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PUBLIC RETIREMENT SYSTEMS COMMITTEE

MINUTES

December 14, 1995
Third and Final meeting

MEMBERS PRESENT

MEETING IN BRIEF

Minutes prepared by Rick Nelson, Legal Counsel,
Organizational staffing by Ed Cook, Legal Counsel

  1. Procedural Business.
  2. Municipal Fire and Police Retirement Sytem (MFPRSI).
  3. Iowa Public Employees' Retirement System (IPERS).
  4. Peace Officers' Retirement System (PORS).
  5. Discussion.
  6. Recommendations.
  7. Written Materials Provided for the Meeting.

COMMITTEE BUSINESS

1. Procedural Business.

Call to Order. Co-Chairpersons Senator John Kibbie and Representative Mona Martin called the interim meeting of the Public Retirement System Committee to order at 10:10 a.m., Thursday, December 14, 1995, in Committee Room 22 of the Statehouse in Des Moines, Iowa.

Minutes Approved. The minutes of the October 26 and 27, 1995, meetings of the Public Retirement Systems Committee were approved without change.

Adjournment. The meeting was adjourned at 3:20 p.m.

2. Municipal Fire and Police Retirement System of Iowa (MFPRSI).

Presentation by Mr. Dennis L. Jacobs, Executive Director.
Standardized Escalator Program. Mr. Jacobs summarized a proposed alternative escalator program for retirement benefits recently recommended by the board of trustees for MFPRSI. The current approach for periodic increases in the monthly benefits for eligible retirees based on the earnable compensation of the active membership in the same rank in the city from which the member retired. This approach results in disparate treatment for retirees due to the link between the level of increase and the earnable compensation change in the particular city involved. The proposed alternative involves a formula whereby each year the members' and beneficiaries' monthly benefits would be increased by the combination of 1.5 percent, and a flat dollar amount based on a schedule that increases with the number of years of retirement.
The alternative approach recommended by MFPRSI meets the four objectives identified by MFPRSI as desirable in an alternative escalator program:
  1. Maintains current projected plan costs, as determined by consulting actuaries.
  2. Provides for equitable increases across membership.
  3. Provides for regular and consistent increases.
  4. Decreases plan complexity.
Mr. Jacobs indicated that predictability of benefit amount was a priority with members; therefore, the percentage increase remains static over time and does not change based on inflation. Mr. Jacobs indicated that the standardized escalator provides an approximate annual 4 percent increase. Mr. Jacobs also added that the board of trustees recommends that the formula be reviewed and reevaluated by the General Assembly six years, beginning in the year 2002.

3. Iowa Public Employees' Retirement System (IPERS).

Presentation by Mr. Greg Cusack, Chief Benefits Officer, accompanied by Ms. Elizabeth Sanders, Chief Investment Officer, and Ms. Patrice Beckham, Consulting Actuary, Milliman & Robertson.
Mr. Cusack presented the Committee with the actuarial data concerning the costs of the various recommendation made to the Committee. Based on this data, Mr. Cusack made two sets of alternative recommendations regarding IPERS benefit enhancements.
Each alternative has five components, and the first four are identical:
  1. Immediate removal of the covered wage base and implementing a lower benefit multiplier for salary levels over $55,000. Mr. Cusack indicated that this will facilitate being able to accurately recognize IPERS' projected liabilities. Mr. Cusack indicated that if this recommendation is adopoted, he would recommend to the IPERS investment board that the existing interest rate assumption be increased from 6.75 percent to 7/50 percent. Based on this increase, Mr. Cusack indicated that some additional benefit enhancements would be considered.
  2. Increasing minimum benefits to existing retirees, prorated from 10 to 30 years of service, ranging from $200-$400 per month.
  3. Adjusting the interest rate credited to members' accounts to 1 percent above one-year interest rates on certificates of deposit.
  4. Providing annual dividend adjustments of up to 3 percent for current retirees, commencing after the retirees' original benefit purchasing power has declined to 80 percent.
  5. The fifth and final component of each alternative differs. The first recommendation which IPERS recommends, provides for a payment of 1.5 percent dividend every other year to future retirees, with the same "decline in purchase power to 80 percent" provision recommended for current retirees. A second recommendation modifies retirement eligibility by adopting the "Rule of 85" (age plus years of service totaling 85 would constitute "normal retirement eligibility"). While expressing a preference for the first alternative, Mr. Cusack emphasized that both approaches are responsible, and neither would jeopardize the fund. Mr. Cusack noted that raising the service year cap above 30 years is not recommended, because it is too costly and thus, interferes with the ability to make the other benefit changes. Regarding the Buck study of the IPERS system which was presented to the Committee at its previous meeting, Mr. Cusack stated that IPERS' cost projections actually came in lower (approximately 15 vs. 19 percent), and that those who conducted the Buck study acknowledged that not all the recommendations could be implemented at once.

4. Peace Officers' Retirement System (PORS).

Presentation by Mr. Carroll Bidler, Director of Administrative Services.
Mr. Bidler presented an actuarial report regarding the cost to the system of a proposal to allow early retirement at age 50 rather than 55 with a percentage reduction in benefits for each yar at early retirement. Four reduction schedules were prepared -- for a 1 percent, 2 percent, 3 percent, and 4 percent reduction in benefits for each year of early retirement between ages 50 and 55. It was determined that an approximately 7 percent reduction for each year of early retikrement was the break-even point to keep the early retirement proposal cost- neutral to the system.

5. Discussion.

Salary Cap Removal for IPERS.
Removing the salary cap has the potential effect of providing high salaried individuals retiring within the next 5 years a benefit they have not paid for. Options for handling this would include somehow "buying" some or all of the time or utilizing a "high 5 or 7 year" calculation, which would level off a dramatic increase in benefits. Mr. Cusack indicated he would provide the Committee with examples of how to deal with this concern.
Co-chairperson Martin expressed concern over the cost at the local government level for removing the salary cap and requiring contributions, from both the employee and employer, on the employee's full salary. the cost is projected to be $2.4 million at the state level.
Senator Connolly noted that the recommendation preferred by IPERS still leaves the 30-year service cap in place, which is not consistent with one of the Buck report's top recommendations. Mr. Cusack maintained that the IPERS system cannot afford to incorporate the service cap with all the other recommendations without an increase in the contribution rate. Senator Gronstal commented that, according to the Buck report, a 19 percent contribution rate would be necessary to implement all the recommendations.
Representative Larkin noted that the recommendations do not include reference to protected classifications of employees. The reason, indicated Mr. Cusack, was that there is no increase in system liability -- the various protected classifications of employees have indicated that they are willing to pay an increased amount to cover themselves, provided that older individuals are not grandfathered in. Representative Gipp commented that this may become a problem with an increasing number of employee groups seeking protected status.
Co-chairperson Kibbie addressed the question of when a temporary or substitute employee/retiree becomes covered again for IPERS, and suggested that this issue may need to be discussed in committee. A "temporary" employee making over $300 after two quarters is considered covered.

6. Recommendations.

a. Representative Connors moved that the Committee recommend the first four points shared by the IPERS alternative recommendations (see section 3 above). The motion passed unanimously on voice vote.

b. Senator Gronstal moved that the Committee recommend adopting a Rule of 88 in combination with extending the service cap to 35 years of service (based on the savings resulting from the Rule of 88), at whatever percentage could be obtained at a 9.45 percent contribution rate. The motion failed for lack of the necessary votes by the House members.

c. Senator Connolly moved that the Committee recommend the Rule of 85 (which would essentially result in passage of the IPERS second alternative recommendation). In support of the motion, Senator Connolly cited estimates of 5,000 teachers entering retirement, clearing the way for younger teachers to enter the system, and curbing the flow of young teachers out-of-state for lack of jobs. The motion failed.

d. Representative Connors moved that the Committee recommend the fifth point of the preferred IPERS recommendation -- providing COLA for future retirees in the form of a 1.5 percent dividend payable every other year, commencing after the purchasing power of the retirees benefit has declined to 80 percent. The motion passed.

e. Senator Gronstal moved that the Committee recommend adoption of the special classifications recommendations. The normal retirement eligibility requirements for sheriffs and deputies would be changed to allow retirement after 25 years of service without an age requirement. The current 22 years of service and age 55 requirements would be retained if they facilitate an earlier retirement for those qualifying thereunder. Additionally, all institutional and community-based corrections occupation classes would be included in the "protected occupations" definition under IPERS. Further, the presumption would be created that any heart or lung problems experienced by any member of a protected occupation would be considered job-related for disability benefit purposes. The motion passed.

f. Representative Connors proposed that the Committee recommend several provisions related to the Peace Officers' Retirement system (PORS). There would be portability of credit for service between PORS and the Municipal Fire and Police Retirement System (MFPRSI). Contribution rates for the system would be based on PORS actuarial information, rather than MFPRSI. Service benefits would increase from .6 percent to 1.5 percent for each additional year of service between 22 and 30 years of service. All 25 percent escalators would be increased to 30 percent, and all 12.5 percent escalators would be increased to 15 percent. Full escalator benefits would be provided for members who vest with 22 or more years of service regardless of age. The minimum benefit for surviving spouses would be increased from 20 to 25 percent of compensation for a senior patrol officer. The motion passed. An earlier motion by Senator Connolly, for the same recommendation excluding the service benefit provision, failed.

g. Senator Gronstal moved that the Committee recommend that the proposal to provide pre-tax treatment for employee contributions under all public retirement systems be referred to the appropriate legislative committee for consideration. The motion passed unanimously.

h. Senator Gronstal moved that the Committee recommend, regarding the MFPRSI, that the retirement board be allowed to update medical protocols, that retired members must be retired on or before the effective date of the readjustment (escalation) to be eligible for readjustment, and that the retirement system be subject to marital property orders. Additionally, interest would be charged to cities for unfunded liabilities, and portability of credit for service would be allowed between MFPRSI and PORS. A standardized escalator would be provided whereby the monthly benefits of members and beneficiaries would be increased by a combination of 1.5 percent and a flat dollar amount based on the number of years retired. A review of the formula every six years by the General Assembly, beginning on the year 2002, would occur. The motion passed. A substitute motion adding a six-year sunset provision on the escalator proposal failed.

i. The Committee also adopted a proposal to establish a separate IPERS benefits board with broad membership and to encourage IPERS to develop a plan for legislative consideration to provide some means of postretirement health care assistance to IPERS retirees.

7. Written Materials Provided for the Meeting.

a. List of recommendations presented to the Committee.

b. Matrix of retirement benefits, submitted by Jean Kuehl, Assistant Director, Sixth Judicial District Department of Correctional Services.

c. House File 382.

d. Rules for Committee action.

e. Fiscal note on House File 60.

f. Study of Occupational Injuries and Deaths, submitted by Sally Chandler Halford, Iowa State Department of Corrections.

g. Revenue Impact for State Pre-Tax Employee Pension Contributions memorandum, submitted by Dwayne Ferguson, Legislative Fiscal Bureau.

h. Escalator clause endorsement, submitted by Verlin R. Fairbanks, Secretary-Treasurer/Acting President, Iowa Association of Retired Firefighters.

i. Cost Estimates of Proposed Changes in Plan Benefits, submitted by Carroll Bidler, Director of Administrative Services, Iowa State Department of Public Safety.

j. IPERS Benefit Enhancement Recommendations, submitted by Greg Cusack, Chief Benefits Officer, and Elizabeth Sanders, Chief Investment Officer, Iowa Department of Personnel.

k. 1996 Legislative Recommendations, submitted by Dennis L. Jacobs, Executive Director, Municipal Fire and Police Retirement System of Iowa.

OTHER INFORMATION FOR THIS COMMITTEE:

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