HomeMy WebLinkAboutPension & Audit Committee November 18, 2014
PENSION & AUDIT COMMITTEE COMMITTEE ROOM – November 18, 2014
1:30 P. M.
PRESENT: Hons. Deke Copenhaver, Mayor; Corey Johnson, Mayor Pro Tem; Wayne
Guilfoyle, Finance Committee Chairman; Janice Jackson, Administrator; Donna Williams,
Finance Director; Lena Bonner, Clerk of Commission.
1.Receive information and cost analysis related to increased benefits requested by
1945 and 1949 plan retirees.
Ms. Williams: We received a request sometime back originally from Mr. Newsome on
behalf of the 1945 retirees for a $500 per month increase in the benefit structure. The Pension
Committee met on that and the consensus was to ask for information from the actuaries for a
$250 dollar per month increase for the 1945 plan and also for the 1949 plan so that we would
have the information available for both. That information was brought back to us in October but
there was no action taken on it and another meeting for today was scheduled so we are meeting
for the purposes of discussing that and we have with us Mr. Bill Karbon from CBIZ who is the
actuary from the same firm. If the committee wants to we will discuss the information that Mr.
Karbon has brought for us.
Mr. Karbon: My associate Al Gwiners and he went over the information contained in the
funding review of the proposed defined benefit plan enhancements. To that I’ve attached a
couple of additional things. It is my understanding that the focus is on providing an increase in
benefits for current retirees in the 1945 and the 1949 plans. Also we’re currently assuming an
80% interest assumption and we wanted to give you some background on that as it relates to
state retirement plans throughout the U.S. in large public pension plans. The new exhibits today
focus on the 1945 and 1949 plan increases for current retirees. We have a graph showing the
benefit payments for the 1945 plan all the way out to the year 2060 and for the 1949 plan going
to almost out the year 2070. The current amount of the benefit payments are $909,000 a year. If
the increase was to be implemented for the ’45 plan you’d be looking at payments of $976,000 a
year and based on our projections and actuarial assumptions you see the run off for the ’45 plan
and the projected payments over the years. We have currently $8.7 in liabilities and the 9.3 that
we’re projecting. There is pressure throughout all public pension plans to update the mortality
table that anticipates a longer-life expectancy that will drive the liability up even higher than it is
now even without any change. If the increase was implemented we’re looking for an increase in
the liability by about $550,000 with an increase in cost of about $55,000 a year. If the same
change is made in the ’49 plan, we’re looking at an increase in the liability of about $6.1 million
with an increase in cost of about $628,000. Just to give you an idea on the interest rate
assumption, we are on the high end. You’re seeing about 6.75% on the low end and on the high
end you’re seeing 8%. We have seen a trend with the market rate assumptions in public plans
going down which will increase costs as well.
Mr. Guilfoyle: In other states how do the recipients get an increase?
Mr. Karbon: I work on a lot of county government plans throughout Georgia and
virtually none of them have even a cost of living adjustment no less than an ad hoc increase like
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you’re seeing here. Rarely do we see that at all. In many counties you don’t see a cost of living
adjustment for retirees.
Mr. Guilfoyle: It’s a funding problem, in a nutshell, for us and it wouldn’t be fair to do it
for the ’45 and not for the ’49.
Mr. Karbon: And keep in mind if we change the mortality table, you’ll see another
increase on top of that.
Mr. Williams: What other comparison do you have with the number of survivors versus
what we have in Augusta? I’m trying to get a comparison with some other cities.
Mr. Karbon: This plan itself is unique. When there is a large amount of liability
associated with retirees, sometimes you want to get a little more conservative with your
investments because you don’t want to have as much volatility involved when you’re having a
significant portion of your trust being used to disburse benefits. A lower interest assumption is
also associated with that. That varies by plan but that would be something you’d see.
Mr. Williams: I’m trying to figure out a way that would be helpful to both plans but
looking at the ’45 first.
Mr. Karbon: The only comment I can make on that is that you see we’re using a pretty
aggressive interest assumption at 8% and it would be tough to assume anything beyond that
because it would mean you would have to get more aggressive with your investments which
would lead to more volatility and the markets are already very uncertain.
Mr. Lockett: What is the cost of living increase over the last five years?
Ms. Williams: I will pass this around for you. It is a comparison of the cost of living
raises both for social security and for the Augusta pension plans back to 2001. Some of you will
remember the original method of computing a cost of living was prescribed in each individual
plan and it was a formula that had not been changed since the plans were originally adopted in
the 40s. In 2009 when the formula actually computed that there would be no cost of living raise
given to the pensioners but yet social security was planning to give a 5.8% increase there was a
recommendation that we change the methodology that had been outdated and update the method
that this was done and incorporate it into the plan document. In 2009 when there was actually a
zero computation of COLA to be awarded it was recommended and adopted that we did a tiered
structure based on the level of benefits. So we did this with the concurrence of some of the
pensioners that were represented. Mr. Jesse Redd, I think, Mr. Charlie, you were here and some
of the other folks but there was a 3% increase for those that made under $20,000, from $20,000
to $25,000 it was 2% and $25,000 to $30,000 it was 1% and over $30,000 there was no cost of
living adjustment given. But then we amended the plan in 2010 to where we would mirror the
amount that was published by the Bureau of Labor and Statistics for the increase in the
Consumer Price Index for the south region. So starting in 2010 that’s the methodology that has
been used so in 2010 it was 2.9, 11 it was 1.4. Social security gave none and then you’ll see the
figures are fairly close after that. I checked today and attached the two remaining documents
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behind it. As of October the projection for the Consumer Price Index for the 2015 increase
would 1.7% and social security has already announced effective January that theirs will be 1.7%.
So we have adopted a methodology that is more recent, more concurrent, it’s more indicative of
the time that we live. The first couple of sheets on here are the required contributions from
Augusta to the three active plans we have. These are the annual contributions from Augusta.
The second sheet lists the number of actives and retirees in the ‘45 and the ’49 and on the third
sheet I’ve added in the number of GMEBS folks that we’ve got since 2011.
Mr. Williams: What’s the amount left in these plans?
Ms. Williams: The assets are on the second page. In the ’49 plan there is approximately
$69 million dollars and in the ’45 there’s $6.4 million.
Mr. Williams: We didn’t think more about –
Mr. Karbon: Up to a couple of years ago Georgia state law limited even how much you
were allowed to put into the stock market or equities. They’ve loosened up those rules a bit and
some of that was the result of the downturn in the market and an opportunity to recover some of
the losses from 2008.
Mr. Williams: What can we do to get the increase that we need to give to these people?
Mr. Karbon: The concern I’m getting adding additional risk when you have such a high
portion of the assets to be used for retirees is that if the market takes a downturn, you still have to
pay retirees out and when you do this, you’ve logged in the losses on the money that you’re
using to pay out the retirees. That’s what makes it difficult to take on additional risk with these
two plans.
Mr. Williams: It’s a gamble, it’s a chance, but what can we do?
Ms. Williams: The short answer to that is to find a $250 increase for the current retirees
in the 1945 plan. You can put an additional $55,769 from the general fund into the pension plan.
That’s the way that gets done.
Mr. Mayor: I understand what you’re saying but when we’re running a budget deficit
and considering taking on more and increasing revenue is going out of the general fund. That’s
something I think we need to weigh. Ms. Williams, would you agree?
Ms. Williams: Yes, sir.
Mr. Johnson: Do you know how much that increase will be? Because if we increase for
the ’45 plan and we have an increase for the mortality table –
Mr. Karbon: We haven’t run any numbers but it’s probably going to increase liabilities
by 4 or 5% and that will have the impact by adding 50 or 75% of the increase we’re looking at
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and it would probably add another $30,000 to $40,000 on the cost on the ’45 plan alone and then
another $300,000 potentially on the ’49 plan.
Mr. Johnson: That was the concern I had. That’s out there that we’ve got to fund.
Ms. Williams: You have no contributions coming in on the ’45. Anything that you’re
talking about that’s an increase on the amount that is currently being put in there which is close
to $300,000. In March you will be doing the cost of living which is estimated to be about 1.7%
and that will show up in the next actuarial study that will give the requirements for the next plan.
Mr. Karbon: We do anticipate those increases when we do our calculations.
Ms. Williams: Both plans are scheduled to get their cost of living increases on March 1
of each year to mirror the CPI. The GMEBS retirees, their increase is logged in at 1.5%. It’s a
fixed percentage regardless of what happens with the CPI.
Mr. Steve Sanders: I’m here on behalf of Mr. Newsome and the members of the 1945
plan. I do think it’s important to distinguish between the two plans. If you’re looking at the
numbers for the ’45 plan, it’s an older group. We’re talking about ten people, ten current
retirees, average age 84 and their annual amount after all the years of work and retirement is
$30,000. I think the average age in the ’49 plan is younger and the annual benefits are already
greater. I think the ’45 plan members are a little bit deserving of a little bit different
consideration and that’s why the initial request that was made months ago was for a $500 per
month increase in their monthly benefit. I know that the plan the last couple of years I think the
2013 net position increase was $450,000 and what we’re asking for is a cost of $50,000 to
$70,000 and I think the year before that the return was over 10%.
Mr. Johnson: I understand what you’re saying and you don’t want to separate the two but
you have a smaller group of people and there needs to be some consideration there but I want to
be fair and I want us to look at the issue it causes the county financially. We have to take it one
step at a time and try to work something out with this plan and possibly look at the ’49 next year.
Mr. Lockett: Did I understand that there are only ten current retirees?
Ms. Williams: No, sir. There are 23 currently drawing retirement. Mr. Newsome
originally made a request to only look at a certain section of those retirees, not to give the
increase to all of them and that’s where the ten, the number he is using, is coming from.
Mr. Lockett: I think it could be a problem if you try to break up the ’45 plan and I think
the best course of action would be to look at the ’45 plan in its entirety and if we can get that
resolved, then we can move on to the ’49 plan.
Mr. Sanders: The reason that there is a different group in the ’45 plan is because of the
early enhanced retiree group that was added to the plan in ’96 and they are receiving three or
four times as much as the retirees that were on the original plan. So that’s why our request
excluded them.
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Mr. Lockett: Would there be any legal problem if you tried to do what you just
mentioned?
Mr. Sanders: No. Not according to the minutes of the past meetings here with the city
attorneys. They stand alone and it’s up to the body to make a decision.
Mr. Williams: Are you saying this money would have to be added to the budget?
Ms. Williams: The $55,000 would have to be added to the budget because it would have
to be a guaranteed contribution on top of the $290,000 that is currently in the budget to get the
plan funded. You have to guarantee a certain amount of payments to the plan. It doesn’t matter
what happens with the investments. You can’t wait and see how much money is made at the end
of the year. The government itself has to guarantee the contributions to the plan.
After further discussion, Mr. Guilfoyle: No disrespect to the retirees but I’m not in favor
because first off we’ve got to find a funding stream because once the ’45 walk out of here,
you’re going to have the ’49 coming in. That will be a bigger issue for us. To be fair and
fiscally responsible, I can’t do it.
Ms. Jackson: It is tough because we are right now in the middle of a budget discussion
and we’re trying to balance the budget as it is. If it is the will of the body that we find $55,769,
we’ll do our best to look at it but on the other hand I think everybody should understand there
will be consequences with that.
Mr. Mayor: I don’t know if we’ll pass a budget today. We may but if it doesn’t it may
be something that we can look at. There is a cause and effect relationship; we can do it but it
will cost us somewhere else. I think it’s more appropriate in the broader context to fit this
request into the budgeting process.
Ms. Williams: We’ve brought the actuary in on this two times and any action that is
posed before the Pension Committee must go before the full Commission for a vote before the
plan can be amended. Mr. Carman can also address the commission on the floor if necessary to
move things to the next level. I would suggest that we forward this to the full Commission with
no recommendation and let the full Commission take an action today to decide what they want to
do and Mr. Karbon can address them.
Mr. Mayor: Then we’ll need unanimous consent to add this to the agenda.
Ms. Williams: I understand that and realize that that could be a problem.
Mr. Lockett: I think it would require further discussion.
Mr. Mayor: We still have two more meetings before the end of year if no action is taken
on this today.
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Mr. Williams: I would like to see us at least be able to talk about it and maybe make a
decision one way or the other.
After additional discussion, Ms. Williams: I move that we refer this item to the full
Commission today with no recommendation.
Mr. Johnson. Second the motion.
Mr. Guilfoyle votes No.
Motion carries 4-1.
2.Discuss various matters related to GMEBS plan.
Mr. Johnson: I move that we receive this item as information.
Mr. Guilfoyle: Second.
Motion carries 5-0.
3.Attorney Steve Sanders on behalf of Lester Newsome regarding increase benefits
requested by the 1945 pension plan retirees.
The item was discussed in conjunction with Item 1.
ADJOURNMENT: There being no further business, the meeting was adjourned.
Lena J. Bonner
Clerk of Commission
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