HomeMy WebLinkAboutPension & Audit Committee August 15, 2017
PENSION & AUDIT COMMITTEE COMMISSION CHAMBER – August 15, 2017
11:00 A. M.
PRESENT: Hons. Hardie Davis, Jr., Mayor; Davis, Mayor Pro Tem; Frantom, Finance
Committee Chairman; Janice Jackson, Administrator; Donna Williams, Finance Director; Sias, D.
Williams and Hasan, Commissioners; Jody Smitherman, Senior Staff Attorney; Lena Bonner,
Clerk of Commission.
The Mayor called the meeting to order.
1. Presentation of 1945 and 1949 Plan Actuarial reports by Mr. William Karbon from
CBIZ Benefit Services.
Mr. Karbon: I’m giving you an overview of the funding valuation for 2017 where we
determine the cash contribution and I’m also highlighting the report we did for financial statement
purposes. When we do evaluations, we look at the benefits promised to everybody whether it be
active employees or retirees and we look at the liabilities associated with everybody in total. We
compare the liabilities of all participants to the plan assets and the question is how do we pay down
the unfunded liability and then how do we pay for benefits accruing in current year. The
participants in the 1945 plan did not change from 2016 to 2017 valuation. We still have two
actively employed participants, one disabled and 20 retirees in the plan. The average salary for
the two actively employed went up from $69,500 to $73,400 and the average age for the actively
employed is 65 and they have 46 years’ service. A key statistic of the plan is that 85% of the
liability belongs to the retirees. That should drive the process of how to fund the plan when you’re
looking at most of the liability belonging to the retirees. Page four summarizes the investments
for the year. The county contributed $242,000, the two active participants contributed $7100,
benefit payouts were $757,000 and the net return was $260,000. There was a little over $5.9 million
in the plan at the end of the year. We try not to have too much fluctuation in the costs from year
to year so we smooth in the impact of any asset gains or losses throughout a five-year period.
We’re expecting assets to return 7 ¼%. If they did better than that, we would recognize that gain
over a five-year period and if the assets underperformed, we would smooth in that loss over a five-
year period. Typically, over a five-year period the gains and assets offset each other. There are
two elements to the cost and that is what are the benefit accruing in the current year and then you
have to pay down the unfunded liability and from that we offset the employee contributions.
Because the two active participants have reached normal retirement age, we assume they will retire
in the next year and that there are no benefits accruing in the current year so the only piece of the
cost is paying down the unfunded liability. That cost is $163,000 and that declined somewhat
significantly from the prior year. One reasons behind that is we changed one of the key
assumptions of the plan and that is the cost of living. We had been assuming that cost of living
adjustments would be at 3%. We decreased that assumption down to 2% and drove down the
costs. Our recommended contribution is $215,000 in light of the fact that most of the benefits are
for retirees.
Mr. Mayor: The unfunded liability as a city is something we need to look at. One thing
we may need to look at is establishing a financial policy with appropriate goals that would allow
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us to begin tackling this otherwise it will be a long-term legacy issue where it will just remain
unfunded.
Mr. Karbon: State law tells us what the minimum is and we need to calculate that. We
can look at building a policy around what your goals are.
Ms. Williams: There are two numbers that come out in the actuarial report. The minimum
funding requirement and a recommended level of funding. Historically Augusta has leaned more
towards making the recommended which is above the minimum. In 2008/2009, we had to drop
down to the minimum level because we did not have the money to go to the recommended level.
Mr. Karbon: We do track those contributions for more than the minimum. The state
recommended is the $155,000.
Mr. Hasan: So the state recommended is $155,000.
Ms. Williams: That’s the minimum.
Mr. Hasan: Okay and we made the $215,000 which is $70,000 more so we are following
their recommendations.
Ms. Williams: When we set the budget for 2017, we used the amounts for the prior year.
We have enough budgeted in 2017 to make an amount above either one of these numbers. We do
an estimate on the prior year’s actuarials.
Mr. Mayor: That’s why I think a funding policy would be extremely important and allow
us to have a consistent way of tackling this issue.
Ms. Williams: We’ll be happy to formalize into a policy pretty much what we’ve done as
a practice for the government. We can bring that back.
Mr. Karbon: The unfunded liabilities for the ’45 plan is a little over $1.2 million. We have
assumed a 7 1/2% investment return and decreased that to 7 ¼%. That’s the trend we’re seeing
with public plans. We use the RP2000 mortality table and we update that every year based on data
from the Social Security Administration. We’ve also reduced the cost of living adjustment from
3% to 2%. On the 1949 plan in 2016, we had 46 actives. That went down to 31 actives; we have
203 retirees. The average salary went from $49,800 to $53,600. We saw a slight decline in the
average age and we now have 83% of liabilities in this plan now belong to retirees. The asset
experience for the year started out at $67.5 million, almost $2.4 million in county contributions,
employee contributions declined because there are fewer active participants, $127,000, $6.7
million in benefit payouts and almost $3 million in net returns. So the value of the assets is $66.2
million and we used $69.3 million. Our two costs are benefits accruing in the current year at
$97,000 and then paying down the unfunded is $1,770,000 and we offset that by the anticipated
employee contributions of $113,000. The state required contribution is $1,757,000 and we’re
recommending $2.23 million as the contribution for the year.
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Ms. Williams: We budgeted at the 2016 level and recommend going forward and making
higher than the required contribution. I think the budgeted number for this was about $2.3, $2.4
million dollars. We have enough budgeted to make the recommended level rather than the required
level of contributions.
Mr. Karbon: The unfunded liability for the ’49 plan is $18.67 million with liabilities of
$84.9 million and assets of $66.2 million.
After further discussion, Mr. Frantom: I move that we receive this as information.
Ms. Davis: Second.
Motion carries unanimously.
Mr. Karbon: This handout is for the post-retirement medical plan. Historically these have
been unfunded just as the premium becomes due for whoever is in retiree status that the county
would then pay for those premiums. There are no assets set aside for this plan and there are $4
million dollars of premiums and the county paid for those for the year.
Ms. Williams: And that’s not unusual.
Mr. Karbon: The reason that we do our analysis is that it has to be reflected on the financial
statements. We look at the value of the accrual and the cost to pay down the unfunded over 30
years. The benefits accruing in the current year have a value of almost $3.6 million and the paying
down the unfunded liability has a cost of about $5.2 million so the total cost of the plan is $8.8
million. So the liability has gone up on the plan and there was a liability of $42.3 million. There
was an expense after adjustments of about $8.2 million. What offsets that expense is the $4 million
that was contributed to the plan and now the liability went from $42.3 million to $46.5 for all the
expense that hasn’t been recognized to date. The actuarial benefit of all the benefits promised
under the plan it is $103.6 million dollars. We used an investment return of 5 ½%.
Mr. Sias: What is the actual amount that is due per year?
Mr. Karbon: What’s due per year is about $4 million. That’s what’s already being paid
towards the plan.
Mr. Sias: How do you get ahead?
Mr. Karbon: You can start prefunding the plan.
After further discussion, Mr. Hasan: In all that you’ve shared with us in this review, is
there anything that concerns you and what would you like to see us do different?
Mr. Karbon: I keep my eye on what’s going on, just that the funded status doesn’t decline
in the ‘45 and ’49 plan. I think it’s healthy now but that can slip away. Just that the jurisdiction
is ready for increased cost on the medical side. My biggest concern is the medical. Many
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jurisdictions have ceased the plan for any new employees or retirees just because of the cost and
impact on the plan.
2. Receive June 30, 2017 investment reports for 1945 and 1949 Plans.
Mr. Frantom: How long has Morgan Stanley been handling the pension and when was
the last RFP?
Ms. Williams: Morgan Stanley has been handling it since prior to consolidation and I do
not recall the RFP. The information is presented here behind tab 2. The balance of the ’49 plan
as of June 30 had a balance of $68.3 million dollars. The ’45 plan had $6 million dollars. The
performance for the ’49 plan was 7.8% which was higher than the assumption in the actuarial
study. The ‘45 plan has some limitations on what it can actually invest in because it is a small
plan so its investment performance is slightly below that at 5.6%.
Mr. Frantom: I move that we receive this as information.
Ms. Davis: Second.
Mr. Frantom: And if we could add for the next agenda for Morgan Stanley come in and
talk about the services they provide and give us a general overview.
Mr. Hasan: I still think we need to consider an RFP and I don’t think in the state of Georgia
we can do evergreens.
Motion carries unanimously.
3. Presentation of report by Serrota, Maddocks and Evans, Internal Auditor.
Ms. Williams: We have a report from Bobby Smith on their recent review of the
Probation Department and its internal control structure.
Mr. Smith: Page 3 is a review of the results we did.
Mr. Mayor: How did we (inaudible) with Probation?
Ms. Williams: This was on the schedule of departments to be reviewed for internal control
purposes. During the year there was a request that this be moved to the forefront of the list to look
at this project early on.
Mr. Mayor: So there is a list. Can you provide us with that schedule?
Ms. Williams: Sure. It was a general list that was provided that was approved by this
committee but a specific timetable of them going who, when, where was not developed at that time
but there was a general push to have Probation reviewed early.
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Mr. Smith: First thing we focused on was the date of deposits once the probationers come
in and come to the window and pay their fees, fines and restitutions. So we selected a sample of
deposits and walked through the process of when the money comes in and how it’s tracked and
kept up with and we didn’t have any issues whatsoever. Very strong internal controls, everything
was being tracked thoroughly, no issues whatsoever for the deposit side testing. The second item
we looked at was once the money comes in and goes to the bank, at month end there is an allocation
of the revenues that are collected between the various places they’re collecting money for. We
walked through the revenue allocation process and we did have a few recommendations related to
that that you see listed there. Those items have since been corrected and everything was taken
care of on that. The third item we looked at was the budget and actual results for that. This gives
the summary and we found for the first six months of operations at year-end the budget was kind
of tweaked to (inaudible) those actual results. We found the budget was more aggressive for the
first three months in what expectations of revenue was to come in compared to actually what funds
are being collected for that. Our recommendation to management was to look back at the budget
and they said they always have a mid-year review and evaluation of that and have budget
adjustments as needed. Basically what we found on the collection side is once the probationers
get into the money everything is great. The problem is is having probationers the means to pay
the fines. The judges are assessing the fees and fines and the probationers just don’t have the
financial means to pay whatever the assigned restitution or fines are and what we discovered
through our testing is that if the probationer comes in and doesn’t have the means to pay they can
actually have those fines converted to community service and the judge can approve that and they
can basically work off their fees and fines with that. That was the biggest issue we found. Once
the fines come in everything seems to be very strong in internal controls. It’s just having the
probationers have the financial means to pay whatever the assessed fines are.
Mr. Hasan: In ’16 you have an average expectation of $35,000 and then you look at ’17
and it jumps to $133,000. Who makes that kind of assessment?
Mr. Smith: I think what happened at the end of ’16 is those budget adjustments they talk
about, that has happened in ’16 but not in ’17.
Ms. Jackson: I think basically what it would take is $133,000 to run the office based upon
the cost projections we have. So we just took the annual of $1.6 million and divided that by 12 to
get to $133,000.
Ms. Williams: That’s it in a nutshell plus in 2016 as you recall that was supposed to be an
initial startup budget. We anticipated that the rate of collection would be very, very low for the
first six months because we were just getting built up. We were anticipating their staff up, etc.
We had some numbers of projected cases, we had average collections estimated per case and when
we were building the 2017 budget, we made the assumption that it would be fully staffed, up and
running and those projections would be closer to what they expected to experience based on the
number of cases and probationers that they have. What we are finding is that they did not get a
hundred percent staffed up as of January 1 and there have been some continuing issues as well as
just simply the fact that our probationers are apparently finding that they are either not able to pay
a lot of the fees that are expected of them.
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Mr. Hasan: If everyone had been able to pay their fines, are the percentages such that it
would have generated $133,000 for us or just overall operation?
Ms. Jackson: This is just based upon our portion.
Mr. Hasan: When it was suggested to move from whatever percentage it was to go to a
50% of whatever fine was being paid, is that calculated in here or would that have put us over the
top?
Ms. Williams: It wouldn’t put us over the top. It would increase the number of our actual
collections if a higher percentage didn’t come to Augusta but during the time frame that was
reviewed in this report, none of those changes had been incorporated.
Ms. Jackson: At this point, they asked for an analysis which the Finance Department has
done and we’ll bring that to the Probation Advisory Board at the next meeting most likely. We
were told in the first few years we wouldn’t break even. Athens says they are still not at a break-
even point after nine years of operation. It would be nice to get closer. I think once we get fully
staffed and have some experience under our belts over the next two years or so we will raise more
than what you see being raised right now but I don’t think it will get to $133,000 per month.
Ms. Davis: Has Athens seen theirs decrease over nine years?
Ms. Jackson: They are closer to making ends meet but they’re still not there yet.
Mr. Sias: The operations and internal processes of the Probation Office were okay then.
Mr. Smith: Yes. Everything is being accounted for.
Mr. Sias: Okay. I think we need to put a value on community service as measured by man
hours. The Chief Probation Officer has submitted at some point of what these probationers have
done as far as community service. We pay employees to do basically the same thing. It doesn’t
change the financial report but it does show us where the value of these fines that were converted
to community service which actually comes out of our ability to recoup. We need to look for a
plan and a process to do that.
Ms. Davis: I move that we receive this as information.
Mr. Frantom: Second.
Motion carries unanimously.
4. Establish dates for quarterly pension meetings and place on meeting calendar.
(Requested by Mayor Pro Tem Mary Davis)
Ms. Davis: I know that there are so many parties involved in these meetings so I think if
we have like a, I don’t know, Donna would have to help us schedule these over the next three or
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four quarters, if that’s possible. Just so we already have it on the calendar and we could work it
out hopefully an hour before Commission meeting I think as far as we’re involved, it makes it
easier.
Ms. Smitherman: We have kind of the same thing for the GMEBS plan that we need to
do. The GMEBS board has made some plans for the Master Plan in 2016 that we need to adopt as
soon as possible and they’re making some plans to our addendum that we need to adopt as well.
They will have that to me by the end of August and then we’ll get the actuarial for the GMEBS as
well. We were hoping to have the same thing in September to do the same as we did for the ’45
and ’49 this month. We were hoping to get that on the books as well.
Mr. Mayor: I concur with that doing it before full Commission.
Ms. Davis: I just know it’s tough to get everybody’s schedules coordinated so the earlier
we can do it –
Mr. Mayor: The third Tuesday of the month.
Ms. Williams: Set that one and then maybe look at the quarterly after that. December
would be a good month to have one –
Ms. Davis: Would you work on it?
Ms. Williams: Yeah.
Mr. Mayor: Well, let’s just set the next one which would be September 19.
Ms. Davis: Can you arrange the next meeting on those dates?
Ms. Williams: Yes, I sure can. Be happy to.
Mr. Frantom: I’d just like to add one agenda item. I’ve gotten a lot of calls and there are
a lot of people here about the employees’ ability to put in 4% and the ability to put in more, 6%.
Can we talk about that at the next meeting and talk about pros, cons and see where we can go to
answer questions that people have.
Mr. Mayor: Like to ask the question as to why is there a cap of 4% on the contribution
portion at this point.
Ms. Williams: That’s in the plan itself as to define the level of benefits. We also have a
457 plan that is a tax-deferred annuity that anybody can put in any amount that they want to up to
the level as prescribed by the IRS. That’s available to every employee.
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Mr. Mayor: On the 19 we can have that broader discussion in term of setting limits,
contribution limits on our plans. We can also discuss what plans are available for people to
contribute to. I wasn’t aware of the 457. How many participants do you have in there?
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Ms. Williams: I do not know. I’d have to check it. I know that they put our literature
about it.
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Mr. Mayor: If you could have that information on the 19 meeting for the Commission, I
think that would be appropriate.
Mr. Speaker: Most of the employees here are here for GMEBS. Most of the employees
that participate in GMEBS have found out there’s three different calculations that the HR uses at
their retirement. Everybody’s paying 4% contributions. There is a small group of people getting
2.5 as a yearly multiplier. The old City employees have a dynamic break point that brings them
up to 2% and everybody else gets 1.65. That’s what most people want addressed and if there is
any kind of way that we can be a part of the solution to fix that, that everybody eat out of the same
bowl with the same size spoon basically, that’s what we’re asking to be addressed. When you start
talking about percentages, somebody making $30,000 a year and they work 25 years and only
bring home $12,000 at that percentage, it’s just not fair to everybody paying in the same amount
and a small group of people get 2 ½% and then the other ones get 2% and the rest 1.65 and they’re
all paying in 4%.
Mr. Mayor: I think we’ll address that in our next meeting.
It was the consensus that the next meeting will be held on September 19, 2017 at 1:00 p.m.
ADJOURNMENT: There being no further business, the meeting was adjourned.
Lena J. Bonner
Clerk of Commission
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