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99-665. ' i�. Y-� s� CITY Presented by Referred To Council File # 9q — � �� Green Sheet # ��9� � Committee Date Resolution requesting revenue estimates, budget options and mayoral policy recommendations relating to e.zcess pension fund assets for St Paul's police and fire PERA Consolidated Pension accounts. Whereas, the 1999 Minnesota Legislature enacted the Omnibus Pension Bill (Senate File 319) which, along with 4 many other provisions: 6 7 8 9 10 11 12 13 14 1) mexges the "PERA Consolidated Police and Pire Pension Fund Accounts" (formerly local pension funds from various cities throughout Minnesota) into the statewide "PERA Police and Fire Pension Fund' ; 2) provides larger pension payments to future fire and police retirees who are now members of the PERA Consolidated Police and Fire Pension Fund; 3) allowsretireesandotherbenefitrecipientswhoarecurrentlyreceivingbenefitsunderthebylawsoftheirlocal relief association tlie option to receive future post-retirement increases under the formula ofthe Minnesota Post Retirement Investrnent Fund; 4) reduces the early retirement penalties for active police and fire members who retire before age 55; 5) reduces the employEE's contribution to their pension plan from 7.6% to 6.2% of actual salary for ali active fire and police members; 15 6) reduces the employER's pension contribution from 11.4%to 93% of actual salary for a11 active fire and police 16 members; and 17 Whereas, the City of Saint Paul expects a significant number of Saint Paul police officers and firefighters to retire 18 before December 31, 1999; and 19 Whereas, the large number of retirements are expected to result in some extra costs for the City of Saint Paul in 20 both the yeazs 1999 and 2000 for expenses such as severance pay, recruitment, training, and exira overtime during 21 staffing shortages; and - ��-� �y \ 1�� RESOLUTlON 22 Whereas, the 1999 Minnesota Omnibus Pension Bill provides that cities that do merge their "PERA Consolidated 23 Police and Fire Pension Accounts" into the statewide "PERA Police and Fire Pension Fund" will get some excess 24 account assets back if a merged account is considered "Over-Funded", or will have to make a fixed amortization 25 payment for ten years if a merged account is considered "Under-Funded". State law provides that a city will get 99-GGS half (50%) of the money in excess of the amount needed to be considered 100% actuarially funded. When a city receives excess assets from an Over-Funded account, it must be spent on police deparGment expenditures if the money was from a police pension account, or it must be spent on fire department expendihztes ifthe money was from a fire pension account. The actual date for determining whether a merged account is "Over-Funded" or "Under- Funded", by actuarial standards, is June 30,1999, the close of the fiscal yeaz for the "PERA Consolidated Police and Fire Pension Accounts". The Minnesota PERA office will not receive information about the funding status of each account from their actuary until late November 1999, thus affected cities will not receive a PERA notificarion of the amount of excess assets or amortization obligations until eazly December 1999. And it is projected that the earliest a city will receive any distribution of excess assets will be in the first quarter of the year 2000; and 10 Whereas, a yeaz ago at 6-30-98, the actuarial data for the two Saint Paul Consolidated PERA Pension Accounts 11 had the Police Accountbeing Over-Funded at 106% and the Fire account being Under-Funded at 94.6%. During 12 the past year, the return on investrnents for the pension accounts were significantiy higher then the actuarial 13 assuxnptions for the PERA Consolidated Police and Fire Pension Fund, thus it is anticipated that at 6-30-99, both 14 St. Paul consolidated accounts will have improved, higher funding ratios. Absent 6-30-99 actual data, and based 15 on last year's data, it is estimated that the City of Saint Paul will receive a 50% excess amount of approximately 16 $6,000,000 from the Saint Paul Police Account and that the City may not have to make any amortization payments 17 for the Saint Paul Fire Account; and 18 Whereas, the 1999 Minnesota Omnibus Pension Bill requires of cities that do receive a distribution of 50% ofthe 19 excess assets, that the City Council must hold a public hearing on the plans to use any of the excess monies 20 distributed, and then formulate and adopt a spending plan by resolution, and then file a copy of the adopted plan with 21 the Minnesota State Auditor. A city must establish a special fund or account for holding excess money dish 22 from each pension account for the purpose of generating and accruing interest earnings on said money and for 23 recording how the money was actually spent. The State Auditor will periodically audit the spending from the created 24 special fund or account. The Minnesota PERA must also pay a city interest earnings on their 50% share of excess 25 assets from July 1,1999 to the first of the month a City requests distribution of their 50% share, in accotdance with 26 the requirements of the 1999 pension laws; and 27 Whereas,the1999MinnesotaOmnibusPensionBillmakessomechangesonhowAmortizationAid,Supplemental 28 Amortization Aid and Additional Amortization Aid is distributed to pension accounts that are not fully funded in 29 the years 2000 through 2009, and that said changes may affect the Financing Plan for next year's General Fund 30 budget; and 31 Whereas, during the course of preparing the City's Year 2000 General Fund budget, the Police Department 32 indicated that preliminary budget shortage estimates for the department, based on Mayoral budget instructions, could 33 result in a reduction in policing programs; now therefore 34 Be It Resolved, that the 5aint Paul City Council requests the Director of Financial Services to identify in writing 35 by no later then August 15, 1999, as part of the Mayor's presentation of the Proposed 2000 Budget for the City of 36 Saint Paul, the following informarion: 37 38 39 40 41 1) an estimate of how many Saint Paul police officers and firefighters are retiring in 1999 and in 2000; 2) an estimate of direct and ind'uect costs for Saint Paul's police and fire departments relating to those retirements in 1999 and 2000; 3) an estimate of changes in the amounts of pension aids for Saint Paut's police and fire accotuitts, with an explanation as to how it affects the financing plan for the Year 2000 General Fund Budget; 2 49-L45 4) an estimate of savings in the City's Pension Contributions for active police officers and firefighter for the budget yeus 1999 and 2000 when the employer's contribution rate drops from 11.4% to 93%; 5) a conservative estimate of how much excess pension assets might be distributed back to Saint Paul for police department spending (and if appropriate, fire department spending), along with an estimate ofrelated investment earnnigs based on the Mayor's recommending spending and disbursement plan; 6) a comprehensive list ofone-time expenditures for the Police Department (and Fire Department, if appropriate) that should be considered for spending any available distribution of 50% of Excess Assets from a pension account. Spending requests can be either from the operafing budget or the capital improvement budget; 9 7) the Saint Paul police and fire chiefs' priorities for spending of all excess pension assets and accrued interest, 10 that would be distributed for their department costs; 11 8) the Mayor's recommendations for spending of all excess pension assets and accrued interest, including: any 12 items included in the Proposed 2000 City Budget, any 1999 budget amendments proposed to reimburse cost 13 incurred during 1999, and any items recommended far future budget years beyond 2000; and 14 Be It Also Resolved, that the Saint Paui City Council intends to hold a public hearing on options for developing 15 a spending plan for the use of excess pension assets which would give the general public an opportunity to 16 communicate their spending preferences and priorities. The public hearing will be set at a future date, after the 17 Mayor presents his revenue estimate and spending recommendations as part ofthe year 2000 budget decision making 18 process. Requested by Deparhnent of: � Form Approved by City Attorney � �r Submission to Council � Approved bv Ma�or: Date � � l� . Adopted by Council: Date ` Adoption Certified by Council ecreta Q4-G6s � 1 n O O 7 A A DEPARTMENLOFFICE/COUNCIL DATE INITIATED 1 V_ L V L Y J c��coUa�a �-s-99 GREEN SHEE CONTACT PEFSON & PHONE INITIAL/DATE INITIAVDATE O DEPARTMENT DIRE O C�n' COUNCIL Gerry McInemey 6-8611 pSSIGN � CITYATTORNEY O CINCLEFK MUS7 BE ON COUNCILAGENDA BY (DATE) NUAIBER FOH � BUD6Ef DIRECTOR O FIN. 8 MGT. SERVICES DIR. NOUTING OflDEN � MqyOR (OR ASSISTANn � TOTAL # OF SIGNATURE PAGES (CLIP ALL LOCATIONS FOR SIGNATURE) ACTION REQUESTEO: . Revenue estimates, budget options and mayoral policy recommendations relating to excess pension fund assets for , . . FiECOMMENDATIONS: Approve (A) or ReI�YR) pEBSONAL SERVICE CONTRACTS MUS7 ANSWEH 7HE POILOW�NG UUESTIONS: _ PLANNING COMMISSION _ pVIL SEBVICE COMMISSION �� Has this personflirm ever worked untler a contract for this departmem? _ CIB COMMITTEE _ YES N� 2. Has this personHirm ever been a city employee? _ S7AFF — YES NO _ DIS7AiC7 CoURT _ 3. Does this personttirm possess a skill not normally possessetl by any current ciry employee? SUPPORTS WHICH COUNCIL OBJECTIVE'+ YES NO Explain all yes answers on separate sheet and attech to green sheet INITIATING PROBLEM, ISSUE, OPPORTUNITY (Who. H'haL When, Where, Why)' . The 1999 Minnesota Legislature enacted the Omnibus Pension Bill (Senate File 319) which will have an effect on police and fire staffmg, the financing and spending plan for year 2000 General Fund budget, and will provide some excess one-time money for the Police Department and possibly for the Fire Department. ADVANTAGESIFAPPROVED: Will provide the City Council with an oppommity to better deliberate on policy options, before they are required by law to formulate and adopt a plan for spending excess pension assets. DISADVANTAGES fF APPRW ED: None. DISADVANTAGES IF NOT APPROVED� The City Council will not ha�e a comprehensive estimate of all revenue sources anticipated to be available for the yeaz 2000 City budget, and will not have a comprehensive list of spending options, along with the Mayor's rational for picking projects and the Police Chief and Fire ChiePs priorities for use of excess pension assets. 70TAL AMOUNT OF TRANSACTION $ COST/REVENUE BUDGETEp (CIHCLE ONE) YES NO FUNDIfdG SOURCE ACTIVITY NUMBER FINANCIFL INFORMATION (EXPLAIN) Council File # Rq — G(. S Green Sheet # �-_ $ � � °l RESOLUTION A#!VT b�AUL. MINNESOTA . �G Presented Referred To 1 Resolution requesting revenue estimates, budget nptions and mayoral po cy recommendations 2 relating to excess pension fund assets for St Paul's police arzd fire PERA C nsolidated Pension accounts. 3 Whereas, the 1999 Minnesota Legislahxre enacted the Omnibus Pensio ill (Senate File 319) which, along with 4 many other provisions: 5 1)mergesthe"PERAConsolidatedPoliceandFirePensionF dAccounts"(formerlylocalpensionfundsfrom 6 various cities throughout Minnesota) into the statewide "P RA Police and Fire Pension Fund' ; 7 2) provides larger pension payments to future fire an police retirees who are now members of the PERA 8 Consolidated Police and Fire Pension Fund; 9 3) allows retirees and other benefit recipients who e currently receiving benefits under the bylaws of their local 10 relief association the option to receive future po -retirement increases under the formula of tl�e Minnesota Post 11 Retirement Investment Fund; 12 4) reduces the early retirement penalties or active police and fire members who retire before age 55; 13 5) reduces the employEE's contribuf n to their pension plan from 7.6% to 6.2% of actual salary for all active 14 fire and police members; 15 6) reduces the employER's pens' n contribution from ll.4% to 93% of actual salary for all active fire and police 16 members; and 17 Whereas, the resulting pens' n benefit increase and the reduction of the early retirement penalty provisions is 18 expected to cause a signific t number of Saint Paul police officers and firefighters to retire before December 31, 19 1999; and 20 Whereas, the large ber of retirements aze expected to result in some extra costs for the City of Saint Paul in 21 both the years 1999 d 2000 for expenses such as severance pay, recruihnent, training, and ea�tra overtime during 22 staffing shortage and 23 Whereas, 1999 Minnesota Oxnnibus Pension Bili provides that ciries that do merge their "PERA Consolidated 24 Police and ire Pension Accounts" into the statewide "PERA Police and Fire Pension Fund" will get some excess 25 account assets back if a merged account is considered "Over-Funded", or will have to make a fixed amortization 26 payment for ten years if a merged account is considered "Under-Funded". State law provides that a city will get �t9 _�GS half (50%) of the money in excess of the amount needed to be considered 100% actuarially funded. When a city receives excess assets from an Over-Funded account, it must be spent on police department e�penditures if the money was from a police pension account, or it must be spent on fire department expenditures if the money was from a fire pension account. The actual date for determiniug whether a merged account is "Over-Funded" or "Under- Funded", by actuarial standards, is June 30,1999, the close of the fiscal year for the "PERA Consolidated Police and Fire Pension Accounts". The Minnesota PERA office will not receive information about the fun � g status of eacb account from their actuaiy until late November 1999, thus affected cities will not receive a PE notification of the amount of excess assets or amortization obligations until early December 1999. And it is ojected that the earliest a city will receive any distribution of excess assets will be in the first quarter of the ye 2000; and 10 11 12 13 14 15 16 17 Whereas, a year ago at 6-30-98, the actuarial data for the two Saint Pau] had the Police Account being Over-Funded at 106% and the Fire account the past yeaz, the return on investments for the pension accounts were assumptions for the PERA Consolidated Police and Fire Pension Fund, th s it is anticipated that at 6-30-99, both St. Paul consolidated accounts will have improved, higher funding ratio . Absent 6-30-99 actual data, and based on last year's data, it is estimated that the City of Saint Paul will rece' e a 50% excess amount of approximately $6,000,000 from the Saint Paul Police Account and that the City ma not have to make any amortization payments for the Saint Paul Fire Account; and PERA Pension Accounts unded at 94.6%. During higher then the actuarial 18 Whereas, the 1999 Minnesota Omnibus Pension Bill requir of cities that do receive a distribution of 50% of the 19 excess assets, that the City Council must hold a public eazing on the plans to use any of the excess monies 20 distributed, and then formulate and adopt a spending pl y resolution, and then file a copy of the adopted plan with 21 the Minnesota State Auditor. A city must establish a ecial fund ar account far holding excess money distributed 22 from each pension account for the purpose of gen ating and accruing interest eamings on said money and for 23 recording how the money was actually spent. The ate Auditor will periodically audit the spending from the created 24 special fund or account. The Minnesota PE ust also pay a city interest earnings on their 50% share of excess 25 assets from July 1, 1999 to the first of the mo a City requests distribution of their 50% share, in accordance with 26 the requirements of the 1999 pension laws• d 27 Whereas, the 1999 Minnesota Omnib ension Bill makes some changes on howAmortization Aid, Supplemental 28 Amortization Aid and Additional ortization Aid is distributed to pension accounts that are not fully funded in 29 the years 2000 through 2009, and at said changes may affect the Financing Plan for next year's Generai Fund 30 budget; and 31 Whereas, during the cour of preparing the City's Year 2000 General Fund budget, the Police Deparbment 32 indicated that preliminary dget shortage estimates for the department, based on Mayoral budget inshuctions, could 33 result in a reduction in c mmunity policing programs; now therefore 34 Be It Resolved, th the Saint Paul City Council requests the Director of Financial Services to identify in writing 35 by no later then gust 15, 1999, as part of the Mayor's presentation of the Proposed 2000 Budget for the City of 36 Saint Paul, the lowing information: 37 1) an esy�mate of how many Saint Paul police officers and firefighters aze retiring in 1999 and in 2000; 38 2) estimate of direct and indirect costs for Saint Paul's police and fire departments relating to those retirements 39 in 999 and 2000; 40 3) an estimate of changes in the amounts of pension aids for Saint Paul's police and fire accounts, with an 41 explanation as to how it affects the financing plan for the Year 2000 General Fund Budget; 2 �(`{ -G �S 2 10 4) an estimate of savings in the City's Pension Contributions for active police officers and firefighter for the budget years 1999 and 2000 when the employer's contribution rate drops from 11.4% to 9.3%; 5) a conservative estimate of how much excess pension assets might be distributed back to Saint Paul for police department spending (and if appropriate, fire department spending), along with an estimate ofrelated investment earniiigs based on the Mayor's recommending spending and disbursement plan; 6) a compzehensive list ofone-time expendirixres for the Police Department (and Fire Dep nt, ifappropriate) that should be considezed for spending any available distribution of 50% of Excess sets from a pension account. Spending requests can be either from the operating budget or the capital � rovement budget; 7) the Saint Paul police and fire chiefs' priorities for spending of all excess pens� n assets and accrued interest, that would be distributed for their department costs; 11 8) the Mayor's recommendations for spending of all excess pension ass s and accrued interest, including: any 12 items included in the Proposed 2000 City Budget, any 1999 budge endments proposed to reimburse cost 13 incurred during 1999, and any items recommended for future bu et yeazs beyond 2000; and 14 Be It Also Resolved, that the Saint Paul City Council intends t old a public hearing on options for developing 15 a spending plan for the use of excess pension assets which w ld give district councils, affected unions, and the 16 general public an opportunity to communicate their spendin references and priorities. The public hearing will be 17 set at a future date, after the Mayor presents his revenue es � ate and spending recommendations as part of the yeaz 18 2000 budget decision making process. Benanav Blakey Bostrom Coleman Harris Lantry Reiter Adopted by Council: Date Adoption Certified by Council Secretary By: Approved by Mayor: Date By: Requested by Departrnent o£ � Form Approved by City Attomey � Approved by Mayor far Submission to Council � `��-G�S Ciry of Saint Paul � City Council 310 Ciry Hail Saint Paul, MN 55102 (651) 266-8577 INTER-DEPAR7MENTAL MEMORANDUM DATE: July 8, 1999 To: Council President Dan Bostrom Councilmember Jay Benanav Counciimember Jerry Blakey Councilmember Chris Coleman Councilmember Michael Harris Councilmember Kathy Lantry � Councilmember Jim Reiter FROM: Greg Blees, Fiscal Policy Director / I� I� SUBJECT: 1999 Omnibus Pension Bili Will Effect Year 2000 Budget Preparation This memo provides background infornhation for the council resolution Jerry Blakey is introducing which is requesting revenue estimates, budget options and mayoral policy recommendations relating to excess pension fund assets for St. Paul's police and fire PERA Consolidated Pension accounts. Specifically, it provides a more detailed explanation of the six pazagraphs in the first "WHEREAS" on page one of the resolution. Also, some historical data is provided for Saint Paul's two consolidated pension accounts. Whereas, the 1999 Minnesota Legislature enacted the Omnibus Pension Bill (Senate File 319) which, along with many other provisions: 1) merges the "PERA Consolidated Police and Fire Pension Fund Accounts" (formerly local pension funds from various cities throughout Minnesota) into the statewide "PERA Police and Fire Pension Fund". 'There are 44 accounts in the PERA Consolidated Police and Fire Pension Fund, with two of the accounts being the City of Saint Paul's old local relief association pension funds for police officers and for firefighters. The "Saint Paul Police Consolidated PERA Pension Account" and the "Saint Paul Fire Consolidated PERA Pension Account" have been merged into the statewide PERA Police and Fire Pension Fund, as the City of Saint Paul took no a�rmative action to retaixt its consotidation accounts by the June 15, 1999 date prescribed in state law; 2) provides larger pension payments to future fire and potice rerirees who are now members of the PERA Coasolidated Police and Fire Pension Fund. Currendy a pension for a member of the PERA Consolidated member is based on a formula which applies a 2.9% multiplier for each year of service to the average salary for their high five yeazs, while for members of the statewide "PERA Police and Fire Pension Fund the multiplier is 3.0%. The yeazs of service multiplier for consolidated members will increase from 2.9% to 3.0% after June 30, 1999, provided the consolidated member elects the benefits of the statewide fund before September 1, 1999. Changing the yeazs of service multiplier to 3.0% for consolidated c�c�_�GS members resuits in a 3.45% increase in their sfarting pension. Now both police officers and firefighters hired before_ 1981, or after 1980 will have the same 3.0% yeazs of service multiplier; 3) allows retirees and other benefit recipients who are currently receiving benefits under the bylaws of their local relief association to receive future post-retirement increases under the formula of the Minnesota Post Retirement Investment Fund, provided the retiree or recipient makes an election to do so beiween Jnly 1 and August 30,1999; 4) reduces the early retirement penalties for acrive police and fire members who retire before age 55. Current law allows a member to collect a pension as early as age 50, but with a 2 tenths reduction in pension for each month before reaching age 55. If a member retired at age 50, five yeazs before the target retirement age of 55, lus or her pension would be reduced a maximum of 12% (60 months times 0.2% per month). The new 19991aw reduces the eazly retirement penalty from 0.2% per month to 0.1 % per month, resulting in a lowering of the maYimum penalty &om 12% to 6% for those retiring five yeazs earlier at age 50; 5) reduces the employEE's contribution from 7.6% to 6.2% of actual salary for active fire and police members; An active police officer or fuefighter making $60,000 would have their annual contribution reduced from $4,560 to $3,720, an annual savings of $&40, which is equal to 1.4% of their gross salary. 6) reduces the employER's contribuiion from 11.4% to 9.3% of actual salary for active fire and police members; and T'he 1999 City Budget has over $51 miliion budgeted for Fire and Police salaries and overtime. A rough esUmate of savings to the City for employer pension contributions for half of 1999 would be $535,000 and for all ofthe year 2000 would be $1,070,000. Attached you will Fmd six pages of actuariai data for the last six fiscal yeazs for the two Saint Paul pension accounts for police and fire. Lines 32 and 33 displays the "Unfunded Actuazial Accrued Liabiliry" and the current "Funding Ratio" for both accounts. The spreadsheets do not yet contain information for the fiscal yeaz ending June 30, 1999. When that information becomes available in December of this year, it will be used to determine how much excess pension assets the City wiil receive for Police Department, and if any excess will be available for the Fire Department. c: Mayor Coleman, Susan Kimberly, Joe Reid Scott Renstrom, Jane Prince, Gerry McInerney, Jennifer Billig, Dan Smith, Bob Connor, 7anice Keran G: Y��Re 1'-�t ..": rt C-R_ � � !"rJ/�2-' �' .E B/f-!1. 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Y-� s� CITY Presented by Referred To Council File # 9q — � �� Green Sheet # ��9� � Committee Date Resolution requesting revenue estimates, budget options and mayoral policy recommendations relating to e.zcess pension fund assets for St Paul's police and fire PERA Consolidated Pension accounts. Whereas, the 1999 Minnesota Legislature enacted the Omnibus Pension Bill (Senate File 319) which, along with 4 many other provisions: 6 7 8 9 10 11 12 13 14 1) mexges the "PERA Consolidated Police and Pire Pension Fund Accounts" (formerly local pension funds from various cities throughout Minnesota) into the statewide "PERA Police and Fire Pension Fund' ; 2) provides larger pension payments to future fire and police retirees who are now members of the PERA Consolidated Police and Fire Pension Fund; 3) allowsretireesandotherbenefitrecipientswhoarecurrentlyreceivingbenefitsunderthebylawsoftheirlocal relief association tlie option to receive future post-retirement increases under the formula ofthe Minnesota Post Retirement Investrnent Fund; 4) reduces the early retirement penalties for active police and fire members who retire before age 55; 5) reduces the employEE's contribution to their pension plan from 7.6% to 6.2% of actual salary for ali active fire and police members; 15 6) reduces the employER's pension contribution from 11.4%to 93% of actual salary for a11 active fire and police 16 members; and 17 Whereas, the City of Saint Paul expects a significant number of Saint Paul police officers and firefighters to retire 18 before December 31, 1999; and 19 Whereas, the large number of retirements are expected to result in some extra costs for the City of Saint Paul in 20 both the yeazs 1999 and 2000 for expenses such as severance pay, recruitment, training, and exira overtime during 21 staffing shortages; and - ��-� �y \ 1�� RESOLUTlON 22 Whereas, the 1999 Minnesota Omnibus Pension Bill provides that cities that do merge their "PERA Consolidated 23 Police and Fire Pension Accounts" into the statewide "PERA Police and Fire Pension Fund" will get some excess 24 account assets back if a merged account is considered "Over-Funded", or will have to make a fixed amortization 25 payment for ten years if a merged account is considered "Under-Funded". State law provides that a city will get 99-GGS half (50%) of the money in excess of the amount needed to be considered 100% actuarially funded. When a city receives excess assets from an Over-Funded account, it must be spent on police deparGment expenditures if the money was from a police pension account, or it must be spent on fire department expendihztes ifthe money was from a fire pension account. The actual date for determining whether a merged account is "Over-Funded" or "Under- Funded", by actuarial standards, is June 30,1999, the close of the fiscal yeaz for the "PERA Consolidated Police and Fire Pension Accounts". The Minnesota PERA office will not receive information about the funding status of each account from their actuary until late November 1999, thus affected cities will not receive a PERA notificarion of the amount of excess assets or amortization obligations until eazly December 1999. And it is projected that the earliest a city will receive any distribution of excess assets will be in the first quarter of the year 2000; and 10 Whereas, a yeaz ago at 6-30-98, the actuarial data for the two Saint Paul Consolidated PERA Pension Accounts 11 had the Police Accountbeing Over-Funded at 106% and the Fire account being Under-Funded at 94.6%. During 12 the past year, the return on investrnents for the pension accounts were significantiy higher then the actuarial 13 assuxnptions for the PERA Consolidated Police and Fire Pension Fund, thus it is anticipated that at 6-30-99, both 14 St. Paul consolidated accounts will have improved, higher funding ratios. Absent 6-30-99 actual data, and based 15 on last year's data, it is estimated that the City of Saint Paul will receive a 50% excess amount of approximately 16 $6,000,000 from the Saint Paul Police Account and that the City may not have to make any amortization payments 17 for the Saint Paul Fire Account; and 18 Whereas, the 1999 Minnesota Omnibus Pension Bill requires of cities that do receive a distribution of 50% ofthe 19 excess assets, that the City Council must hold a public hearing on the plans to use any of the excess monies 20 distributed, and then formulate and adopt a spending plan by resolution, and then file a copy of the adopted plan with 21 the Minnesota State Auditor. A city must establish a special fund or account for holding excess money dish 22 from each pension account for the purpose of generating and accruing interest earnings on said money and for 23 recording how the money was actually spent. The State Auditor will periodically audit the spending from the created 24 special fund or account. The Minnesota PERA must also pay a city interest earnings on their 50% share of excess 25 assets from July 1,1999 to the first of the month a City requests distribution of their 50% share, in accotdance with 26 the requirements of the 1999 pension laws; and 27 Whereas,the1999MinnesotaOmnibusPensionBillmakessomechangesonhowAmortizationAid,Supplemental 28 Amortization Aid and Additional Amortization Aid is distributed to pension accounts that are not fully funded in 29 the years 2000 through 2009, and that said changes may affect the Financing Plan for next year's General Fund 30 budget; and 31 Whereas, during the course of preparing the City's Year 2000 General Fund budget, the Police Department 32 indicated that preliminary budget shortage estimates for the department, based on Mayoral budget instructions, could 33 result in a reduction in policing programs; now therefore 34 Be It Resolved, that the 5aint Paul City Council requests the Director of Financial Services to identify in writing 35 by no later then August 15, 1999, as part of the Mayor's presentation of the Proposed 2000 Budget for the City of 36 Saint Paul, the following informarion: 37 38 39 40 41 1) an estimate of how many Saint Paul police officers and firefighters are retiring in 1999 and in 2000; 2) an estimate of direct and ind'uect costs for Saint Paul's police and fire departments relating to those retirements in 1999 and 2000; 3) an estimate of changes in the amounts of pension aids for Saint Paut's police and fire accotuitts, with an explanation as to how it affects the financing plan for the Year 2000 General Fund Budget; 2 49-L45 4) an estimate of savings in the City's Pension Contributions for active police officers and firefighter for the budget yeus 1999 and 2000 when the employer's contribution rate drops from 11.4% to 93%; 5) a conservative estimate of how much excess pension assets might be distributed back to Saint Paul for police department spending (and if appropriate, fire department spending), along with an estimate ofrelated investment earnnigs based on the Mayor's recommending spending and disbursement plan; 6) a comprehensive list ofone-time expenditures for the Police Department (and Fire Department, if appropriate) that should be considered for spending any available distribution of 50% of Excess Assets from a pension account. Spending requests can be either from the operafing budget or the capital improvement budget; 9 7) the Saint Paul police and fire chiefs' priorities for spending of all excess pension assets and accrued interest, 10 that would be distributed for their department costs; 11 8) the Mayor's recommendations for spending of all excess pension assets and accrued interest, including: any 12 items included in the Proposed 2000 City Budget, any 1999 budget amendments proposed to reimburse cost 13 incurred during 1999, and any items recommended far future budget years beyond 2000; and 14 Be It Also Resolved, that the Saint Paui City Council intends to hold a public hearing on options for developing 15 a spending plan for the use of excess pension assets which would give the general public an opportunity to 16 communicate their spending preferences and priorities. The public hearing will be set at a future date, after the 17 Mayor presents his revenue estimate and spending recommendations as part ofthe year 2000 budget decision making 18 process. Requested by Deparhnent of: � Form Approved by City Attorney � �r Submission to Council � Approved bv Ma�or: Date � � l� . Adopted by Council: Date ` Adoption Certified by Council ecreta Q4-G6s � 1 n O O 7 A A DEPARTMENLOFFICE/COUNCIL DATE INITIATED 1 V_ L V L Y J c��coUa�a �-s-99 GREEN SHEE CONTACT PEFSON & PHONE INITIAL/DATE INITIAVDATE O DEPARTMENT DIRE O C�n' COUNCIL Gerry McInemey 6-8611 pSSIGN � CITYATTORNEY O CINCLEFK MUS7 BE ON COUNCILAGENDA BY (DATE) NUAIBER FOH � BUD6Ef DIRECTOR O FIN. 8 MGT. SERVICES DIR. NOUTING OflDEN � MqyOR (OR ASSISTANn � TOTAL # OF SIGNATURE PAGES (CLIP ALL LOCATIONS FOR SIGNATURE) ACTION REQUESTEO: . Revenue estimates, budget options and mayoral policy recommendations relating to excess pension fund assets for , . . FiECOMMENDATIONS: Approve (A) or ReI�YR) pEBSONAL SERVICE CONTRACTS MUS7 ANSWEH 7HE POILOW�NG UUESTIONS: _ PLANNING COMMISSION _ pVIL SEBVICE COMMISSION �� Has this personflirm ever worked untler a contract for this departmem? _ CIB COMMITTEE _ YES N� 2. Has this personHirm ever been a city employee? _ S7AFF — YES NO _ DIS7AiC7 CoURT _ 3. Does this personttirm possess a skill not normally possessetl by any current ciry employee? SUPPORTS WHICH COUNCIL OBJECTIVE'+ YES NO Explain all yes answers on separate sheet and attech to green sheet INITIATING PROBLEM, ISSUE, OPPORTUNITY (Who. H'haL When, Where, Why)' . The 1999 Minnesota Legislature enacted the Omnibus Pension Bill (Senate File 319) which will have an effect on police and fire staffmg, the financing and spending plan for year 2000 General Fund budget, and will provide some excess one-time money for the Police Department and possibly for the Fire Department. ADVANTAGESIFAPPROVED: Will provide the City Council with an oppommity to better deliberate on policy options, before they are required by law to formulate and adopt a plan for spending excess pension assets. DISADVANTAGES fF APPRW ED: None. DISADVANTAGES IF NOT APPROVED� The City Council will not ha�e a comprehensive estimate of all revenue sources anticipated to be available for the yeaz 2000 City budget, and will not have a comprehensive list of spending options, along with the Mayor's rational for picking projects and the Police Chief and Fire ChiePs priorities for use of excess pension assets. 70TAL AMOUNT OF TRANSACTION $ COST/REVENUE BUDGETEp (CIHCLE ONE) YES NO FUNDIfdG SOURCE ACTIVITY NUMBER FINANCIFL INFORMATION (EXPLAIN) Council File # Rq — G(. S Green Sheet # �-_ $ � � °l RESOLUTION A#!VT b�AUL. MINNESOTA . �G Presented Referred To 1 Resolution requesting revenue estimates, budget nptions and mayoral po cy recommendations 2 relating to excess pension fund assets for St Paul's police arzd fire PERA C nsolidated Pension accounts. 3 Whereas, the 1999 Minnesota Legislahxre enacted the Omnibus Pensio ill (Senate File 319) which, along with 4 many other provisions: 5 1)mergesthe"PERAConsolidatedPoliceandFirePensionF dAccounts"(formerlylocalpensionfundsfrom 6 various cities throughout Minnesota) into the statewide "P RA Police and Fire Pension Fund' ; 7 2) provides larger pension payments to future fire an police retirees who are now members of the PERA 8 Consolidated Police and Fire Pension Fund; 9 3) allows retirees and other benefit recipients who e currently receiving benefits under the bylaws of their local 10 relief association the option to receive future po -retirement increases under the formula of tl�e Minnesota Post 11 Retirement Investment Fund; 12 4) reduces the early retirement penalties or active police and fire members who retire before age 55; 13 5) reduces the employEE's contribuf n to their pension plan from 7.6% to 6.2% of actual salary for all active 14 fire and police members; 15 6) reduces the employER's pens' n contribution from ll.4% to 93% of actual salary for all active fire and police 16 members; and 17 Whereas, the resulting pens' n benefit increase and the reduction of the early retirement penalty provisions is 18 expected to cause a signific t number of Saint Paul police officers and firefighters to retire before December 31, 19 1999; and 20 Whereas, the large ber of retirements aze expected to result in some extra costs for the City of Saint Paul in 21 both the years 1999 d 2000 for expenses such as severance pay, recruihnent, training, and ea�tra overtime during 22 staffing shortage and 23 Whereas, 1999 Minnesota Oxnnibus Pension Bili provides that ciries that do merge their "PERA Consolidated 24 Police and ire Pension Accounts" into the statewide "PERA Police and Fire Pension Fund" will get some excess 25 account assets back if a merged account is considered "Over-Funded", or will have to make a fixed amortization 26 payment for ten years if a merged account is considered "Under-Funded". State law provides that a city will get �t9 _�GS half (50%) of the money in excess of the amount needed to be considered 100% actuarially funded. When a city receives excess assets from an Over-Funded account, it must be spent on police department e�penditures if the money was from a police pension account, or it must be spent on fire department expenditures if the money was from a fire pension account. The actual date for determiniug whether a merged account is "Over-Funded" or "Under- Funded", by actuarial standards, is June 30,1999, the close of the fiscal year for the "PERA Consolidated Police and Fire Pension Accounts". The Minnesota PERA office will not receive information about the fun � g status of eacb account from their actuaiy until late November 1999, thus affected cities will not receive a PE notification of the amount of excess assets or amortization obligations until early December 1999. And it is ojected that the earliest a city will receive any distribution of excess assets will be in the first quarter of the ye 2000; and 10 11 12 13 14 15 16 17 Whereas, a year ago at 6-30-98, the actuarial data for the two Saint Pau] had the Police Account being Over-Funded at 106% and the Fire account the past yeaz, the return on investments for the pension accounts were assumptions for the PERA Consolidated Police and Fire Pension Fund, th s it is anticipated that at 6-30-99, both St. Paul consolidated accounts will have improved, higher funding ratio . Absent 6-30-99 actual data, and based on last year's data, it is estimated that the City of Saint Paul will rece' e a 50% excess amount of approximately $6,000,000 from the Saint Paul Police Account and that the City ma not have to make any amortization payments for the Saint Paul Fire Account; and PERA Pension Accounts unded at 94.6%. During higher then the actuarial 18 Whereas, the 1999 Minnesota Omnibus Pension Bill requir of cities that do receive a distribution of 50% of the 19 excess assets, that the City Council must hold a public eazing on the plans to use any of the excess monies 20 distributed, and then formulate and adopt a spending pl y resolution, and then file a copy of the adopted plan with 21 the Minnesota State Auditor. A city must establish a ecial fund ar account far holding excess money distributed 22 from each pension account for the purpose of gen ating and accruing interest eamings on said money and for 23 recording how the money was actually spent. The ate Auditor will periodically audit the spending from the created 24 special fund or account. The Minnesota PE ust also pay a city interest earnings on their 50% share of excess 25 assets from July 1, 1999 to the first of the mo a City requests distribution of their 50% share, in accordance with 26 the requirements of the 1999 pension laws• d 27 Whereas, the 1999 Minnesota Omnib ension Bill makes some changes on howAmortization Aid, Supplemental 28 Amortization Aid and Additional ortization Aid is distributed to pension accounts that are not fully funded in 29 the years 2000 through 2009, and at said changes may affect the Financing Plan for next year's Generai Fund 30 budget; and 31 Whereas, during the cour of preparing the City's Year 2000 General Fund budget, the Police Deparbment 32 indicated that preliminary dget shortage estimates for the department, based on Mayoral budget inshuctions, could 33 result in a reduction in c mmunity policing programs; now therefore 34 Be It Resolved, th the Saint Paul City Council requests the Director of Financial Services to identify in writing 35 by no later then gust 15, 1999, as part of the Mayor's presentation of the Proposed 2000 Budget for the City of 36 Saint Paul, the lowing information: 37 1) an esy�mate of how many Saint Paul police officers and firefighters aze retiring in 1999 and in 2000; 38 2) estimate of direct and indirect costs for Saint Paul's police and fire departments relating to those retirements 39 in 999 and 2000; 40 3) an estimate of changes in the amounts of pension aids for Saint Paul's police and fire accounts, with an 41 explanation as to how it affects the financing plan for the Year 2000 General Fund Budget; 2 �(`{ -G �S 2 10 4) an estimate of savings in the City's Pension Contributions for active police officers and firefighter for the budget years 1999 and 2000 when the employer's contribution rate drops from 11.4% to 9.3%; 5) a conservative estimate of how much excess pension assets might be distributed back to Saint Paul for police department spending (and if appropriate, fire department spending), along with an estimate ofrelated investment earniiigs based on the Mayor's recommending spending and disbursement plan; 6) a compzehensive list ofone-time expendirixres for the Police Department (and Fire Dep nt, ifappropriate) that should be considezed for spending any available distribution of 50% of Excess sets from a pension account. Spending requests can be either from the operating budget or the capital � rovement budget; 7) the Saint Paul police and fire chiefs' priorities for spending of all excess pens� n assets and accrued interest, that would be distributed for their department costs; 11 8) the Mayor's recommendations for spending of all excess pension ass s and accrued interest, including: any 12 items included in the Proposed 2000 City Budget, any 1999 budge endments proposed to reimburse cost 13 incurred during 1999, and any items recommended for future bu et yeazs beyond 2000; and 14 Be It Also Resolved, that the Saint Paul City Council intends t old a public hearing on options for developing 15 a spending plan for the use of excess pension assets which w ld give district councils, affected unions, and the 16 general public an opportunity to communicate their spendin references and priorities. The public hearing will be 17 set at a future date, after the Mayor presents his revenue es � ate and spending recommendations as part of the yeaz 18 2000 budget decision making process. Benanav Blakey Bostrom Coleman Harris Lantry Reiter Adopted by Council: Date Adoption Certified by Council Secretary By: Approved by Mayor: Date By: Requested by Departrnent o£ � Form Approved by City Attomey � Approved by Mayor far Submission to Council � `��-G�S Ciry of Saint Paul � City Council 310 Ciry Hail Saint Paul, MN 55102 (651) 266-8577 INTER-DEPAR7MENTAL MEMORANDUM DATE: July 8, 1999 To: Council President Dan Bostrom Councilmember Jay Benanav Counciimember Jerry Blakey Councilmember Chris Coleman Councilmember Michael Harris Councilmember Kathy Lantry � Councilmember Jim Reiter FROM: Greg Blees, Fiscal Policy Director / I� I� SUBJECT: 1999 Omnibus Pension Bili Will Effect Year 2000 Budget Preparation This memo provides background infornhation for the council resolution Jerry Blakey is introducing which is requesting revenue estimates, budget options and mayoral policy recommendations relating to excess pension fund assets for St. Paul's police and fire PERA Consolidated Pension accounts. Specifically, it provides a more detailed explanation of the six pazagraphs in the first "WHEREAS" on page one of the resolution. Also, some historical data is provided for Saint Paul's two consolidated pension accounts. Whereas, the 1999 Minnesota Legislature enacted the Omnibus Pension Bill (Senate File 319) which, along with many other provisions: 1) merges the "PERA Consolidated Police and Fire Pension Fund Accounts" (formerly local pension funds from various cities throughout Minnesota) into the statewide "PERA Police and Fire Pension Fund". 'There are 44 accounts in the PERA Consolidated Police and Fire Pension Fund, with two of the accounts being the City of Saint Paul's old local relief association pension funds for police officers and for firefighters. The "Saint Paul Police Consolidated PERA Pension Account" and the "Saint Paul Fire Consolidated PERA Pension Account" have been merged into the statewide PERA Police and Fire Pension Fund, as the City of Saint Paul took no a�rmative action to retaixt its consotidation accounts by the June 15, 1999 date prescribed in state law; 2) provides larger pension payments to future fire and potice rerirees who are now members of the PERA Coasolidated Police and Fire Pension Fund. Currendy a pension for a member of the PERA Consolidated member is based on a formula which applies a 2.9% multiplier for each year of service to the average salary for their high five yeazs, while for members of the statewide "PERA Police and Fire Pension Fund the multiplier is 3.0%. The yeazs of service multiplier for consolidated members will increase from 2.9% to 3.0% after June 30, 1999, provided the consolidated member elects the benefits of the statewide fund before September 1, 1999. Changing the yeazs of service multiplier to 3.0% for consolidated c�c�_�GS members resuits in a 3.45% increase in their sfarting pension. Now both police officers and firefighters hired before_ 1981, or after 1980 will have the same 3.0% yeazs of service multiplier; 3) allows retirees and other benefit recipients who are currently receiving benefits under the bylaws of their local relief association to receive future post-retirement increases under the formula of the Minnesota Post Retirement Investment Fund, provided the retiree or recipient makes an election to do so beiween Jnly 1 and August 30,1999; 4) reduces the early retirement penalties for acrive police and fire members who retire before age 55. Current law allows a member to collect a pension as early as age 50, but with a 2 tenths reduction in pension for each month before reaching age 55. If a member retired at age 50, five yeazs before the target retirement age of 55, lus or her pension would be reduced a maximum of 12% (60 months times 0.2% per month). The new 19991aw reduces the eazly retirement penalty from 0.2% per month to 0.1 % per month, resulting in a lowering of the maYimum penalty &om 12% to 6% for those retiring five yeazs earlier at age 50; 5) reduces the employEE's contribution from 7.6% to 6.2% of actual salary for active fire and police members; An active police officer or fuefighter making $60,000 would have their annual contribution reduced from $4,560 to $3,720, an annual savings of $&40, which is equal to 1.4% of their gross salary. 6) reduces the employER's contribuiion from 11.4% to 9.3% of actual salary for active fire and police members; and T'he 1999 City Budget has over $51 miliion budgeted for Fire and Police salaries and overtime. A rough esUmate of savings to the City for employer pension contributions for half of 1999 would be $535,000 and for all ofthe year 2000 would be $1,070,000. Attached you will Fmd six pages of actuariai data for the last six fiscal yeazs for the two Saint Paul pension accounts for police and fire. Lines 32 and 33 displays the "Unfunded Actuazial Accrued Liabiliry" and the current "Funding Ratio" for both accounts. The spreadsheets do not yet contain information for the fiscal yeaz ending June 30, 1999. When that information becomes available in December of this year, it will be used to determine how much excess pension assets the City wiil receive for Police Department, and if any excess will be available for the Fire Department. c: Mayor Coleman, Susan Kimberly, Joe Reid Scott Renstrom, Jane Prince, Gerry McInerney, Jennifer Billig, Dan Smith, Bob Connor, 7anice Keran G: Y��Re 1'-�t ..": rt C-R_ � � !"rJ/�2-' �' .E B/f-!1. 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Y-� s� CITY Presented by Referred To Council File # 9q — � �� Green Sheet # ��9� � Committee Date Resolution requesting revenue estimates, budget options and mayoral policy recommendations relating to e.zcess pension fund assets for St Paul's police and fire PERA Consolidated Pension accounts. Whereas, the 1999 Minnesota Legislature enacted the Omnibus Pension Bill (Senate File 319) which, along with 4 many other provisions: 6 7 8 9 10 11 12 13 14 1) mexges the "PERA Consolidated Police and Pire Pension Fund Accounts" (formerly local pension funds from various cities throughout Minnesota) into the statewide "PERA Police and Fire Pension Fund' ; 2) provides larger pension payments to future fire and police retirees who are now members of the PERA Consolidated Police and Fire Pension Fund; 3) allowsretireesandotherbenefitrecipientswhoarecurrentlyreceivingbenefitsunderthebylawsoftheirlocal relief association tlie option to receive future post-retirement increases under the formula ofthe Minnesota Post Retirement Investrnent Fund; 4) reduces the early retirement penalties for active police and fire members who retire before age 55; 5) reduces the employEE's contribution to their pension plan from 7.6% to 6.2% of actual salary for ali active fire and police members; 15 6) reduces the employER's pension contribution from 11.4%to 93% of actual salary for a11 active fire and police 16 members; and 17 Whereas, the City of Saint Paul expects a significant number of Saint Paul police officers and firefighters to retire 18 before December 31, 1999; and 19 Whereas, the large number of retirements are expected to result in some extra costs for the City of Saint Paul in 20 both the yeazs 1999 and 2000 for expenses such as severance pay, recruitment, training, and exira overtime during 21 staffing shortages; and - ��-� �y \ 1�� RESOLUTlON 22 Whereas, the 1999 Minnesota Omnibus Pension Bill provides that cities that do merge their "PERA Consolidated 23 Police and Fire Pension Accounts" into the statewide "PERA Police and Fire Pension Fund" will get some excess 24 account assets back if a merged account is considered "Over-Funded", or will have to make a fixed amortization 25 payment for ten years if a merged account is considered "Under-Funded". State law provides that a city will get 99-GGS half (50%) of the money in excess of the amount needed to be considered 100% actuarially funded. When a city receives excess assets from an Over-Funded account, it must be spent on police deparGment expenditures if the money was from a police pension account, or it must be spent on fire department expendihztes ifthe money was from a fire pension account. The actual date for determining whether a merged account is "Over-Funded" or "Under- Funded", by actuarial standards, is June 30,1999, the close of the fiscal yeaz for the "PERA Consolidated Police and Fire Pension Accounts". The Minnesota PERA office will not receive information about the funding status of each account from their actuary until late November 1999, thus affected cities will not receive a PERA notificarion of the amount of excess assets or amortization obligations until eazly December 1999. And it is projected that the earliest a city will receive any distribution of excess assets will be in the first quarter of the year 2000; and 10 Whereas, a yeaz ago at 6-30-98, the actuarial data for the two Saint Paul Consolidated PERA Pension Accounts 11 had the Police Accountbeing Over-Funded at 106% and the Fire account being Under-Funded at 94.6%. During 12 the past year, the return on investrnents for the pension accounts were significantiy higher then the actuarial 13 assuxnptions for the PERA Consolidated Police and Fire Pension Fund, thus it is anticipated that at 6-30-99, both 14 St. Paul consolidated accounts will have improved, higher funding ratios. Absent 6-30-99 actual data, and based 15 on last year's data, it is estimated that the City of Saint Paul will receive a 50% excess amount of approximately 16 $6,000,000 from the Saint Paul Police Account and that the City may not have to make any amortization payments 17 for the Saint Paul Fire Account; and 18 Whereas, the 1999 Minnesota Omnibus Pension Bill requires of cities that do receive a distribution of 50% ofthe 19 excess assets, that the City Council must hold a public hearing on the plans to use any of the excess monies 20 distributed, and then formulate and adopt a spending plan by resolution, and then file a copy of the adopted plan with 21 the Minnesota State Auditor. A city must establish a special fund or account for holding excess money dish 22 from each pension account for the purpose of generating and accruing interest earnings on said money and for 23 recording how the money was actually spent. The State Auditor will periodically audit the spending from the created 24 special fund or account. The Minnesota PERA must also pay a city interest earnings on their 50% share of excess 25 assets from July 1,1999 to the first of the month a City requests distribution of their 50% share, in accotdance with 26 the requirements of the 1999 pension laws; and 27 Whereas,the1999MinnesotaOmnibusPensionBillmakessomechangesonhowAmortizationAid,Supplemental 28 Amortization Aid and Additional Amortization Aid is distributed to pension accounts that are not fully funded in 29 the years 2000 through 2009, and that said changes may affect the Financing Plan for next year's General Fund 30 budget; and 31 Whereas, during the course of preparing the City's Year 2000 General Fund budget, the Police Department 32 indicated that preliminary budget shortage estimates for the department, based on Mayoral budget instructions, could 33 result in a reduction in policing programs; now therefore 34 Be It Resolved, that the 5aint Paul City Council requests the Director of Financial Services to identify in writing 35 by no later then August 15, 1999, as part of the Mayor's presentation of the Proposed 2000 Budget for the City of 36 Saint Paul, the following informarion: 37 38 39 40 41 1) an estimate of how many Saint Paul police officers and firefighters are retiring in 1999 and in 2000; 2) an estimate of direct and ind'uect costs for Saint Paul's police and fire departments relating to those retirements in 1999 and 2000; 3) an estimate of changes in the amounts of pension aids for Saint Paut's police and fire accotuitts, with an explanation as to how it affects the financing plan for the Year 2000 General Fund Budget; 2 49-L45 4) an estimate of savings in the City's Pension Contributions for active police officers and firefighter for the budget yeus 1999 and 2000 when the employer's contribution rate drops from 11.4% to 93%; 5) a conservative estimate of how much excess pension assets might be distributed back to Saint Paul for police department spending (and if appropriate, fire department spending), along with an estimate ofrelated investment earnnigs based on the Mayor's recommending spending and disbursement plan; 6) a comprehensive list ofone-time expenditures for the Police Department (and Fire Department, if appropriate) that should be considered for spending any available distribution of 50% of Excess Assets from a pension account. Spending requests can be either from the operafing budget or the capital improvement budget; 9 7) the Saint Paul police and fire chiefs' priorities for spending of all excess pension assets and accrued interest, 10 that would be distributed for their department costs; 11 8) the Mayor's recommendations for spending of all excess pension assets and accrued interest, including: any 12 items included in the Proposed 2000 City Budget, any 1999 budget amendments proposed to reimburse cost 13 incurred during 1999, and any items recommended far future budget years beyond 2000; and 14 Be It Also Resolved, that the Saint Paui City Council intends to hold a public hearing on options for developing 15 a spending plan for the use of excess pension assets which would give the general public an opportunity to 16 communicate their spending preferences and priorities. The public hearing will be set at a future date, after the 17 Mayor presents his revenue estimate and spending recommendations as part ofthe year 2000 budget decision making 18 process. Requested by Deparhnent of: � Form Approved by City Attorney � �r Submission to Council � Approved bv Ma�or: Date � � l� . Adopted by Council: Date ` Adoption Certified by Council ecreta Q4-G6s � 1 n O O 7 A A DEPARTMENLOFFICE/COUNCIL DATE INITIATED 1 V_ L V L Y J c��coUa�a �-s-99 GREEN SHEE CONTACT PEFSON & PHONE INITIAL/DATE INITIAVDATE O DEPARTMENT DIRE O C�n' COUNCIL Gerry McInemey 6-8611 pSSIGN � CITYATTORNEY O CINCLEFK MUS7 BE ON COUNCILAGENDA BY (DATE) NUAIBER FOH � BUD6Ef DIRECTOR O FIN. 8 MGT. SERVICES DIR. NOUTING OflDEN � MqyOR (OR ASSISTANn � TOTAL # OF SIGNATURE PAGES (CLIP ALL LOCATIONS FOR SIGNATURE) ACTION REQUESTEO: . Revenue estimates, budget options and mayoral policy recommendations relating to excess pension fund assets for , . . FiECOMMENDATIONS: Approve (A) or ReI�YR) pEBSONAL SERVICE CONTRACTS MUS7 ANSWEH 7HE POILOW�NG UUESTIONS: _ PLANNING COMMISSION _ pVIL SEBVICE COMMISSION �� Has this personflirm ever worked untler a contract for this departmem? _ CIB COMMITTEE _ YES N� 2. Has this personHirm ever been a city employee? _ S7AFF — YES NO _ DIS7AiC7 CoURT _ 3. Does this personttirm possess a skill not normally possessetl by any current ciry employee? SUPPORTS WHICH COUNCIL OBJECTIVE'+ YES NO Explain all yes answers on separate sheet and attech to green sheet INITIATING PROBLEM, ISSUE, OPPORTUNITY (Who. H'haL When, Where, Why)' . The 1999 Minnesota Legislature enacted the Omnibus Pension Bill (Senate File 319) which will have an effect on police and fire staffmg, the financing and spending plan for year 2000 General Fund budget, and will provide some excess one-time money for the Police Department and possibly for the Fire Department. ADVANTAGESIFAPPROVED: Will provide the City Council with an oppommity to better deliberate on policy options, before they are required by law to formulate and adopt a plan for spending excess pension assets. DISADVANTAGES fF APPRW ED: None. DISADVANTAGES IF NOT APPROVED� The City Council will not ha�e a comprehensive estimate of all revenue sources anticipated to be available for the yeaz 2000 City budget, and will not have a comprehensive list of spending options, along with the Mayor's rational for picking projects and the Police Chief and Fire ChiePs priorities for use of excess pension assets. 70TAL AMOUNT OF TRANSACTION $ COST/REVENUE BUDGETEp (CIHCLE ONE) YES NO FUNDIfdG SOURCE ACTIVITY NUMBER FINANCIFL INFORMATION (EXPLAIN) Council File # Rq — G(. S Green Sheet # �-_ $ � � °l RESOLUTION A#!VT b�AUL. MINNESOTA . �G Presented Referred To 1 Resolution requesting revenue estimates, budget nptions and mayoral po cy recommendations 2 relating to excess pension fund assets for St Paul's police arzd fire PERA C nsolidated Pension accounts. 3 Whereas, the 1999 Minnesota Legislahxre enacted the Omnibus Pensio ill (Senate File 319) which, along with 4 many other provisions: 5 1)mergesthe"PERAConsolidatedPoliceandFirePensionF dAccounts"(formerlylocalpensionfundsfrom 6 various cities throughout Minnesota) into the statewide "P RA Police and Fire Pension Fund' ; 7 2) provides larger pension payments to future fire an police retirees who are now members of the PERA 8 Consolidated Police and Fire Pension Fund; 9 3) allows retirees and other benefit recipients who e currently receiving benefits under the bylaws of their local 10 relief association the option to receive future po -retirement increases under the formula of tl�e Minnesota Post 11 Retirement Investment Fund; 12 4) reduces the early retirement penalties or active police and fire members who retire before age 55; 13 5) reduces the employEE's contribuf n to their pension plan from 7.6% to 6.2% of actual salary for all active 14 fire and police members; 15 6) reduces the employER's pens' n contribution from ll.4% to 93% of actual salary for all active fire and police 16 members; and 17 Whereas, the resulting pens' n benefit increase and the reduction of the early retirement penalty provisions is 18 expected to cause a signific t number of Saint Paul police officers and firefighters to retire before December 31, 19 1999; and 20 Whereas, the large ber of retirements aze expected to result in some extra costs for the City of Saint Paul in 21 both the years 1999 d 2000 for expenses such as severance pay, recruihnent, training, and ea�tra overtime during 22 staffing shortage and 23 Whereas, 1999 Minnesota Oxnnibus Pension Bili provides that ciries that do merge their "PERA Consolidated 24 Police and ire Pension Accounts" into the statewide "PERA Police and Fire Pension Fund" will get some excess 25 account assets back if a merged account is considered "Over-Funded", or will have to make a fixed amortization 26 payment for ten years if a merged account is considered "Under-Funded". State law provides that a city will get �t9 _�GS half (50%) of the money in excess of the amount needed to be considered 100% actuarially funded. When a city receives excess assets from an Over-Funded account, it must be spent on police department e�penditures if the money was from a police pension account, or it must be spent on fire department expenditures if the money was from a fire pension account. The actual date for determiniug whether a merged account is "Over-Funded" or "Under- Funded", by actuarial standards, is June 30,1999, the close of the fiscal year for the "PERA Consolidated Police and Fire Pension Accounts". The Minnesota PERA office will not receive information about the fun � g status of eacb account from their actuaiy until late November 1999, thus affected cities will not receive a PE notification of the amount of excess assets or amortization obligations until early December 1999. And it is ojected that the earliest a city will receive any distribution of excess assets will be in the first quarter of the ye 2000; and 10 11 12 13 14 15 16 17 Whereas, a year ago at 6-30-98, the actuarial data for the two Saint Pau] had the Police Account being Over-Funded at 106% and the Fire account the past yeaz, the return on investments for the pension accounts were assumptions for the PERA Consolidated Police and Fire Pension Fund, th s it is anticipated that at 6-30-99, both St. Paul consolidated accounts will have improved, higher funding ratio . Absent 6-30-99 actual data, and based on last year's data, it is estimated that the City of Saint Paul will rece' e a 50% excess amount of approximately $6,000,000 from the Saint Paul Police Account and that the City ma not have to make any amortization payments for the Saint Paul Fire Account; and PERA Pension Accounts unded at 94.6%. During higher then the actuarial 18 Whereas, the 1999 Minnesota Omnibus Pension Bill requir of cities that do receive a distribution of 50% of the 19 excess assets, that the City Council must hold a public eazing on the plans to use any of the excess monies 20 distributed, and then formulate and adopt a spending pl y resolution, and then file a copy of the adopted plan with 21 the Minnesota State Auditor. A city must establish a ecial fund ar account far holding excess money distributed 22 from each pension account for the purpose of gen ating and accruing interest eamings on said money and for 23 recording how the money was actually spent. The ate Auditor will periodically audit the spending from the created 24 special fund or account. The Minnesota PE ust also pay a city interest earnings on their 50% share of excess 25 assets from July 1, 1999 to the first of the mo a City requests distribution of their 50% share, in accordance with 26 the requirements of the 1999 pension laws• d 27 Whereas, the 1999 Minnesota Omnib ension Bill makes some changes on howAmortization Aid, Supplemental 28 Amortization Aid and Additional ortization Aid is distributed to pension accounts that are not fully funded in 29 the years 2000 through 2009, and at said changes may affect the Financing Plan for next year's Generai Fund 30 budget; and 31 Whereas, during the cour of preparing the City's Year 2000 General Fund budget, the Police Deparbment 32 indicated that preliminary dget shortage estimates for the department, based on Mayoral budget inshuctions, could 33 result in a reduction in c mmunity policing programs; now therefore 34 Be It Resolved, th the Saint Paul City Council requests the Director of Financial Services to identify in writing 35 by no later then gust 15, 1999, as part of the Mayor's presentation of the Proposed 2000 Budget for the City of 36 Saint Paul, the lowing information: 37 1) an esy�mate of how many Saint Paul police officers and firefighters aze retiring in 1999 and in 2000; 38 2) estimate of direct and indirect costs for Saint Paul's police and fire departments relating to those retirements 39 in 999 and 2000; 40 3) an estimate of changes in the amounts of pension aids for Saint Paul's police and fire accounts, with an 41 explanation as to how it affects the financing plan for the Year 2000 General Fund Budget; 2 �(`{ -G �S 2 10 4) an estimate of savings in the City's Pension Contributions for active police officers and firefighter for the budget years 1999 and 2000 when the employer's contribution rate drops from 11.4% to 9.3%; 5) a conservative estimate of how much excess pension assets might be distributed back to Saint Paul for police department spending (and if appropriate, fire department spending), along with an estimate ofrelated investment earniiigs based on the Mayor's recommending spending and disbursement plan; 6) a compzehensive list ofone-time expendirixres for the Police Department (and Fire Dep nt, ifappropriate) that should be considezed for spending any available distribution of 50% of Excess sets from a pension account. Spending requests can be either from the operating budget or the capital � rovement budget; 7) the Saint Paul police and fire chiefs' priorities for spending of all excess pens� n assets and accrued interest, that would be distributed for their department costs; 11 8) the Mayor's recommendations for spending of all excess pension ass s and accrued interest, including: any 12 items included in the Proposed 2000 City Budget, any 1999 budge endments proposed to reimburse cost 13 incurred during 1999, and any items recommended for future bu et yeazs beyond 2000; and 14 Be It Also Resolved, that the Saint Paul City Council intends t old a public hearing on options for developing 15 a spending plan for the use of excess pension assets which w ld give district councils, affected unions, and the 16 general public an opportunity to communicate their spendin references and priorities. The public hearing will be 17 set at a future date, after the Mayor presents his revenue es � ate and spending recommendations as part of the yeaz 18 2000 budget decision making process. Benanav Blakey Bostrom Coleman Harris Lantry Reiter Adopted by Council: Date Adoption Certified by Council Secretary By: Approved by Mayor: Date By: Requested by Departrnent o£ � Form Approved by City Attomey � Approved by Mayor far Submission to Council � `��-G�S Ciry of Saint Paul � City Council 310 Ciry Hail Saint Paul, MN 55102 (651) 266-8577 INTER-DEPAR7MENTAL MEMORANDUM DATE: July 8, 1999 To: Council President Dan Bostrom Councilmember Jay Benanav Counciimember Jerry Blakey Councilmember Chris Coleman Councilmember Michael Harris Councilmember Kathy Lantry � Councilmember Jim Reiter FROM: Greg Blees, Fiscal Policy Director / I� I� SUBJECT: 1999 Omnibus Pension Bili Will Effect Year 2000 Budget Preparation This memo provides background infornhation for the council resolution Jerry Blakey is introducing which is requesting revenue estimates, budget options and mayoral policy recommendations relating to excess pension fund assets for St. Paul's police and fire PERA Consolidated Pension accounts. Specifically, it provides a more detailed explanation of the six pazagraphs in the first "WHEREAS" on page one of the resolution. Also, some historical data is provided for Saint Paul's two consolidated pension accounts. Whereas, the 1999 Minnesota Legislature enacted the Omnibus Pension Bill (Senate File 319) which, along with many other provisions: 1) merges the "PERA Consolidated Police and Fire Pension Fund Accounts" (formerly local pension funds from various cities throughout Minnesota) into the statewide "PERA Police and Fire Pension Fund". 'There are 44 accounts in the PERA Consolidated Police and Fire Pension Fund, with two of the accounts being the City of Saint Paul's old local relief association pension funds for police officers and for firefighters. The "Saint Paul Police Consolidated PERA Pension Account" and the "Saint Paul Fire Consolidated PERA Pension Account" have been merged into the statewide PERA Police and Fire Pension Fund, as the City of Saint Paul took no a�rmative action to retaixt its consotidation accounts by the June 15, 1999 date prescribed in state law; 2) provides larger pension payments to future fire and potice rerirees who are now members of the PERA Coasolidated Police and Fire Pension Fund. Currendy a pension for a member of the PERA Consolidated member is based on a formula which applies a 2.9% multiplier for each year of service to the average salary for their high five yeazs, while for members of the statewide "PERA Police and Fire Pension Fund the multiplier is 3.0%. The yeazs of service multiplier for consolidated members will increase from 2.9% to 3.0% after June 30, 1999, provided the consolidated member elects the benefits of the statewide fund before September 1, 1999. Changing the yeazs of service multiplier to 3.0% for consolidated c�c�_�GS members resuits in a 3.45% increase in their sfarting pension. Now both police officers and firefighters hired before_ 1981, or after 1980 will have the same 3.0% yeazs of service multiplier; 3) allows retirees and other benefit recipients who are currently receiving benefits under the bylaws of their local relief association to receive future post-retirement increases under the formula of the Minnesota Post Retirement Investment Fund, provided the retiree or recipient makes an election to do so beiween Jnly 1 and August 30,1999; 4) reduces the early retirement penalties for acrive police and fire members who retire before age 55. Current law allows a member to collect a pension as early as age 50, but with a 2 tenths reduction in pension for each month before reaching age 55. If a member retired at age 50, five yeazs before the target retirement age of 55, lus or her pension would be reduced a maximum of 12% (60 months times 0.2% per month). The new 19991aw reduces the eazly retirement penalty from 0.2% per month to 0.1 % per month, resulting in a lowering of the maYimum penalty &om 12% to 6% for those retiring five yeazs earlier at age 50; 5) reduces the employEE's contribution from 7.6% to 6.2% of actual salary for active fire and police members; An active police officer or fuefighter making $60,000 would have their annual contribution reduced from $4,560 to $3,720, an annual savings of $&40, which is equal to 1.4% of their gross salary. 6) reduces the employER's contribuiion from 11.4% to 9.3% of actual salary for active fire and police members; and T'he 1999 City Budget has over $51 miliion budgeted for Fire and Police salaries and overtime. A rough esUmate of savings to the City for employer pension contributions for half of 1999 would be $535,000 and for all ofthe year 2000 would be $1,070,000. Attached you will Fmd six pages of actuariai data for the last six fiscal yeazs for the two Saint Paul pension accounts for police and fire. Lines 32 and 33 displays the "Unfunded Actuazial Accrued Liabiliry" and the current "Funding Ratio" for both accounts. The spreadsheets do not yet contain information for the fiscal yeaz ending June 30, 1999. When that information becomes available in December of this year, it will be used to determine how much excess pension assets the City wiil receive for Police Department, and if any excess will be available for the Fire Department. c: Mayor Coleman, Susan Kimberly, Joe Reid Scott Renstrom, Jane Prince, Gerry McInerney, Jennifer Billig, Dan Smith, Bob Connor, 7anice Keran G: Y��Re 1'-�t ..": rt C-R_ � � !"rJ/�2-' �' .E B/f-!1. 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