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Labor Relations andPension Reform

The Naples Experience

FLCU Seminar - Ft. Myers

February 21, 2013

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Labor Relations - Strategy Remain competitive (external equity).

Provide for internal equity across union/non-union workforce – treat employees fairly and consistently.

Reduce retirement benefits and costs to reduce the cost of labor.

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Labor Relations Unique Conditions Prior to Pension

ReformNegotiated union agreements passed

health insurance cost increases to members

Health insurance costs were due to increase substantially

City agreed to a new formula for sharing health insurance cost increases in exchange for pension reform

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Pension Reform in Naples Voluntary agreements with most unions - All

general employees and police – Impasse with fire

Benefits of current employees frozen

Future benefits reduced – similar to current FRS benefits

Savings projection: $112 million over 30 years

Savings projection will increase due to revised interpretation provided in “Naples Letter”

Unfunded Liability Reduced by almost $15 million

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Retirement Benefit Basics Mandatory subject of bargaining if unionized

Legal duty to bargain in good faith

Multiple Benefit Options and CombinationsLong term vision and strategy importantDifferent options will have different costsNo magic short term fixTransition to defined contribution plan may not be

lowest cost option due to accrued unfunded liability

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Retirement Benefit BasicsDefined benefit plans apply to most public

employees

Defined contribution plans are becoming more common for general employees in the public sector

Fire and Police – defined contribution plans are rare

FRS is the standard for most state and county employees, as well as for some municipal employees (more than 100 cities participate in FRS)

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City of Naples Pension PlansPlan Design Study

City of Naples Firefighters' Retirement System

(Cost ) / Savings reflecting Hard Freeze: 000's omittedOption B -

1999 Plan 1  Join FRS 2   FRS Lookalike

Plan A 3  FRS Lookalike

Plan B 4  20% DC

Plan 5First Year (46) (584) (124) (178) (428)5 Years 396 (1,836) 485 431 (937)30 Years 30,156 46,843 50,881 50,827 47,033PV of 30 Years 7,527 10,070 12,876 12,822 10,401

City of Naples Police Officers' Retirement System

(Cost ) / Savings reflecting Hard Freeze: 000's omittedOption B -

1999 Plan 1  Join FRS 2   FRS Lookalike

Plan A 3  FRS Lookalike

Plan B 4  20% DC

Plan 5First Year 352 (683) 65 (7) (797)5 Years 2,122 (2,809) 1,079 614 (3,064)30 Years 28,545 24,988 40,538 34,066 25,582PV of 30 Years 9,097 3,581 10,978 8,793 2,328

City of Naples General Employees' Retirement System

(Cost ) / Savings reflecting Hard Freeze: 000's omitted

Option B - 1999 Plan Join FRS 2 FRS Lookalike Plan

A 3FRS Lookalike Plan

B 410% DCPlan 5

First Year N/A 246 784 835 (80)5 Years N/A 1,932 4,938 5,000 26930 Years N/A 77,735 79,187 78,491 48,467PV of 30 Years N/A 21,078 24,158 23,839 11,309

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Reducing Pension Benefits: Legal

GuidelinesAccrued pension benefits (benefits earned in the

past) cannot be reduced or taken away.

Future benefits can be reduced for current employees who have not reached retirement status.

Employer is ultimately responsible for unfunded pension liabilities – even if current plan is closed, frozen or terminated, and even if employees are transferred to another employer.

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Premium Tax FundsPremium tax revenue may be obtained from the

state to fund municipal fire and police pensions under Florida law (Chapters 175 & 185)

Reducing benefits may have implications on premium tax revenue

In Naples is was determined that reducing benefits saved money even if premium tax revenue was lost

Examine options carefully and get professional advice

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Premium Tax FundsThe “Naples Letter” has changed the playing field

March 2012 - Division of Retirement – reducing benefits below 1999 levels in the police retirement plan made the City ineligible for premium tax funds

Naples Mayor John Sorey wrote a letter to Governor Scott complaining about the interpretation of the Division of Retirement.

August 2012 - Response from the Department of Management Services:The previous interpretation by the Division of

Retirement “appears inaccurate.”

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Premium Tax FundsAfter the Naples Letter, minimum benefits must

be provided only to the extent they can be funded with premium tax revenues in excess of the amount received in 1997. Once there are sufficient additional premium taxes to fund the chapter minimum benefits, any subsequent additional premium tax revenues must be used to provide extra benefits.

This new interpretation offers the opportunity to reduce benefits (and costs) while maintaining premium tax funding

Approximately 12 cities have received similar letters

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Premium Tax – Naples Police

As a result of the Naples Letter the City engaged an actuary to determine the cost of the minimum chapter benefits in excess of the 1997 base premium tax.

The cost of the minimum chapter benefits22% of payroll

The amount of additional premium tax0.4% of payroll

Naples anticipates all premium tax revenue may be used to fund the plan, even though benefits have been reduced below 1999 level

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Pension LegislationLegislation to change laws governing pension

has been introduced for this legislative session – Unions are trying to change the “Naples Letter” interpretation

The Florida League of Cities is monitoring.

The League's policy goals for reforming city police officer and firefighter pensions are: allow cities to bargain collectively all police and firefighter pension benefits and the use of city insurance premium tax revenues, without state interference.

Keep informed and actively involved.

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Professional AdviceAdvice from an attorney familiar with Florida’s

public employee pension law is critical

Actuarial cost projections of options are essential in the decision making process

Cost projections and trends are complicated and dependent on assumptions and experience

Do not rely on the Pension Board attorney or actuary – obtain independent advice

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Pension Reform

The Naples Experience

February 21, 2013

Questions?