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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
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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 2015: $151 million
FY 2016: $158 million FY 2017: $164 million
FY 2018: $169 million
FY 2019: $175 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
Recommended City Contribution
Employer Normal Cost UAL Amortization
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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($millions)
Projection of Unfunded Actuarial Accrued Liability ($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
2011-400 PROPOSEDCHANGES
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
2011-400 PROPOSEDCHANGES
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
Recommended City Contribution
Employer Normal Cost UAL Amortization
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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($millions)
Projection of Unfunded Actuarial Accrued Liability ($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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