HomeMy WebLinkAboutA002 - memo from Utility Retirement Baord requesting item be placed on agenda City Of Q AMES, Iowa
50010
(515) 232-6210
8 April 1982
Honorable Mayor Goodland;
At a meeting February 25, 1982, the Utility Retirement Board voted
to present the attached proposals to the City Council for their consider-
ation. We would appreciate your assistance to get this item on the
City Council agenda at the earliest convenience.
Respectful ,
Don Setterberg, Chai _an
Utility Retirement Board
DS:mb
cc: John Elwell, City Manager
Gina Bicknese, City Clerk
Betty Jo Harker, Secretary, Utility Retirement Board
Merlin Hove, Director Electric Utility
Harris Seidel, Director Water $ Pollution Control
Board Members:
John Ringelstein, Vice Chairman
John Thurston, Council
John Parks, Council
Harley Cheville, Electric
Marwin Bogue, Electric
Paul Larson, Water
Ex-Officio Members:
John Klaus, City Attorney
Leonard Lapehn, City Treasurer
n
Combining Education and Industry with Hospitality
UTILITY RETIREMENT SYSTEM PROPOSAL
CHAPTER 28 DIVISION IV
TO THE AMES CITY COUNCIL
At the meeting April 20, 1981, our Board requested an Actuarial Study
of the current system as of July 1, 1981 and several proposed changes from
the firm of Milliman & Robertson, Inc. We received this report December 1981.
The study generally concluded that our present system, assuming interest rates
of 6.5% on investments and salary increases of 5%, was sound and adequately
funded at the present utility contribution rate of 7%. Although present
interest rates and salary increases presently exceed these figures, they felt
comfortable with these figures for long-range projections. We are presently
receiving interest rates on approximately $4.8 million that average 11% with
the latest ones at 16%. There is reason to believe these rates will stay
at least at the 12-14% rate for many years.
The utility contribution rate has been at 7% since the present system
was set up in 1964. Most other retirement systems have had many increases
over the years.
One proposed change we asked the actuaries to study was the cost impact
of raising the retirement benefit formula from 1.8% to 2%. This change would
cost an additional 2% of payroll or additional contributions of approximately
$55,000 for 1981-82.
The second change was the cost impact of reducing the early retirement
reduction rate from 1/2% per month of early retirement to 1/4% per month.
Assuming the same pattern of future early retirements were to follow the
pattern of the past five years, this change would cost an additional 1. 1%
of payroll or additional contributions of $30,500 for 1981-82. Although this
amount can be covered by .64 of 1% of interest on our investment, we should
increase our contributions an additional 1.1% per the actuarial report.
At our Board meeting January 25, 1982, we decided to poll the members
as to their interest and participation in changing the early retirement
reduction rate from 1/2% per month to 1/4% per month with participation
equally shared by the utility (from 7% to 7.55% or $15,250 for 1981-82, or
approximately $100 per employee for the 150 employees involved) and the
employee (from 5% to 5.55%) based on the Actuarial Study. The membership was
sent the attached letter and ballot of 2/2/82 along with an example of the
effects of the proposed change. The ballots counted 2/25/82 show 90-yes, in
favor of the proposal, with 23-no, 7 of which qualified their "no" with
being in favor of the formula increase from 1.8% to 2%.
At a board meeting February 25, 1982, the Board voted 5-0 and 1
abstention to prepare and present this proposal to the Mayor and City Council
for consideration. We propose to change the early retirement reduction rate
Sec. 28.71 of one-half per cent (1/2%) to one quarter (1/4%) for each month
the early retirement precedes the normal retirement date. With the cost
of 1.1% equally shared by the Utility (from 7% to 7.55%) and the employee
(from 5% to 5.55%) per the Actuarial Study. We realize the dollar cost
figures will have to be updated for the next budget year and intend to
follow with some justification for providing these increased costs.
Along with the two proposed changes already discussed, we asked the
actuaries to study the costs in the system due to disability. If the dis-
ability benefits were removed from the system and insured by other means,
there could be a reduction of approximately 2.35% of payroll, or $65,200, in
1981-82. We asked the City Risk Manager to investigate the costs involved in
an insurance plan. She reported little interest from insurance companies
and a recommendation from one agent that the Utility System continue with the
present method of funding. We feel we can tighten up our disability procedure
and control it effectively with our Utility Board, Utility Planagement,
reducing the early retirement reduction rate, and another proposed change
in the ordinance as outlined below. Presently, disability benefits are paid
to age 70. We propose to change Sec. 28.74 Amount, Duration of Disability
Benefit.
(4) The employee dies, or the following
a. For disabilities before age 61, benefits end at age 65
or the normal retirement date.
b. For disabilities after age 61, benefits shall end after
4 years or at age 70, whichever is first.
In the attached letter dated February 14, 1982, the City Attorney has found
this legally acceptable.
We also think by reducing the early retirement reduction rate, and the
above proposed change, we will have a decrease in disability applications.
Most of those we have seen in the past are in some manner work related but
it is difficult to tie a portion to workman's compensation. Therefore, we
think the Utility has an obligation to carry a larger portion of the disability
costs to the system.
-2-
We have also attached a comparison of costs of utility retirement paid
by four other utilities; namely, Iowa Power and Light Company, Iowa Electric
Light and Power Company, Cedar Falls Municipal Utility, and Muscatine Municipal
Utility; per City of Ames Staff Report to the Council of 7/3/80 as of 7/1/80.
As you can see, the weighted average of these four is 7.6%, and these do not
include disability costs. Our utility cost of 7% does include 1.4% dis-
ability cost per the weighted 7/12 x 2.35% per the Actuarial Study.
One other matter we are proposing for ordinance change is to add another
Board member to (Sec. 28.53 Board of Trustees) . There are presently 8 voting
members on the Board including 3 elected by the employees of the Electric
Utility at large. We propose to make this 4, designating 1 from Electric
Distribution Work Center; 1 from the Power Plant; 1 from Electric Administra-
tion (including City Clerk, Manager, and Inspection) ; and one from Finance.
In the past, members from Finance have found it difficult to have a member
elected. This will assure them a representative. It will also keep the voting
majority of the Board at 5 as presently exists.
We have spent considerable effort and time over the past several years
on these items and feel confident that if these proposals are approved into
ordinance by the Council, there will be an overall benefit to the members,
utilities, and the City.
We are very proud of our Utility Retirement System and assure you we will
strive to see that it continues to be managed in the efficient, professional
manner it has over the years. We are all very appreciative of the dedicated
efforts of the City Treasurer, Finance Director, City Attorney, Council members,
and other Board members who have contributed to the success of the system.
We thank you for your consideration of the above proposals and hope we
have provided you with enough information that you can support their approval
into the ordinance.
Respectfully,
7 8Z
Don Setterberg, C ai man
Utility Retirement oard
-3-
TO: Members of the Ames Utility Retirement System
FROM: Don Setterberg, Chairman Utility Retirement Board
SUBJECT: Actuarial Study and Proposal
We have recently received an Actuarial Study request!by your board at
the April 20, 1981 meeting, The study involved the current plan and proposed
changes, as of July 1 , 1981 and was conducted by Millman & Robertson, Inc.
Consulting Actuaries. The study generally concluded that our present system,
assuming interest rates of 6.5% on investments and salary increases of 5%,
was sound and adequately funded at the present utility contribution rate of
7%. Although present interest rates and salary increases presently exceed
these figures, they felt comfortable with these figures for long range pro-
jec' ions.
They also studied the cost impact of raising the retirement benefit
formula from 1 .8% to 2%. This change would cost an additional 21'� of payroll
or additional contributions of approximately $55,000 for 1981-82.
Next they studied the cost impact of reducing the early retirement
reduction rate from '2% per month of early retirement to 14% per month, Assuming
the same pattern of future early retirements were to follow the pattern of the
past five years, this change would cost an additional 1 . 1% of payroll or
additional contributions of $30,500 for 1981-82.
Then they studied the costs in the system due to disability. If the
disability benefits were removed from the system and insured by other means
there could be a reduction of approximately 2,35'10' of payroll or $65,200 in
1981-82. However, there would be similar costs involved in an insurance plan.
We are presently investigating this through our Risk Manager, Nancy Reppert.
My own opinion is that we can tighten up our disability procedure and control
it effectively with our Utility Board. I think by reducing the early retire-
ment reduction rate, we will have a decrease in disability applications. Most
of those we have seen in the past are in some manner work related, but is
difficult to tie a portion to workmens compensation. Therefore, I think the
utility has an obligation to carry a larger portion of the disability costs
to the system.
At our last board meeting of January 25, 1982, we discussed the Actuarial
Report, and decided to prepare a proposal for the membership and to poll the
members as to their interest and participation in changing the early retirement
reduction rate from 1A per month to }a`% per month; with participation equally
shared by the utility (from 7% to 7,55%) , and the employee (from 5% to 5.55%) ,
based on the Actuarial Study. If the membership response to this poll is
positive, it would be our intent at our next board meeting , tentatively scheduled
for February 25, 1982 at 7:00 p.m. at the Electric Administration Building
Conference Room, to prepare a proposal to the City Council on this chance.
Attached is an example of the effect of this propos-,1 change. If you have
any questions, please contact me or another hoard member. Please review the
published Utility Retirement (pink) booklet, and current board meeting minutes
and board member election notices posted on bulletin boards in your area.
Also attached is an informal ballot on the above proposed chance. A
yes will mean you are in favor of the Early Retirement Reduction Rate.
Please return to (Finance - Ruth Severson) , (Data Processing - Ron Swanson) ,
and other departments to your board representative or to me,soon!
DS:mb
cc: John Parks, Council - Board Member
John Thurston, Council - Board Member
John Klaus, City Attorney - Ex. 0fficio Board Member
Betty Jo Harker, Secretary, Utility Retirement Board
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