO THE STATEWIDE DEFINED BENEFIT PLAN FOR NEW HIRES IN THE PUEBLO POLICE AND FIRE DEPARTMENTS ISSUE Should the City Council vote to approve three proposed amendments to the Statewide Defined Benefit Plan managed by the Colorado Fire and Police Pension Association? RECOMMENDATION This office makes no recommendation concerning the proposed amendments one and two. This office recommends Council vote against approval on proposed amendment three. BACKGROUND There exists a Statewide Defined Benefit Plan ( "Plan ") administered by the Fire and Police Pension Association ( "FPPA ") for police officers and firepersons hired after April 8, 1978 which provides a pension plan for such employees — so- called "New Hires." Participating municipalities finance the plan with employer contributions and matching employee contributions which are "picked up" by the employer for federal tax purposes resulting in favorable tax treatment for the employees. The Plan is a "qualified plan" under law and Internal Revenue Service ( "IRS ") regulations. One aspect of the Plan is the creation of a stabilization reserve account to which is allocated the excess of contributions overthose contributions actuarially determined on a periodic basis as necessary to fund the Plan based upon its assets and the Plan's actuarial liabilities. In turn, the stabilization reserve account is allocated to a separate retirement account ( "SRA Account ") for each employee member, which may be subject to upward or downward adjustments over time in accordance with the contribution needs of the plan. However, when the employee retires, all funds remaining in the employee's individual SRA Account become payable to the employee as an additional pension benefit fully vested in the employee. Another feature of the Plan is the Deferred Retirement Option Program ( "DROP ") in which individual DROP accounts are created. Under the legal fiction that an employee may officially "retire" for purpose of receiving the benefit of pension payments while continuing to work for the same municipal employer, the pension benefits during the period of participation in the DROP Program are not paid to the employee but, together with pension contributions during this period, paid into a special DROP Account which is invested and available to the employee when he ultimately ceases being on the employer's payroll as a uniformed employee. FPPA has proposed three amendments to the Plan, any of which will be effective when at least 65% of the active members approve the amendment and more than 50% of the municipal employers approve. The amendments are each described in the attached summary provided by FPPA and the attached FPPA Resolution No. 2004 -4. Essentially, the first amendment would allow members to self- direct the investment of the individual SRA Accounts. The second amendment would modify the rules regarding payment out of individual member DROP Accounts where the member does not make an election concerning the method of payment within thirty days of the retirement. Finally, the third amendment would allow retirees to take the funds in the individual SRA and DROP Accounts at retirement and purchase an additional monthly benefit. Because any Plan amendment has the potential to result in the Plan losing its IRS "status as a qualified plan," the amendments present a financial risk to the employers and not FPPA. Furthermore, FPPA does not provide indemnification for the employers associated with the proposed amendments to the Plan. All the proposed amendments make additional pension benefits or benefit options to the employees but provide no measurable corresponding benefits to the employer. The City has asked Mary Brauer, Esq., an attorney specializing in pension plan tax law to examine the proposed amendments and provide her perspective on the financial risk these pose for the City. Her analysis is attached, in which she expresses substantial concern regarding amendment three. Based upon the foregoing, the Law Department makes no recommendation to Council regarding proposed amendments one and two, and recommends Council vote against the proposed amendment three. FINANCIAL IMPACT All three amendments present a financial risk to the City in the event any amendment results in the IRS disqualifying the Statewide Deferred Benefit Plan and imposing a penalty on participating municipalities. This risk is greatest with respect to proposed amendment three. We are unable to quantify the amount of the risk but believe it could be substantial. -2- And The Following 3 Additional Election Items Are For The Statewide Defined Benefit Plan °New Hires" Current Plan Provision - SRA monies are commingled for investment purposes in the Fire & Police Members' Benefit Fund and earn investment return based on the performance of the fund, or members may choose the rate of a short -term investment selected by the FPPA Board. Fire & Police Members' Benefit Fund Investment Options Offered by FPPA 1. The SRA monies are commingled for investment purposes in the Fire & Police Members' Benefit Fund and earn investment return based on the performance of the fund, or members may choose the rate of a short-term investment selected by the FPPA Board. 2.1he FPPA Board develops the allocation of funds strategy and has the following current target allocations: 38% in Domestic Equities, 18% in International Equities, 29% in Domestic Bonds, 6% in Real Estate, 8% in Private Equity and 1% in Cash. Members cannot self - direct funds. The Board retains professional investment managers to manage amounts allocated to each asset class. The entire program is monitored by FPPA staff and outside consultants. 3. Monthly Valuation - the assets in your account will be valued at the close of every month, enabling you to get updated balances monthly. 4. Upon retirement, members may stay in the Fund or withdraw their account balances. Once members with an SRA begin to take distribution of their account, they must irrevocably designate an investment rate prior to the receipt of the first installment. They can choose either the rate of a short -term investment selected by the FPPA Board or the FPPA Total Fund Rate. If no designation is made they will receive the FPPA Total Fund Rate (the total rate realized by FPPA investments). 1. Fidelity Investments is FPPA's plan service provider for the SWMP and the 457 Deferred Compensation Plan. If members and employers approve Amendment #1, Fidelity will begin to provide record keeping and investment options for SRA (once the members have retired under Normal, Early, or Vested Retirement or entered DROP). FPPA's Board retains the right to change funds within Fidelity, change providers from Fidelity to another outside provider, or bring the services back in- house. In the event of a change, each participant would have the opportunity to decide how funds should be reallocated to any new investment options. 2. Members choose from a listing of investment options selected by FPPA. The funds are arranged on a scale by investment objective, from capital preservation to aggressive growth. All investment options are mutual funds, except the Managed Income Portfolio, a stable value fund seeking to preserve your principal investment while earning interest income. Members may self - direct investments daily There are currently 20 different funds offered. 3. Daily Valuation — the assets in your account will be valued at the close of every business day, enabling you to get updated balances daily. 4. Upon retirement, members may stay in the Fidelity funds or withdraw their account balances. If members stay in the funds, they continue to self - direct their investment options. (Retirees who are already taking distribution of their SRA accounts will be able to make a one -time irrevocable election to stay with their original investment rate or transfer their account balances to Fidelity) F I R E AND POLICE P E N S I O N A S S O C I A T I O N OF C O L O R A D O Members will self- direct the SRA monies in their accounts in any investment option offered by FPPA, once the members have retired (Normal, Early, or Vested Retirement or entered DROP). Current Plan Proposed Plan 5. Members and retirees receive quarterly statements. 6. Fees are asset - based. Historically, fees have been less than one -half of one percent of your total account balance. In 2002 fees were 0.43 %. Fees are subject to change. 7. Distribution normally occurs as soon as 60 days following FPPA Board approval of your retirement application. 8. FPPA staff is primary contact for inquiries about your account, Monday through Friday, 8:00 am. to 5:00 p.m. 9. FPPA representatives are at your workplace throughout the year to conduct educational meetings and to meet with members one- on -one. 10. FPPA continues to account for contributions and transmit to provider. 5. Members and retirees receive quarterly statements. 6. Annual administrative fee is $20. Each fund also has an annual fund operating expense. In 2002, expenses ranged from 0.08% to 1.22 %. Expenses are subject to change. 7. Distribution normally occurs within 3 — 7 days following FPPA Board approval of your retirement application. 8. For information about your account, Fidelity offers Internet account access; automated phone services 24 hours a day, seven days a week; and Retirement Services Specialists available Monday through Friday, 6:00 am. to 10:00 p.m. MT. 9. Investment education is offered through the Internet or through the Fidelity Retirement Services Specialists. FPPA representatives are also at your workplace throughout the year to conduct educational meetings and to meet with members one -on -one. 10. FPPA continues to account for contributions and transmit to provider. Current Plan Provision - A participant in the DROP who terminates employment and becomes a retiree, or the surviving spouse of a deceased participant, must select a payment option within 30 days of retirement If no selection is made by the retiree or surviving spouse within 30 days of retirement, the lump sum payment method shall be utilized. niv v rvLi V t r tN 51UN ASSOCIATION OF COLORADO Remove the requirement on the current amendment that a participant in the Statewide Deferred Retirement Option Plan (DROP) who terminates employment and becomes a retiree, or the surviving spouse of a deceased participant, must select a payment option within 30 days of retirement or the lump sum payment method shall be utilized. Minimum distribution would be required as provided by the IRS. • The funds transferred to the SWDB Plan are to be considered Member Contributions for purposes of refund of contributions under Colorado Revised Statute (C.R.S.) 31 -31- 403 (6) and 31 -31 -404. • The purchase must be in one lump sum, which must be transferred prior to the distribution of benefits from the Defined Benefit Component. •_ Once the Member's monthly payment amount is calculated, it will be considered to be a portion of the Member's normal, deferred or early retirement under C.R.S. 31 -31 -403. It may be reduced if the member elects one of the survivor options offered under the Plan. • As part of the pension, the purchased monthly benefit may be adjusted for a Cost of Living Adjustment pursuant to C.R.S. 31 -31 -407. • Once the monthly benefit is purchased, the Member may not convert back to a lump sum payout. An application to purchase a monthly benefit shall be filed by the Member with FPPA on the Applicable Form. The Member must provide any documentation that is required by the Board to complete the purchase. F I R E A N D POLICE P E N S I O N A S S O C I A T I O N OF C O L O R A D O 5290 DTC Parkway, Suite 100, Greenwood Village, CO 80111 • (303) 770 -3772 • (800) 332 -3772 • www.fppaco.org election summary 4.1.04 This amendment would allow a member who is eligible for normal, deferred, or early retirement to elect to transfer all or part of his/her SRA account and/or DROP account to make a one -time, irrevocable election at retirement or separation of service, whichever comes later, to purchase a monthly benefit. Funds may not be transferred from outside the Statewide Defined Benefit (SWDB) Plan to purchase a monthly benefit. Res.2004-4 FIRE AND POLICE PENSION ASSOCIATION BOARD OF DIRECTORS RESOLUTION NO. 20044 WHEREAS, Section 31 -31 -408, C.R.S., as amended, authorizes the Board of Directors of the Fire and Police Pension Association ( "the Board') to modify the pension benefits and the age and service requirements for pension benefits set forth in Part 4, Article 31, Title 31, Colorado Revised Statutes, as amended, with respect to the members of the Statewide Defined Benefit Plan ( "the Plan'); and WHEREAS, Section 31 -31 -408, C.R.S., as amended, sets forth certain conditions which must be met before the Board may adopt any modification to the Plan, including approval by at least sixty -five percent of the active members of the Plan and more than fifty percent of the employers having active members covered by the Plan; and WHEREAS, pursuant to the authority granted in Section 31 -31 -408, C.R.S., as amended, the Board has adopted Rules establishing the procedure which the Board will follow with respect to its adoption of any modification of the Plan; and WHEREAS, FPPA Rule 704.01 requires that the Board provide a copy of the language of each proposed plan modification to employers for distribution to each member of the Plan; and WHEREAS, if adopted, the proposed amendments will only affect the Statewide Defined Benefit Plan; NOW, THEREFORE, BE IT RESOLVED, that the Board hereby proposes the following modifications to the Plan which shall be submitted for approval to Plan employers and Plan members pursuant to the provisions of Section 31- 31408, C.R.S., as amended, and FPPA Rule 704. Amendment One: Self Direction for SRA monies for retired and DROP members A new Section 31 -31 -406.5 to be adopted as follows: 31- 31406.5 Self Direction of separate retirement account. If a retired member elects to receive payment of the member's separate retirement account funds in periodic installments or elects to defer receipt of funds, the unpaid balance in the member's separate retirement account will continue to accrue actual earnings based on the member's direction for the investment of the separate retirement account. The separate retirement account assets shall be held for investment purposes as part of the fire and police members' self - directed investments fund, subject to such rules as may be adopted for the administration of the member self - directed investments. The Board shall be authorized to I/Bowd/2004Resolution/2004 -4 03 -16-04 I s 0 charge each account a fee for the administration of the separate retirement account. The Board shall direct the investment of the member's separate retirement account until the member provides direction on the investment of the account. A new Section 31- 31- 405(4.5) to be adopted as follows: (4.5) For purposes of this Section 31- 31405 C.R.S., members of the deferred retirement option plan shall be deemed to have terminated service. Section 31- 31- 409.5(8), as adopted as part of Amendment 5, Fire and Police Pension Association, Board of Directors Resolution No. 98 -2, dated February 23, 1998, to be amended as follows: (8) Upon commencement of the member's participation in the DROP, the member shall remain an active member. Nevertheless, the member shall earn no additional service credit or additional benefits under the Statewide Defined Benefit Plan. For purposes of Section 31 -31- 405 C.R.S., a member participating in the DROP shall be deemed to have terminated service. Amendment Two: Removintz the requirement that a DROP participant select a payment option within 30 days of termination Amend Sections 31 -31 -409.5 (13), as adopted as part of Amendment 5, Fire and Police Pension Association, Board of Directors Resolution No. 98 -2, dated February 23, 1998, to read as follows: (13) (a) A participant in the DROP who terminates employment or reaches the five- year limit for participation shall become a retiree and shall receive, at the retiree's option, a lump sum payment from the retiree's individual DROP account equal to its balance plus net investment earnings and losses, or equal monthly installment payments from the retiree's individual DROP account over a period not to exceed the retiree's life expectancy or the joint life expectancies of the retiree and the retiree's designated beneficiary. At the end of the installment period, a final disbursement of remaining funds in the DROP account shall be made. UL-He b"#ili� - ' .(b) Notwithstanding any provision to the contrary, any distribution under the DROP shall be made in accordance with Code Section 401(a)(9) and the regulations established there under as they are amended and shall comply with the following rules: (i) To the extent required by Code Section 401(a)(9) and the regulations promulgated there under, payment of the benefits of a Member shall begin not later than the "required beginning date." For purposes of this Section, "required beginning date" means April 1 of the calendar year following the later of the calendar year in which the Member reaches age seventy and one -half (70 %), or the calendar year in which the Member retires. UBoard/2004Resolution/20044 03 -16 -04 2 Res2004-4 (ii) No payment option may be selected by a Member unless the amounts payable to the Member are expected to be at least equal to the minimum distribution required under Code Section 401(a)(9). (iii) The amounts payable must satisfy the minimum distribution incidental benefit requirements of Code Section 401(a)(9)(G). Amend Sections 31 -31 -409.5 (14), as adopted as part of Amendment 5, Fire and Police Pension Association, Board of Directors Resolution No. 98 -2, dated February 23; 1998, to read as follows: (a) In the event of the Member's death, any remaining benefit shall be distributed according to the following subject to compliance with Code Section 401(a)(9). and regulations there under. (b) If the Member had begun receiving periodic payments from the Plan that were not annuitized, the balance of the Accounts shall be paid to the Designated Beneficiary at least as rapidly as under the payment option selected by the Member. (c) If the Member had begun receiving payments in the form of a pension or annuity, the Designated Beneficiary shall be bound by all restrictions applicable to the pension or annuity, and the form of payment selected there under, and remaining payments, if any, shall be paid to the Designated Beneficiary in the same manner. (d) If the Member dies before distributions have commenced, a Spouse Designated Beneficiary may take a lump sum distribution or may delay the commencement of benefits until not later than December 31 of the year the Member would have attained age seventy and one -half (70 %) and may elect to receive periodic payments over the Spouse's life expectancy. (e) If the Member dies before distributions have commenced, a Designated Beneficiary other than a surviving Spouse may take a lump sum or a periodic payment. In the case of a lump sum, payment must be made no later than December 31 of the calendar year containing the fifth anniversary of the Member's death. In the case of a periodic payment distribution, payment must commence no later than December 31 of the year following the year of the Member's death, and in no event be payable over a period longer than the Designated Beneficiary's life expectancy at the time the distribution commences. VBoard/2004Raolution/2004 -4 03 -16-04 3 Res.2004-4 (f) If the Member has not designated a Designated Beneficiary or the Plan is unable to locate the Designated Beneficiary upon death, the Member's remaining interest will be paid in a lump sum to the Member's estate. (9) Notwithstanding the foregoing, any payment to an estate shall be made in a lump sum. Amendment Three: Allow purchase of a monthly benefit from the SRA account and the DROP account A new Section 31 -31 =410.5 to read as follows: 31- 31410.5 Purchase of Monthly Benefits A Member who is eligible for normal, deferred, or early retirement may elect to transfer all or part of his/her SRA Account and his/her DROP balance within the Statewide Defined Benefit Plan to purchase a monthly benefit. Funds may not be transferred from outside the Statewide Defined Benefit Plan to purchase a monthly benefit. (a) The funds transferred are to be considered part of the member's accumulated contributions for purposes of C.R.S. § 31 -31- 403(6). (b) At retirement or separation of service, which ever comes later, a Member may make a one -time, irrevocable election to purchase a monthly benefit. The purchase must be in one lump sum, which must be transferred prior to the receipt of defined benefits. (.c) Once the Member's monthly payment amount is calculated, it will be considered to be a portion of the Member's pension under C.R.S. §§ 31 -31 -403 (1) (normal retirement), (3) (deferred retirement), (4) (early retirement), or C.R.S. § 31- 31404(2) (vested retirement). It may be reduced if the member elects one of the survivor options offered under C.R.S. § 31- 31- 404(5)(a) of the Statewide Defined Benefit Plan. (d) As part of the pension, the purchased monthly benefit may be adjusted pursuant to C.R.S. § 31- 31407 of the Statewide Defined Benefit Plan. (e) Once the monthly benefit is purchased, the Member may not convert back to a lump sum payout. (1) An application to purchase a monthly - benefit shall be filed by the Member with the Plan Administrator on the Applicable Form. The Member must provide any documentation that is required by the Board to complete the purchase. U 03 -16 -04 4 Res.2004 -4 Upon approval by the members and the employers, these amendments shall become effective IN WITNESS WHEREOF, I have hereunto set my hand on this 24 day of March ,2004. FIRE AND POLICE PENSION ASSOCIATION, a political subdivision of the State of Colorado Leo J. 4 hai an Roard of,Directo STATE OF COLORADO ) ) ss. County of Arapahoe ) The foregoing Resolution was acknowledged before me this 24 day of March, 2004, by Leo J. Johnson, Chairman of the Board of Directors, Fire and Police Pension Association, a political subdivision of the State of Colorado. Witness my hand and official seal. Notary My commission expires: AZ - / - 02 O© 2, (Seal) aOpY BECKY L ADAMS F UBoard/2004Resolution/20044 03 -16-04 5