HomeMy WebLinkAbout07/24/1969 Item #SS3S. S. Iter, #s
CITY OF NEWPORT BEACH
OFFICE OF THE CITY MANAGER
July 24, 1969
TO: MAYOR AND CITY COUNCIL
FROM: City Manager
SUBJECT: RETIREMENT BENEFITS
RECOMMENDATION: It is recommended that the City Council authorize the staff to
request actuarial valuations from the Public Employees' Retirement System to
determine the exact costs of each of the amendments described below which the'
City Council may be interested in studying in further depth.
DISCUSSION: In response to a request by the City Council, provisions of the
present Public Employees' Retirement System (P.E.R.S.) Contract and all
available provisions which could be adopted by amending the Contract have
been thoroughly researched. The following information is presented to assist
the City Council in determining which, if any, of the provisions to increase
and improve retirement benefits for employees should be considered further
for adoption.
History of Retirement Benefits Under P.E.R.S. Contract
On July 1, 1945, the City of Newport Beach contracted with the Public
Employees' Retirement System for retirement benefits for all City employees.
Employees working as of that date became members of the System in one of
two catagories, Safety or Miscellaneous. Provisions of the System provided
basic retirement benefits for Safety members (Police and Fire) in the
amount of 50 percent of final compensation (defined as the highest average
compensation earnable during any period of three consecutive years) at age
55 with 20 years of service. Basic retirement benefits for Miscellaneous
members were computed under the 1 /70th formula which provided one - seventieth
of final compensation (as defined above) for each year of service.
On November 1, 1951, the P.E.R.S. Contract was amended to adjust basic
retirement benefits for Miscellaneous members from the 1 /70th formula to
the 1 /60th formula which provides one - sixtieth of final compensation for
each year of service at age 60. Employees who retired prior to November 1, 1951,
therefore, retired under the one - seventieth formula; and employees who retired
after, retired under the one - sixtieth formula.
In May, 1969, a provision as contained in Assembly Bill 508 went into effect
automatically which increased retirement benefits paid to every eligible retired
member. No action by the City nor Contract amendment was required. The provisions
of this Bill allow a once -a -year cost of- living increase effective each May. The
amount of the increase is determined by the Consumer Price Index increase, but
may not exceed an increase of 1:5 percent. A retired employee becomes eligible
for this cost of living increase during his fourth year of retirement. Therefore
every City of Newport Beach retired employee who retired during 1965 and before
received a 1.5 percent increase in his retirement benefits in May 1969, and
will continue to receive a maximum of 1.5 'percent increase each May as long as
the Bill is in effect, so long as he is retired, and providing the Consumes
Price Index continues to increase by at least that amount.
To the Mayor and City *ncil
Page 2
With the exception of the change in benefits provided by AB508, then, retire-
ment benefits to employees are currently based on the formulas existing since
1951.
Without complicating the matter by including lengthy explanation, it should
be noted that the current benefits include more than the simple basic monthly
retirement benefits for retired employees as described above. There are death
benefits for widows and minor children; and, depending on the option a retired
employee elects, continuation of monthly retirement benefits and /or death
benefits for surviving dependents of retired employees. These benefits are
mentioned as a preface to discussion of possible Contract amendments which would
increase these benefits as well as increasing the basic monthly retirement
benefits for retired employees.
P.E.R.S. Contract Amendments for Consideration
There are several Contract amendments which are described below which can be
adopted by the City which would increase retirement benefits of employees who
are now retired and retirement benefits of employees who are now working and
will retire in the future. Two of these amendments would affect only those who
are now retired; two, those who are now retired and those who are now working;
and three, only those who are now working. The four described below which affect
employees who are now retired are the only provisions available at the current
time which could be adopted by the City which would increase retirement benefits
to the retired group. There are provisions in addition to the three described
which affect employees who are now working that could be adopted by the City.
These three are, however, the only amendments which it is felt might be
reviewed by, the City Council at this time. Two of the three,those which
relate to Marine Safety and Police, have been requested for consideration by
the departments.
Contract amendments which would affect those employees who are now retired:
1. Assembly Bill 13, passed by the legislature last year enables a P.E.R.S.
Contract amendment to provide a one -time cost of living increase in retirement
allowances, special death benefits and certain allowances for survivors where
retirement or death occurred prior to December 31, 1966, in percentages deter-
mined by year of retirement or death increasing in yearly increments of 2 percent
as follows:
Period during which retirement
This is the only cost -of- living -type provision now available to contracting
agencies for adoption. (Other provisions have been available from time to time
during the last several years, but have since been rescinded by the legislature.)
Although an actuarial valuation is necessary to determine the exact cost to amend
the P.E.R.S. Contract and adopt the provisions of AB 13, it is estimated the cost
to the City would be a maximum of 1 percent of total payroll per year or approxi-
mately $50,000 per year (assuming a $5 million payroll). The City must pay the
became effective
Increase
On
or before 12 -31 -61
12%
12
months
ended
12 -31 -62
10
12
months
ended
12 -31 -63
8
12
months
ended
12 -31 -64
6
12
months
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12 -31 -65
4
12
months
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12 -31 -66
2
This is the only cost -of- living -type provision now available to contracting
agencies for adoption. (Other provisions have been available from time to time
during the last several years, but have since been rescinded by the legislature.)
Although an actuarial valuation is necessary to determine the exact cost to amend
the P.E.R.S. Contract and adopt the provisions of AB 13, it is estimated the cost
to the City would be a maximum of 1 percent of total payroll per year or approxi-
mately $50,000 per year (assuming a $5 million payroll). The City must pay the
To the Mayor and City Council
Page 3
full cost of the increased benefits. (Employees do not share in the cost
of adopting AB 13.)
2, The other amendment which could be adopted which would affect retired employees
is described in Section 21251.35 of the Retirement Law. This provision increases
allowances of retired members who retired prior to November 1, 1951, from the
one - seventieth formula to the one - sixtieth formula.
An actuarial valuation is required to determine exact cost to adopt this amendment.
b However, it is estimated the cost to the City will be approximately .03 percent of
r total payroll per year or approximately $1,500 per year (assuming a $5 million pay -
A�l�9�UQl, roll). The City must pay the full cost of the increased benefits. (Employees do
Snot share in the cost of adopting the provisions of Section 21251.35.)
yh� ntract amendments which would affect those employees who are now retired and those
who are now working
1. A provision known as the '57 Survivor provision (Section 21365.5 of the
Retirement Law) provides an option to the surviving widow or minor children
of an employee who dies after retirement to elect a life income paid in monthly
benefits in lieu of accepting the equivalent of six months pay plus a cash
refund of contributions at the time of the employee's death.
This, too, requires an actuarial valuation to determine exact cost. It is
w estimated the cost to the City will be approximately .227 percent of miscellaneous
member payroll or approximately $6,800 per year (assuming a $3 million miscellaneous
r� member payroll). (There is no increase in cost to provide this benefit to safety
` members.) The City must pay the full cost for this increased benefit; employees
�f1 dp do not share in the cost.
2. The other amendment which could be adopted would affect retired employees and
active employees who are members of the Safety Series. It is known as the One -
half Continuance Benefit (Section 21264 of the Retirement Law). It provides that
one -half of a retired safety member's retirement allowance would continue to the
member's surviving widow or minor children at the time of his death after retirement.
An actuarial valuation will determine exact costs, but it is estimated the cost
to the City will total approximately 3 percent of the safety payroll or $60,000
per year (assuming a $2 million safety payroll). The City must pay the full cost
for this benefit; employees do not share in the cost.
t amendments
1. A provision known as the '59 Survivor provision (Section 21380.7) provides a
benefit of $90 per month for each eligible survivor of an employee who dies
before retirement.
If this provision were adopted, each employee would be given an opportunity to
participate; and if he so elected, would pay $2 per month. The City would pay
$5 per month for each participating employee. Assuming all employees elected to
participate, cost to the City would be $32,700 per year (assuming 545 employees).
' 2. Another provision which could be adopted would bring Marine Safety Department
employees into the Safety Series and increase their retirement benefits from the
To the Mayor and City Council
Page 4
one - sixtieth formula to the one -half pay at age 55 with 20 years of service
formula. These employees have for some time requested this benefit.
Marine Safety employees and the City would share in the cost of this benefit. An
actuarial valuation is required, but it is estimated the additional cost to the
City to adjust these ten employees to the safety series rates (from 7.167 to 9.452
percent) would be approximately $2,560 per year.
3. The other provision which could be adopted affects sworn police personnel
only and is known as the Highway Patrol Formula provision. This provision lowers
the retirement age of sworn police personnel from 55 to 50 years and pays a
retirement benefit of 2 percent per year of service. Police employees have
requested this amendment be given positive consideration.
Affected employees and the City share in the costs of this provision, and an
actuarial valuation is required to determine the costs. There is nothing upon
which to base an estimate of costs to the City except to make a comparison of
the City group to the State Highway Patrol group. When the State adopted this
provision for its group, its contribution rate increased from 16 percent to
29 percent, or a 80 percent increase. If the same were true for the City of
Newport Beach group, the additional cost to the City would be approximately
$80,000 per year (assuming a current City contribution for sworn safety
members of approximately $100,000 per year).
Procedures for Further Study of Contract Amendments
The procedures to follow to adopt Retirement System Contract amendments are
prescribed by law and are as follows:
1. The City Council authorize the staff to obtain actuarial valuations
to determine the cost to adopt those provisions described above which
the Council is interested in considering further. The exact charge for
these valuations cannot be determined until they are formally requested, but
it should not exceed $200. The valuations would be completed by the
Public Employees' Retirement System in a period of time estimated from
8 to 12 weeks.
2. Upon receipt of the actuarial valuations, the Council and the staff will
give further study to the various provisions, and the Council may make
a decision on what amendments will be made to the P.E.R.S. Contract and
adopt a resolution of intention.
3. After a 20 -day waiting period (required by law) the Council may adopt
a resolution to amend the P.E.R.S. Contract. This resolution is for-
warded to the Retirement System where preparations are made to adjust
contribution rates and benefits.
4. A 30 -day waiting period elapses (required by law).
5. The Contract amendments become effective as early as the first day of
the City's payroll period immediately following the 30 -day waiting
period, or at a later date at the Council's choosing.
To the Mayor and City Council
Page 5
If the Council so directs, the staff will contact the Retirement System
immediately and request the required actuarial valuations, thus beginning
the prescribed procedures for further study of amending the Public Employees'
Retirement System Contract to increase retirement benefits for City of Newport
Beach employees.
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