retirement reform.102912

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Retirement Reform

October 2012

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Section 1: The Problem

Retirement Costs are

Jacksonvilles Fiscal Cliff


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An Everywhere Challenge

Municipalities throughout the nation and throughout theState of Florida are facing significant budget challengesbrought on by compounding compensation and benefitobligations that are growing at alarming rates.

Municipalities that fail to take timely action to address theincreasing costs associated with compensation andbenefits find themselves with budget deficits, layoffs, and

the elimination of needed services.

Worse case scenario: Stockton, CA or Central Falls, RI


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City Revenue Going Down

Decline in revenues from FY 11/12 ($958million) to FY 12/13 ($948 million)

Passage of Amendment Four couldreduce revenue by $7 million in FY 13/14and $13 million in FY 14/15


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Retirement Reform Process

For the Brown Administration, this processstarted back in June 2011 with the detailedwork of then Mayor-elect Browns Pension

Transition Committee.

Peyton Administration laid foundation with2011-400


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The Retirement ReformProcess, continued

Those efforts, along with other communityanalyses, helped to frame up four keyquestions for our retirement reforminitiative:

(1) What is the scope of the problem?


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The Retirement ReformProcess, continued

(2) How have other municipalities dealtwith retirement cost challenges?

(3) What limitations does Florida law placeon the reform of retirement benefits?

(4) What reform plan(s) address the citys

financial needs while meeting the states

legal requirements?


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Retirement Reform Experts

To help answer those questions, weturned to three experts:

Attorney Jim Linn of Lewis, Longman, andWalker in Tallahassee

Actuary Robert Dezube of the Milliman Groupto evaluate the PFPF and assist in makingreform recommendations

(Milliman is the actuary for the FRS)


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Retirement reform experts,continued

Jeff Williams of the Siegel Group toevaluate the General Employees PensionPlan (GEPP) and assist in making reform

recommendations

Mayors Special Adviser on Pensions,

Kevin Hyde.


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COJ Pension Plans

Police and Fire Pension Fund (PFPF)

General Employees Pension Plan (GEPP) Includes Corrections Employees

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Specific PFPF Challenges

1. Annual Contributions Skyrocketing

Fiscal Year 10/11: $76.1 million(8% of overall general fund)

Fiscal Year 12/13: 121.3 million

(Nearly 13% of overall general fund)

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City PFPF Contributions (General Fund)FY 2002 - 2013

FY 2001-02 $ 9.9 million

FY 2002-03 $ 9.7 million

FY 2003-04 $ 22.1 million

FY 2004-05 $ 25.8 million

FY 2005-06 $ 34.7 million FY 2006-07 $ 42.9 million

FY 2007-08 $ 47.1 million

FY 2008-09 $ 49.2 million

FY 2009-10 $ 81.1 million

FY 2010-11 $ 75.0 million

FY 2011-12 $ 77.2 million

FY 2012-13 $121.3 million


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Increase in UAAL

16

0

200

400

600

8001000

1200

1400

1600

Oct. '03 Oct. '06 Oct. '08 Oct.'11

UAAL

UAAL


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Pension Report CardGrade for PFPF

FSource:Tough Choices Facing Floridas GovernmentNovember 2011 based on 2009 data

Leroy Collins Institute

Reason: Plan was less than 50% funded

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The Cost of Inaction

If the COJ takes no action PFPF benefitsstay the same and we rely on the sameassumptions as to rate of return on

investments (7.75%) we will continue tounderfund the PFPF while steadilyincreasing general fund contributions.

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Pension Cost Components

1. Normal Costannual cost of currentbenefits, without unfunded actuarialaccrued liability (UAAL) payment

2. UAAL Amortization Payment[UAAL = assets minus liabilities =debt]

Actuarial losses Plan improvements

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Projected ContributionsUnder Status Quo

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

2021-22

2022-23

2023-24

2024-25

2025-26

2026-27

2027-28

2028-29

2029-30

2030-31

2031-32

2032-33

2033-34

2034-35

2035-36

2036-37

2037-38

2038-39

2039-40

2040-41

2041-42

2042-43

0

50

100

150

200

250

300

RecommendedCityC

ontribution

$Millions

Recommended City Contribution

Employer Normal Cost UAL Amortization

20


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Projected Contribution Trend Under Status Quo

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043

$ 132 144 151 158 164 169 175 179 182 190 198 207 216 226 235 219 218 229 239 251 261 274 254 265 278 269 281 249 259 272 174

0

50

100

150

200

250

300

Reco

mmendedCityContributio

n

(millions)

Projection of Recommended City Contribution

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Projected UAAL Trend Under Status Quo

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041

$ 1,41 1,54 1,59 1,62 1,64 1,66 1,67 1,68 1,68 1,68 1,68 1,67 1,66 1,64 1,60 1,56 1,51 1,46 1,43 1,37 1,31 1,23 1,14 1,04 950 846 726 611 479 376 260

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

UAAL($millions)

Projection of Unfunded Actuarial Accrued Liability ($millions)

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Key Status Quo Data Points

Retirement benefits stay the same

Rate of return remains at 7.75%

Anticipated FY 2013 Contribution: $122m Recommended COJ Contributions:

FY 2014: $144 million


FY 2016: $158 million FY 2017: $164 million



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Bottom Line for Next Budget

If nothing changes benefits stay thesame, the assumed rate of return staysthe same the City will devote an

additional $22 million in general fundrevenue to the PFPF (yet still be under-funding).

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The Rate Debate

Growing consensus that the assumed rateof return (7.75%) is too optimistic givenrecent market conditions.

The State of Florida has worked to utilizemore realistic assumptions in the Florida

Retirement System (FRS) and urgedmunicipal governments to do the same.

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More on the Rate Debate

In September, Florida State Board ofAdministration Exec. Dir. Ash Williamsrecommended that the state lower its rate

of return from 7.75% to 7.25%.

PFPF Executive Director John Keane and

actuary Jarmon Welch say they want tolower the PFPF rate in stages

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Even More on the Rate Debate

In September, PFPF provided data fromits investment advisers showing anexpected actual return of 6.9% over the

next 10 years.

Based on that data, our actuary

recommended an assumed rate of returnof 6.5% (6.9% minus .4% commission forPFPF investment advisers)

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Contribution Projection:Same Benefits, New Rate

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

2021-22

2022-23

2023-24

2024-25

2025-26

2026-27

2027-28

2028-29

2029-30

2030-31

2031-32

2032-33

2033-34

2034-35

2035-36

2036-37

2037-38

2038-39

2039-40

2040-41

2041-42

2042-43

0

50

100

150

200

250

RecommendedCityC

ontribution

$Millions



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Contribution Trend:Same Benefits, New Rate

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043

$ 167 181 186 190 194 197 200 201 202 207 212 218 223 228 233 218 215 221 227 233 238 245 229 234 241 233 239 216 221 227 120

0

50

100

150

200

250

300

Projection of Recommended City Contribution

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UAALTrend:Same Benefits, New Rate

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041

$ 1,79 1,95 1,97 1,98 1,97 1,96 1,94 1,92 1,90 1,87 1,84 1,81 1,77 1,72 1,66 1,60 1,52 1,46 1,40 1,33 1,24 1,15 1,05 942 840 729 607 487 355 241 117

0

500

1,000

1,500

2,000

2,500

UAAL($millions)


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Fundamental Operating Principles

1. Reform will not rely on an increase in themillage rate.

2. Any reform must use realistic assumptionson rate of return and payroll growth.

3. Current retirees will not be affected.

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Fundamental OperatingPrinciples, continued

4. All current employees will keep what they havealready earned but will experience changeonce the reform plan is implemented.

5. Any reform must reduce the unfunded liability,not merely extend the time for payment. Debtwill not pay for debt.

We will not propose Pension Obligation Bonds orPension Liability Reduction Bonds

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The Plan Freeze

The current plan will be frozen as of date certain

(the Frozen Plan).

Employees vested benefits as of that date will be

fixed at whatever level the employee was entitled

to as of date certain

Example employee who had worked 10 yearshad vested at 30% (10 x 3% yearly) in the plan.Upon retirement the employee is entitled to

retirement benefit at 30% of pay. Employee will not accrue any additional

benefits under the frozen plan for subsequentyears of service

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After the Plan Freeze

A new plan will be implemented from a date certaingoing forward

Employees will begin accruing benefits under the newplan or all service after the Frozen Plan fixed date.

The new plan will have different benefits from whatwas available in the Frozen Plan

This approach is not unique the most effective wayto achieve meaningful savings on a short and longterm basis

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The Plan: Maintain Defined Benefit (DB)

model but reform benefit package

Working with our experts, we crafted a reformpackage that we believe will credibly:

Fund COJ pension obligations Control costs short and long term

Comply with law to retain Chapter funds

Reduce UAAL

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Current System vs.

DB ReformsBenefit-by-Benefit Comparison

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Normal Retirement Age

CURRENT JAXPOLICE

OFFICERS &

FIREFIGHTERS

2011-400 PROPOSEDCHANGES

20 years 55/10 years

or

65/5


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Employee Contribution

CURRENT JAX

POLICE

OFFICERS &

FIREFIGHTERS

2011-400 PROPOSED

CHANGES

7% 8% 14%

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Benefit Accrual Rate

CURRENT JAXPOLICE

OFFICERS &

FIREFIGHTERS


3% (for20yrs); then

2% for cap

at 80%

2.8% (for25yrs); then

2% for cap

at 80%

1.667% witha cap at 50%

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DROP

CURRENT JAXPOLICE

OFFICERS &

FIREFIGHTERS


DROP

Eligibility at

20 yrs

Delay DROP

Eligibility to

25 yrs

Elimination

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Average Final Contribution

CURRENT JAX

POLICE

OFFICERS &

FIREFIGHTERS

2011-400 PROPOSED

CHANGES

Avg. last 24

mos.(52 pay pds.)

Avg. of last 5 Avg. of last 5

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Disability Pension

CURRENT JAX

POLICE

OFFICERS &

FIREFIGHTERS

2011-400 PROPOSED

CHANGES

60% of earning

base

50% of earning 60% of earning

base

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Pensionable Wages

CURRENT JAX

POLICE

OFFICERS &

FIREFIGHTERS

2011-400 PROPOSED

CHANGES

No Change No change Exclude Shift

andDifferentials

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DB Reform: City Contribution

2012-13

2013-14

2014-15

2015-16

2016-17

2017-18

2018-19

2019-20

2020-21

2021-22

2022-23

2023-24

2024-25

2025-26

2026-27

2027-28

2028-29

2029-30

2030-31

2031-32

2032-33

2033-34

2034-35

2035-36

2036-37

2037-38

2038-39

2039-40

2040-41

2041-42

2042-43

0

50

100

150

200

250

RecommendedCityContribution

$Millions



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DB Reform: UAAL Trend

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041

$ 1,71 1,83 1,86 1,86 1,86 1,86 1,85 1,83 1,82 1,80 1,79 1,76 1,74 1,70 1,66 1,61 1,55 1,50 1,45 1,40 1,33 1,25 1,17 1,07 988 892 784 680 564 466 359

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

UAAL($millions)


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More on Next Budget

And $133 million is $48 million less than $181million.

If we make the rate of return more realistic withoutchanging benefits, we would have to spend $181million next year to fully fund our obligations.

If we use more realistic assumptions, modify DBbenefits, and use the level percentage of payrollapproach, COJ will save $48 million and still fully

fund plan.54


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Retirement Reform Process

We havent negotiated directly with the Policeand Fire Pension Fund or with the GeneralEmployees Pension Plan because the law says

that employee benefits should be negotiatedwith unions.

Judicial decisions hold that retirement benefits

are a mandatory subject of collective bargainingwith unions.

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More Retirement Reform Process

And in the contracts that they signed and that CityCouncil overwhelmingly ratified, several unions agreedthat they would sit down with the City and discussretirement reform.

That process starts this week with meetings with fourCOJ employee unions.

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Schedule of Meetings

Monday, 10/29: FOP

Tuesday, 10/30: AFSCME

Wednesday, 10/31: FOP

Thursday, 11/1: LIUNA and JSA

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