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HomeMy WebLinkAboutA002 - Letter dated March 3, 1997 to Utility Retirement Board with concerns March 3, 1997 Utility Retirement Board Chairman and Board Members : I am writing the Utility Retirement Board to express my concern how the "roll over" amounts were determined. It appears they were not calculated in accordance with the motion passed by the Board and as many members were led to believe. I am referring to those members near age 55 and 30 years of service. The motion said that members harmed by the change from defined benefit to defined contribution were to be "made whole" . The person who made this motion intended that those near age 55 and 30 years of service be given a roll over amount that would give them the same age and years of service benefit as the present defined benefit system subject to the assumptions determined by the board. I recall at two meetings of the Utility Retirement Board, City Attorney, John Klaus, told the Board that the City has responsibility to provide members with the retirement benefits that were promised. During the meetings with ICMA-RC , members were told they would get the same benefit and in fact they would probably get more. I specifically asked for the benefit at age 55 and 30 years of service and was told I would get the same benefit and probably better, but it is now clear that this was not true. The roll over amount I was given will require working to age 65 and 40 years of service in order to receive the same benefit I would have been able to receive under the defined benefit plan. It is approximately $100, 000 less than that needed to give me the same benefit as under the defined benefit plan at age 55 and 30 years of service. ICMA-RC also showed what my benefit would be under the existing defined benefit plan. I took their word that the number was correct. This number is significantly less than the correct number. It appears that ICMA-RC intentionally deceived members in order to get them to vote in favor of the change. Since I was not allowed to see the calculations, instructions given to Mammel, and the roll over amounts, it had taken me until now to grasp what is being done. The Board secretary has refused to give me the roll over amounts . This should be public information and available to members so they can verify roll over amounts were calculated properly. I am requesting the board take corrective action to bring the roll over amounts of the age 55 and 30 years of service members to more closely comply with previous board action and advice of the City Attorney. I am also requesting the City Attorney verify that this is public information and the board make the numbers and methods used to calculate roll over amounts available to Utility Retirement members . The following appears to have been done: Current retirees and disabilities were given annuities . Existing members who are 55 and 30 or 55 and qualify for retirement with reduced benefit were given a roll over amount which provides benefits from their present age to the actuarial mortality age equal to that under the defined benefit plan. Everyone else was given a roll over based on the present system and retirement at age 65 regardless if they would qualify for full benefits at some age between 55 and 65 . This essentially changes retirement to age 65 for all present members not yet age 55 . The correction for being harmed was determined by looking at defined benefit vs defined contribution at age 65 . Nothing was done for those who would presently qualify for retirement without penalty at age 55 with 30 years of service. Any surplus still left was distributed based on present value. I have the following comments based on the above description of how funds were distributed: 1 . The current retirees are well taken care of. They are receiving everything promised to them plus more. They will get an annuity that covers the benefit promised when they retired plus cost of living increases that were granted after they retired, plus after 5 years of retirement the formula change from 1 . 95% to 2 . 1% . 2 . The current members age 55 qualifying for retirement with or without penalty received a benefit equal to what they were promised plus part of the surplus . This means they are getting more than they were promised and they have not retired yet. 3 . Members who would qualify for 55 and 30 are getting less than they were promised which varies depending on how close to age 55 and 30 years of service they are. In my case with correction for being harmed at age 65( instead of 55) plus the surplus amount, I am getting only about 66% of what I was promised if I remained working under the defined benefit system to age 55 and 30 . At the time of the proposed change(July 1, 1997 ) , I will be about 2 . 9 years from 55 and 30 . Anyone close to 55 and 30 at the transition date will be subject to a large differential of roll over amount. This does not seem to be equitable. For my situation, this is similar to losing 34% of your life savings . Anyone who would have qualified for 55 and 30 and is within 5 years of retirement will probably get considerably less than they were promised and there is not much time left to change your plans . 4 . All other members who will not qualify for 55 and 30 are getting 100% of what they were promised plus part of the surplus . These people are also fully taken care of . 5 . If the distribution of funds were done equitably to not harm the 55 and 30 people, there would not be a "surplus" . In fact if no one were harmed, there would probably not be enough money under the current assumptions . The interest rate of 6 . 5% and 7 . 0& were supposed to be very conservative. If it is increased to 7 . 5% or 8 . 5%, there may be enough money. By leaving the rate of return at a conservative percentage, and if the actual yield is higher, the potential 55 and 30 people will be closer to what they were promised, but all others will receive significantly more than promised. This large disparity should not be allowed to happen. 6 . The distribution of surplus to active members was based on present value and the largest amounts went to those who qualified for 55 and 30 . They should not have had any surplus until others not at 100% of what they were promised were made whole. 7 . ICMA-RC benefit under the present defined benefit system didn't include any sick leave increase or the increase to 2 . 1% in the benefit formula after 5 years . Historically most members have retired with unused sick leave pay added in their calculation of average salary. Often this has been as much as $150-$200 per month for Electric employees . Members were mislead by ICMA-RC when comparing the benefits under the two plans by understating the present benefit. I propose the following solutions : 1 . Do not distribute surplus to those who are receiving 100% of what they were promised under the defined benefit plan until those who are receiving less than 100% reach 100% . This would mean primarily using what is available of the one million reserved for errors and the approximate additional one million received over the estimate of market value to make the people who would qualify for 55 and 30 whole. 2 . Change the interest rate to make the distribution equitable. I have heard there is not enough money to make all members whole. If the assumed interest rate on the 401A is increased high enough, there will be a point where there is enough money. 3 . Investigate purchasing an annuity for those now 55 and qualify for either no penalty or reduced penalty instead of giving them a roll over amount. This may be less expensive and still give them the earned benefit while freeing money to other active members . 4 . Do not give any surplus to current retirees until potential 55 and 30 active members are at 100% . 5 . Take everyone to retirement at age 65 and adjust interest rate to allocate 100% of funds . This would change the benefits for everyone regardless whether they had an earned benefit. Instead of having winners and losers, everyone would loose equally. I am making the following requests of the board: 1 . Allocate any surplus not yet distributed to potential 55 and 30 people before distributing remaining surplus to other members who are already at or over 100% and consider other ways to make the distribution more equitable. 2 . Ask City Attorney, John Klaus , for an opinion as to whether the methods of determining the roll over amounts and the roll over amounts are public information; or should be available to Utility Retirement members . 3 . I have not found anyone who has received an adequate explanation of whether members will be able to retire at less than age 59 . 5 and not have to take a penalty. I am requesting the board verify this is correct and reveal if any special procedures have to be followed. ICMA-RC told people retirement at age 55 could be taken without penalty under the defined contribution system. I am including a sample calculation which shows it would take another $100, 000 in the roll over amount to give me the same benefit available under defined contribution as I would have available under defined benefit .