city of atlanta pension reform presentation
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August 16, 2011
City of AtlantaPension Reform Presentation
August 2011
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Purpose
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Agenda
• Why pension reform?
• Who is impacted?
• What are the changes?
• When will the changes take place?
• What are the next steps?
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Why Pension Reform?
• Reduce the City’s annual pension costs
• Diversify and balance the City’s and the employee’s risk
• Be competitive with other local governments
• Retain existing retirement benefits for current employees
• Encourage saving for healthy retirement
“If your money’s not right, then you’re not right!”
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Definitions
Pension/Defined Benefit Plan (DB)•Employee pays percentage of salary into DB Plan each pay period•City pays pension benefit to employee from start of retirement through end of life, and to surviving qualified beneficiary (if any)•Benefit calculated based on set formula
Defined Contribution Plan (DC) •Employee pays percentage of salary into DC Plan each pay period•City pays percentage into employee DC Plan each pay period•Employee determines how to invest DC funds•Retiree receives benefits until DC funds depleted
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No Impact
No change
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Current Employees* in DC Plan* Throughout this presentation, “Current Employees” are employees hired before 9/1/11
No Change
Employee contributes 6% of Salary into DC Plan Retirement
Account
Employer contributes 6% of salary into DC Plan Retirement
Account
DC Retirement Acctis an investment acct. Employee directs how
money is invested. Value at retirement is
based on amount invested and
performance of investment.
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Current Employees in DB Plan
City will hold election prior
to 11/1/11
Employee will be unable to
reverse decision
Employees may remain in current DB Plan or switch to DB Hybrid
Plan
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Current Employees in DB Plan
Contribution increases by 5% of Salary
No change in
benefit
If employee chooses
current plan
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Current Employees in DB Plan
Benefits accrued prior
to 11/1/11 remain the
same
Beginning 11/1/11,
Retirement Plan has DB component
and DC component
If employee switches to DB Hybrid
Plan
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How the DB pension benefit is calculated
Annual Compensation X
Years of Service (YOS)
X Multiplier %(YOS x Multiplier)
Annual Comp x %
Annual Pension Amount
$25,000 X 30 X 2.5% 75% $25,000 x 75% $18,750
$25,000 X 25 X 2.5% 62.5% $25,000 x 62.5% $15,625
Your Annual Pension Amount will be a percentage of your annual salary.
The percentage is based on your years of service with the City and a “multiplier”.
The multiplier is set in your pension plan. It is either 2%, 2.5%, or 3%.
The Pension Benefit Formula* is: Annual Compensation x (Years of Service x Multiplier)
* The Pension Benefit Formula does not include adjustments such as age penalty and vesting percentage.
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How the DB pension benefit is calculated
Your Annual Pension Amount will be a percentage of your annual salary.
The percentage is based on your years of service with the City and a “multiplier”.
The multiplier is set in your pension plan. It is either 2%, 2.5%, or 3%.
The Pension Benefit Formula is: Annual Compensation x (Years of Service x Multiplier)
Annual Compensation X (Years of Service (YOS) X Multiplier)
$25,000 X 30 X 2.5%
$25,000 X 75%
$18,750
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Current Employees in DB Plan Contributions Before and After 11/1/11
DB Plan Before Nov. 2011
Current Contributions through October 31, 2011
DB Plan Before Nov. 2011
Current Contributions through October 31, 2011
Employee Contribution
Current
7% of salary with no beneficiary
8% of salary with designated
beneficiary
DB Plan Starting Nov. 2011
Effective 11/1/11 for employees hired prior to
9/1/11, unless employee opts into DB Hybrid Plan
DB Plan Starting Nov. 2011
Effective 11/1/11 for employees hired prior to
9/1/11, unless employee opts into DB Hybrid Plan
Employee Contribution Increases by 5% Salary
on 11/1/11
12% of salary with no beneficiary
13% of salary with designated
beneficiary
DB Hybrid Plan Effective 11/1/11
DB Hybrid Plan Effective 11/1/11
DB Plan ComponentEmployee Contribution
8% of Salary_ _ _ _ _ _ _ _ _ _ _ _ _ _
DC Plan ComponentEmployee Contribution
3.75% of salary mandatory4.25% of salary voluntary*
City Contribution100% match of Employee contribution
Not to exceed 8% total_ _ _ _ _ _ _ _ _ _ _ _ _ _
Total Mandatory Employee Contribution DB Contribution: 8% salary
Plus
Min. DC Contrib.: 3.75% salary Total Contribution= 11.75% salary
*Employee may make additional voluntary contributions w/o City match up to the maximum amt. allowed by IRS
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All Employees May Make Voluntary Contributions to a Retirement Account
Contributions Type Post-Retirement Withdrawal
Pre-tax Traditional Contribution & growth taxed
Post-tax Roth Neither contribution nor growth taxed
Employee decides contribution amount and whether to use pre-tax or post-tax dollars. Employee may make voluntary contributions up to the maximum amount allowed by the IRS
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Retirement Plan for Employees Hired on or After September 1, 2011 (“New Employees”)
DC PlanDC Plan
All employees hired at PG19 and above except
for Sworn Police and Fire personnel
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Identical to current DC
Plan
Employer contributes 6% of salary into DC Plan Retirement Account
Employee contributes 6% of Salary into DC Plan Retirement
Account
Future Employees in DC Plan
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Future Employees in Combination Plan
Combination Plan
DB Plan Component
Employee Contribution 8% of Salary
DC Plan ComponentEmployee Contribution
3.75% of Salary Mandatory
4.25% of Salary Voluntary*
City Contribution100% match of
Employee ContributionNot to exceed 8% total
Total Mandatory Employee DB + DC Contribution is 11.75% of salary
* Employee may make additional voluntary contributions (above 4.25% of salary) without City match, up to the maximum amount allowed by the IRS
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Details of Current DB Plan, and DB Portion of Hybrid Plan and Combination Plan
Current DB Plan DB Hybrid Plan Combination PlanEmployees who stay in
Current DB Plan and benefits of Hybrid
members before 11/1/ 11
Benefits for November 1, 2011 through
retirementStarting September 1, 2011
Multiplier3.00%. 2.5% or 2% as
defined by participant’s current DB Plan 1.00% 1.00%
Annual Compensation
Average of 3 highest consecutive years of
compensation over entire career
Average of 10 highest consecutive years of
compensation over entire career
Average of 10 highest consecutive years of
compensation
Annual LeaveLump sum payout included
in pension benefit calculation
Lump sum payout included in pension benefit calculation
Lump sum payout included in pension benefit
calculation
Sick Leave Included in pension benefit calculation
All but 80 hours may be included in pre-11/1/11
pension benefit calculation, as designated by employee
Not included in pension benefit calculation
Your Annual Pension Amount will be a percentage of your annual salary. The Pension Benefit Formula is: Annual Compensation x (Years of Service x Multiplier)
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Comparison of Current DB Plan, and DB Portion of Hybrid Plan and Combination Plan
Your Annual Pension Amount will be a percentage of your annual salary. The Pension Benefit Formula is: Annual Compensation x (Years of Service x Multiplier)
Current DB Plan DB Hybrid Plan Combination PlanEmployees who stay in
Current DB Plan and benefits of Hybrid
members before 11/1/ 11
Benefits for November 1, 2011 through
retirementStarting September 1, 2011
Vesting Period 10 yrs- hired before 7/1/1015 yrs- hired 7/1/10 or after
10 yrs- hired before 7/1/1015 yrs- hired 7/1/10 or after 15 Years
Minimum Retirement Age None None
Age 47 (Sworn APD/AFRD)
Age 52 (General Employees)
Normal Retirement Age
(NRA)
Age 55 (Sworn APD/AFRD) Age 55 (Sworn APD/AFRD) Age 57 (Sworn APD/AFRD)
Age 60 (General Employees) Age 60 (General Employees) Age 62 (General Employees)
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Details of Current DB Plan, and DB Portion of Hybrid Plan and Combination Plan
Current DB Plan DB Hybrid Plan Combination PlanEmployees who stay in
Current DB Plan and benefits of Hybrid
members before 11/1/ 11
Benefits for November 1, 2011 through
retirementStarting September 1, 2011
COLA Up to 3% Up to 1% Up to 1%
Long Term Disability Included in pension benefit
Included in pension benefit (Equivalent to Current DB
Plan)
Included in pension benefit (Equivalent to Current DB
Plan)Survivor Benefits
(Pre-Retirement Death)
Included in pension benefitIncluded in pension benefit (Equivalent to Current DB
Plan)
Included in pension benefit (Equivalent to Current DB
Plan)
Retirement Benefit:
Payment to qualified
beneficiary
75% of retirement benefit upon death of retiree. Employee contributes additional 1% of salary
throughout employment to pay cost of benefit.
75% of retirement benefit upon death of retiree
Employee decides at time of retirement whether to cover
beneficiary. If so, pension amount is recalculated to pay
cost of benefit.
75% of retirement benefit upon death of retiree
Employee decides at time of retirement whether to
cover beneficiary. If so, pension amount is
recalculated to pay cost of benefit.
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Key Factors
• Shared risk: If City DB Plan contribution exceeds a set amount, the City will determine a method for payment of the excess, which could include increasing an employee’s DB contribution by no more than 5% of salary
• Shared benefit: If City’s current pension debt is reduced to a set amount, the City may reduce an employee’s DB contribution
• Employees who separate from City employment and are later reemployed will be required to join the DC Plan or the Combination Plan depending upon type of employment and pay grade at the time of rehire
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Impact of Increased Contribution for DB Participants Currently Paying 8% of Salary
Yearly Salary Current Contribution
Additional Contribution
Total Future Contribution
$20,000 $62 + $38 = $100
$25,000 $77 + $48 = $125
$30,000 $92 + $58 = $150
$35,000 $108 + $67 = $175
$40,000 $123 + $77 = $200
$45,000 $136 + $87 = $225
$50,000 $154 + $96 = $250
Impact of 5% of salary increase on bi-weekly DB Plan pre-tax contribution amount
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Example of Proposed Changes to Bi-weekly Deduction for Current DB Participants
*Employee without designated beneficiary will have 7% contribution** Employee without designated beneficiary will have 12% contribution
Salary Pay period Percentage Total
Employees in Current DB Plan (before Nov 1, 2011 w/beneficiary*)
$35,000 ÷ 26 x 8% $108
Employees who stay in Current DB Plan (after Nov 1, 2011 w/beneficiary**)
$35,000 ÷ 26 x 13% $175
Employees who Switch to the DB Hybrid Plan (Mandatory Amt as of Nov 1, 2011)
$35,000 ÷ 26 x 11.75% $158
Employees who Switch to the DB Hybrid Plan (Mandatory, plus Voluntary City-matched amt as of Nov 1, 2011)
$35000 ÷ 26 x 16% $202
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Your Next Steps
• DC Plan members should consider whether to make voluntary contributions, and whether to make them pre-tax or post-tax
• DB Plan members should meet with Financial Consultants provided by the City at no cost to employees• Determine impact of increased DB contribution• Assess costs and benefits of switching to DB Hybrid Plan• Consider whether to make voluntary contributions and
whether to make them pre-tax or post-tax
• DB Plan members should look for information about the October election to designate staying in the current DB Plan or switching to the DB Hybrid Plan
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Questions
For questions send email to pension.questions@atlantaga.gov ; or Contact Sherri Dickerson, Department of Human Resources, at 404.330.6653.
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