2015 Police and Firefighter Pension Law

Enrolled CS/SB 172 Bonni S. Jensen

Klausner, Kaufman, Jensen & Levinsonwww.robertdklausner.com

OverviewLaw addresses four general areas:• Creation of Budget/Reporting

Administrative Expenses• Creation of Defined

Contribution/Special Benefit Accounts

• Use of the 175/185 money• Minimum benefits and minimum

standards and new minimum 2.75% multiplier

Overview• New Law New Concepts• Bulk of the law applies only to Local Law Plans• Law eliminates:–“Extra Benefits” Requirement–Comparison to General Employee Pension Benefits–“Naples Letter” Interpretation

Overview• The law provides for three ways for local law plans to use 175/185 money going forward:

-Mutual Consent-Default provisions of the statute-Special Act and Supplemental

Plans in existence on 12/1/00, deemed to have been created by mutual consent.

OverviewLaw encourages mutual

consent between Municipality and Union (or pension fund

members if no union) for use of the 175/185 money. Allows parties to use the money for the best fit for members and

municipality.

OverviewIf “mutual consent” is reached, the default provisions of a law regarding the use of the premium taxes are not applicable. The parties will have “mutually consented” until “mutual consent” is revoked.

OverviewIf “mutual consent” is not reached, statutory “default” must be followed. For the parties to understand the impact of the law, each party should determine its position if there is no mutual consent and the default distribution process is applicable.

Overview• Effective Date: July 1, 2015•New Law Applies to:–Collective Bargaining Agreements entered into on or after July 1, 2015.–Non-Collectively Bargained Service on or after October 1, 2015.

Administrative Expense BudgetThe law requires police or fire pension boards of trustees to adopt and operate under an

administrative expense budget, and have an annual accounting of

expenses prepared. The annual accounting report must be posted to the board’s website, if

the board has a website.

Administrative Expense Budget

• Administrative expenses include fees for:- Legal counsel;- Actuary;- Plan administrator;- Consultants;- All travel; and- other expenses paid to or on behalf of

members of the board of trustees or anyone else on behalf of the plan.

Administrative Expense Budget

This section of the law specifically applies to all plans and specifically including special act plans created before May 27, 1939, which includes Jacksonville, Miami, Coral Gables and Miami Beach.

Defined Contribution Plan Component

• Effective 10/1/2015 for non-collectively bargained service or for the next collective bargaining agreement entered into on or after 7/1/2015, the law requires each pension plan to provide for a “defined contribution plan component” along with the current “defined benefit plan component.”

Defined Contribution Plan Component

• This is a “Share Account Plan.”• The creation of the “defined

contribution plan component” is administrative

• The law allows the parties to decide not to fund the defined contribution plan component.

Defined Contribution Plan Component

• If there is no mutual consent, then the share accounts are funded with 50% of the future growth of the 175/185 money.

• Growth is measured based upon 175/185 money received which is over the amount received by the Fund in 2013.

• The law terms these share accounts as “special benefits.”

Minimum BenefitsUnder the new law, the concept of “frozen” or 1999 level of pension benefits is no longer applicable.

The law reinforces that the statutory minimum benefits and minimum standards must be met except as specifically provided.

Minimum Benefits• All previous statutory minimum

benefit levels stay the same, except for the accrual or multiplier rate.

• Effective July 1, 2015: The 2.0 % minimum accrual or multiplier rate under current law is raised to 2.75%.

Minimum BenefitsFor any plan currently below 2.75%:• The law does NOT require the

plan to increase to 2.75%, and the current accrual or multiplier rate can remain the same.

• If a plan increases the benefits to or above 2.75%, the accrual or multiplier cannot thereafter be reduced below 2.75%.

Minimum BenefitsMaximum Benefit Cap:• Maximum benefit caps are allowed to stay

at the current level even if the maximum benefit cap results in an effective benefit below 2.75 percent.

• For example, providing that a benefit cannot exceed 80 percent of average final compensation or that a benefit cannot exceed $95,000 a year.

• If a plan increases the maximum benefit cap to or above 2.75%, the maximum benefit cap cannot thereafter be reduced below 2.75%.

Mutual Consent• Cities and unions (or members

if there is no union) may “mutually consent” to how to use the 175/185 money.

• If “mutual consent” is reached, the 175/185 money is NOT subject to the default statutory process.

Mutual Consent• Statutory minimum benefits and

minimum standards must be met. • However, if as of 10/1/2012 a

plan did not meet a minimum benefit level, the plan can continue under “mutual consent” and not have to increase the benefit up to the minimum benefit level.

Mutual ConsentSpecial act plans (approximately 8 cities) and supplemental plan

municipalities (as defined in statute includes approximately 15 cities) are deemed to have

mutually consented as of 7/1/2015.

No Mutual ConsentIf there is no “mutual consent,”

which means the city and union/members are basically at

impasse over the use of insurance premium tax revenues, 175/185

distribution is subject to “default” process. Both parties must consent

to the terms of the agreement without contract imposition.

No Mutual Consent• Statutory minimum benefits

and minimum standards must be met. There is no exception.

• Insurance premium tax revenues are divided into various “pots” and the revenue must be used for specified purposes.

No Mutual ConsentFor Plans in effect on 10/1/2003:• “Base Premium Tax Revenue” must

be used by the City to fund minimum benefits or other retirement benefits in excess of the minimums as determined by the City.

• Base Premium Tax Revenue is the amount of 175/185 money received for calendar year 2002 (received by the Plan in 2003).

No Mutual ConsentFor plans created between 2003 and 2015• Base Premium Tax Revenue is

the amount received by the Plan in the second year of participation

No Mutual ConsentThe next level of default process is allocation of the “Additional Premium Tax Revenue.”• “Additional Premium Tax Revenue” is the

amount of 175/185 money received by a pension plan which exceeds base premium tax revenue.

• This is allocated in two different pieces:-Amounts received between 2003 and 2012

which can be referred to as the Gap amount; and -Amounts received which are in excess of the

amount received in 2012 (received by Plan in 2003) which can be referred to as the Growth amount.

No Mutual Consent• The difference between the most current

175/185 distribution and the 2012 amounts is the growth amount.

• The growth amount is divided equally between the members and the city

• 50% is to be used to offset the cost of minimum benefits or other retirement benefits in excess of the minimum benefits as determined by the city.

• The other 50% is to be placed in a defined contribution plan for members.

No Mutual Consent• The difference between the 2012 and

2002 amounts is the Gap amount• This money is to be used to fund benefits

in excess of the minimum benefits under Chapter 175, F.S.

• If the money is more than is needed to fund the benefits in excess of the minimums, then the overage divided 50/50 between the City and the members – like the Growth amount.

No Mutual Consent• The 2002 175/185 funds could be

greater than the 2012 amount. • In that case there would be no

“additional premium tax revenues” for consideration under funding benefits in excess of the minimum benefits.

• Then the city would be entitled to use the full 2002 “base premium tax revenue” amount.

No Mutual ConsentFor any accumulations of 175/185 money that has not already been used or allocated to fund benefits in excess of the minimum benefits: • 50% of the amount of accumulations must

be used as a “defined contribution” benefit for plan members.

• 50% must be applied to fund any unfunded actuarial liabilities of the plan.

• This would likely be a one time distribution.

No Mutual ConsentFor plans created after March 1, 2015: • 50% of the 175/185 money

received must be used as a “defined contribution” benefit for plan members; and

• 50% must be used to fund the defined benefit.

No Mutual Consent• If a plan has benefits in excess of

the minimum benefits, the benefits may be reduced to the minimum benefit levels (collective bargaining).

• If benefits are reduced, the amount of the 175/185 money used to fund benefits in excess of the minimum benefits is subject to reallocation like the growth amount.

No Mutual ConsentFor supplemental plans in effect on September 30, 2014:• The supplemental plan benefits

cannot be reduced.• The amount of 175/185 money

that went to the supplemental plan for calendar year 2012 will continue to go to the supplemental plan.

No Mutual ConsentReducing benefit levels:• Any “defined benefit” type benefits,

supplemental plan benefits not in effect on September 30, 2014, or other plan benefits in excess of the minimum benefits can be reduced to the minimum benefit levels (COLA, DROP, any benefit over minimums).

• However, a plan would have to provide at least the minimum benefit levels, including the minimum accrual rate of 2.75% (or an effective benefit of at least 2.75 percent under a maximum benefit cap) before any other benefits could be reduced down to the minimum benefit levels.

Naples LetterA city that has made or proposed changes to its pension plan based upon the city’s reliance on a Naples Letter dated on or after August 14, 2012 and before March 3, 2015, may continue with the implemented changes or continue to implement proposed changes until the earlier of October 1, 2018 or a collective bargaining agreement that is contrary to the letter.

Naples LetterReliance must be evidenced by:• A written collective bargaining proposal or

agreement• Or formal correspondence between the city

and the Department of Management Services-Which describes the specific changes to

the plan, -with the initial proposal, agreement, or

correspondence from the city dated before March 3, 2015.

Naples LetterProvisions of the plan which do not meet the minimum benefits and minimum standards of the respective chapter may continue in effect until the earlier of October 1, 2018 or the effective date of a collective bargaining agreement that is contrary to the provisions in the plan.

“Compensation” for Police Plans

• Clarifies that for police pension plans, the definition of “compensation” or “salary” under the plan could limit the use of overtime for plan purposes before July 1, 2011.

“Extra Benefits” Repealed

• The law removes the definition of “extra benefits” and other provisions from the 1999 law requiring the provision of “extra benefits” using 175/185 money.

• The law removes the statutory basis for the “Naples Letter” interpretation.

Links of Interest• Memo regarding HB 172 http://

robertdklausner.com/wp-content/uploads/2010/12/Client-Memo-re-Senate-Bill-172.pdf

• Division of Retirement Q & A https://www.rol.frs.state.fl.us/forms/2015SB172QA.pdf

• SB 172/Chapter 2015-39 http://laws.flrules.org/2015/39

QUESTIONS?