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HomeMy WebLinkAboutA003 - Letter dated August 20, 1997 to Utility Retirement Board with concerns L2 6 1997 _ August 20, 1997 Y E;1..F�tK Utility Retirement Board Chairman and Board Members : I am writing to the Utility Retirement Board to request that any remaining "surplus" be allocated to those who would have been eligible for normal retirement without penalty at age 55 and 30 years of service. The Utility Retirement membership can be divided into the following groups for purposes of what their benefits would have been under the defined benefit system. Current retirees Active members who are age 55 and have 30 years of service Active members who are age 55 and have 10 years of service Active members who will be age 55 and have 30 years of service Active members who will be age 55 and have 10 years of service Active members who will be age 65 and not have 10 years of service In the method that has been proposed for determining roll over amounts into the defined contribution plan, every group will receive an amount of roll over that will give them at least what they would have received under the defined benefit system. The only group that was not going to be eligible to receive the same retirement are those who would have been eligible to retire at age 55 with 30 years of service if the defined benefit system had not been terminated. When I refer to people receiving the same retirement, it must be remembered that there are assumptions of rate of return for active members, but the current retirees will get exactly the same benefit no matter what the current rate of return is . I do not believe the current retirees should be given any increase over that they are currently receiving for the following reasons : 1 . Their current retirement benefit was calculated with an average salary that included payment for unused sick leave and vacation. For many retirees this results in an additional $200 in monthly income. None of the active members had this included in the calculation of their roll over amounts because it was not known if they would have any unused sick leave or vacation. Historically there has usually been unused sick leave and vacation at the time of retirement. 2 . Current retirees receive an increase from 1 . 95 to 2 . 1 in the benefit formula after five years of retirement. Their annuities will include this benefit. Active members did not receive this increase in their benefit formula. The logic might have been that it is not known if active members will live five years after retirement. 3 . I have heard some retirees say they are entitled to an increase since there is a "surplus" they have helped build up. I suggest the "surplus" is due to the future age 55 and 30 years of service group not getting the benefit they have been planning on receiving. Some of the current retirees were able to take advantage of the 55 and 30 retirement without penalty for early retirement after contributing the additional amount for only a few years . There are active members who have contributed for 13 years and will not be able to retire at age 55 and 30 years of service if they want to receive the same benefit they would have received under the defined benefit plan. 4 . The current retirees are going to receive a guaranteed amount. All of the active members will have to take some risk to receive the projected benefit under the defined benefit plan. This may be a bad time to assume risk since there are predictions that the stock market is over valued and a major correction may occur. In 1973 the stock market had a correction and it took ten years for it to recover. Any active member over age 55 and with least 10 or 30 years of service will receive the full benefit they would have under the defined benefit system and they don't have to retire. We know of two who will retire, but the others have not announced any plans for retirement. Any active member who will not qualify for early retirement with or without penalty, will receive what might be called the City' s portion and have portability. Those near age 55 and 30 years of service will also receive portability, but it is not as important to them if they are near retirement. If an active member is within a few years of age 55 and 30 years of service, it is unlikely they will leave employment with the city and not retire while working for the City. I am proposing that the "surplus" be given to the active members who will qualify for age 55 and 30 years of service without penalty before any other group is given any "surplus" . It has been estimated that it would take between 6 and 7 million to make them completely whole. It appears there may be a surplus between 1 and 2 million. If this is distributed to all active members who will qualify for age 55 and 30 years of service prorated on the basis of earned benefit, they will not be completely whole, but will be closer. Distributing the "surplus" on the basis of earned benefit to every active member will make all members, other than those who will qualify for age 55 and 30 years of service, over 100% whole while the 55 and 30 people may end up 75% whole. Those people who are currently 55 years old may be 110%-125% whole. 1 • There has been an argument that we don' t know if people eligible for early retirement without penalty will retire at age 55 and 30 . With the same logic, we do not know if current retirees who do not have 5 years of retirement will live to that age, we do not know that active members who are 55 will retire immediately after the conversion, and we do not know that younger active employees will work for the city until retirement. In the case of all other groups other than those who will be 55 and 30, the liberal approach was taken and they were given the full benefit. For the only the future 55 and 30 active members was the conservative approach taken by saying we don't know that you would have retired early. Even if the active member does not retire when he first qualifies for 55 and 30, it has been more common for those who qualify to retire at age 62 and not age 65 . The ability to retire without penalty is worth something and active members have planned on this benefit being available for the past 13 years . I have heard of employees in private industry working to within a few years of retirement and finding the benefit they had planned on was not there. I never thought it would happen to employees working for the City of Ames .