To: Honorable Mayor and Members of Town Council
From: Jack Cauley, Police Chief
Fritz Sprague, Deputy Town Manager
Title
Resolution Affirming the Election Process for Police Officers to Determine Affiliation with the Fire and Police Pension Association of Colorado for the Purposes of Coverage Supplemental to Social Security
Body
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Executive Summary
The purpose of this memo is to present Council with a resolution (Attachment A) to affirm an election process for police officers regarding the Fire and Police Pension Association (FPPA) of Colorado. The Town of Castle Rock has different retirement plan options for general employees and those in the Town’s Fire and Rescue Department. Currently, those in the fire service participate with the Fire and Police Pension Association (FPPA) of Colorado for their retirement and disability plan and have done so since the department was professionally established. All other eligible Town employees participate in the International City/County Management Association Retirement Corporation (ICMA-RC).
As part of this arrangement, it’s important to note that the Town does not pay into Social Security as part of FPPA-eligible employees’ retirement; all other employees and the Town pay into Social Security as required by law.
There now exists an opportunity for our eligible Police Department employees to join with FPPA and enter into the Statewide Defined Benefit (SWDB) Plan for retirement that is supplemental to Social Security and for those employees to also enter into FPPA’s Statewide Death and Disability (SWD&D) Plan. Important to note is Police Department employees participate in Social Security. They are unable to legally exempt out of this program, so they only qualify for the Supplemental Social Security Program offered by FPPA.
Two steps are necessary for this measure to be considered: 1) Town Council adopts a resolution authorizing an election to be held within the Police Department and 2) All eligible Police Officers vote to decide if they wish to join FPPA, which will allow Police Officers to determine whether or not they will move forward with this plan for retirement benefits.
If members of the Police Department vote to participate in the FPPA Supplemental Social Security Program, this would become their primary Town retirement vehicle, and they would no longer participate in ICMA-RC.
History of Past Town Council, Boards & Commissions, or Other Discussions
On May 5, 2016, the Public Safety Commission unanimously recommended support of conducting an election within the Police Department for the FPPA Supplemental Social Security and Statewide Death and Disability programs.
Discussion
About FPPA
The Statewide FPPA Retirement Plan has been in existence since 1980 and is considered financially sound; the vast majority of public safety agencies in Colorado participate with FPPA for their retirement. As of January 2015, an actuarial study showed FPPA at a 103.8% ratio of funding to liabilities. It has an asset base of over $4 billion; 200 Police and Fire jurisdictions participate in the Statewide Defined Benefit Plan, and ten police jurisdictions participate in the Supplemental Social Security Plan. A small example of comparable benchmark jurisdictions that participate in FPPA include Parker, Englewood, Lone Tree, Lafayette and Brighton. A summary of all participating jurisdictions is included. (Attachment B)
How an Election Works
In order for an election to be successful and have the Police Department move to FPPA, it requires 65% of eligible members to vote in the affirmative, making the decision to participate in the FPPA Supplemental Social Security Plan. If the election results are less than 65%, the matter doesn’t move forward, and everything remains at status quo. If the election passes, the change will be implemented, and the Town and eligible police officers will be irrevocably bound by the terms and conditions of the plan moving forward. This would also mean that Police Officer retirement contributions would shift from ICMA-RC to the FPPA Supplemental Social Security Plan as their primary Town retirement vehicle.
The proposed resolution provides notice to the Fire and Police Pension Association of the Town’s intent to move forward with the election process. The resolution is not binding at this time. The agreement with FFPA becomes binding when FPPA receives the first contribution from the Town and the employees.
Breakdown of Current Contributions
The Town takes into account the contributions made for all benefits when calculating parity, or making sure reasonably comparable levels of benefit are extended to each employee. These calculations were reviewed in concert with this proposal (Attachment C).
The employer contribution for FPPA retirement benefits has not changed since the inception of the plan. Under current law, it would take state legislation to change this rate. The Statewide Death and Disability Plan can change by 1/10 of 1% every year, but it is a local decision if the contribution is paid by the member, paid by the employer or split between the two.
While we strived to keep the option of moving eligible Police Department employees to FPPA revenue neutral, the disability portion of the program would increase the Town’s annual costs by an estimated $73,514. The breakdown of costs as a percentage of benefits is as follows for comparative purposes:
Fire and Rescue Employees
Currently, eligible employees of the Town’s Fire and Rescue Department contribute 9% of pre-tax wages toward FPPA for retirement; 1.3% for FPPA disability; and 1.45% for Medicare, for a total of 11.75%. No contribution is made into Social Security.
The Town contributes 8% of pre-tax gross wages toward FPPA retirement for eligible fire employees, as well as 1.3% for FPPA disability. It also contributes 2% toward a 457 deferred compensation account for these employees and 1.45% for Medicare, for a total of 12.75%. No contribution is made into Social Security.
Police Department Employees (Proposed)
If the FPPA supplemental plan is approved, eligible employees would contribute 4.5% of pre-tax wages to FPPA for retirement; 1.3% for disability; 6.2% for Social Security; and 1.45% for Medicare, totaling 13.45%.
The Town would contribute 4% of pre-tax gross wages toward FPPA for retirement for eligible Police Department employees. It would also contribute 2% toward a 457 deferred compensation account for these employees, along with 1.3% for disability. The 6.2% Town match for Social Security and 1.45% match for Medicare would bring the Town total for this option to 14.95%.
All other Town Employees
All other Town Employees participate with ICMA-RC and contribute 4% of pre-tax wages along with 6.2% for Social Security and 1.45 % for Medicare for a total contribution of 11.65% for retirement and Social Security benefits.
The Town contributes 6% to ICMA-RC for all other Town employees, 6.2% for Social Security and 1.45 % for Medicare, totaling 13.65%.
An Example
The following is a comparative example of how this retirement benefit would work for the two different types of FPPA members. This compares the standard Defined Benefit Plan with the Supplemental Social Security Program. The proposal before Council regarding the Police Department is for the Supplemental Social Security Plan, so it offers half the benefit of the standard FPPA Defined Benefit Plan, in which Fire Department employees participate. (It also costs half as much from a contribution standpoint as well.)
Assuming an FPPA member worked and earned 25 years of service and plan credit and retired at the age of 55 with the highest average salary of $70,000:
• Defined Benefit Plan payout would be 2% for the first 10 years worked, then 2.5% for all years worked thereafter. Monthly pension check at age 55: $3,354.
• Supplemental Social Security Plan would be 1% for the first 10 years, then 1.25% for all years worked thereafter. Monthly pension check would be $1,677 (at age 55). Monthly Social Security benefit would be $1,577 (at age 62). Total monthly retirement benefit at age 62: $3,254.
Next Steps
Should Council authorize an election, representatives from FPPA would hold informational meetings with Police Officers for each individual to determine if this retirement benefit met their needs and offers a level of benefit better than the current ICMA-RC retirement option, the primary vehicle of which is a 401(a) money-purchase retirement savings plan. The Town would also make representatives from ICMA-RC available to meet with Police Officers to compare plans as part of their decision making prior to an election.
Budget Impact
Staff has conducted an analysis of what this retirement and death and disability scenario would look like and has developed a preferred alternative. We endeavored to develop a scenario that was revenue neutral. Yet, when we added the Death and Disability Program, it increased the request as noted below. This recommendation represents an increase of 1.8% for eligible Police Officers, and a 1.3% increase to the Town, at an estimated annual Town cost of $73,514 (or $6,126.17 per month to cover for the remainder of 2016). If Police voted to move to this plan, implementation would likely occur in the third quarter of 2016 and would be a minor cost and could be funded with savings within the existing Police budget. This item would be added in 2017 through the budget process.
Staff Recommendation
It is recommended that Council authorize the Police Department to conduct an election to determine if officers in the Police Department wish to enter the Statewide Defined Benefit Plan for retirement that is supplemental to Social Security, which if successful, would end their participation in the Town’s ICMA-RC retirement plan, as well as to enter into FPPA’s Statewide Death and Disability Program. (In addition to this coverage, all eligible employees receive group term life insurance and accidental death and dismemberment insurance through Lincoln Financial.)
Under this scenario, both the Town and the employee would continue to share the cost of Social Security and Medicare contributions moving forward. Included is a table depicting the recommended cost-sharing arrangement should Police vote to proceed with joining FPPA and transitioning away from ICMA-RC as their primary retirement vehicle. (Attachment D)
Proposed Motion
““I move to approve a Resolution authorizing the Town of Castle Rock to conduct an election within the Police Department to determine if they wish to enter into the FPPA Supplemental Social Security Program and FPPA’s Statewide Death and Disability Program.”
Attachments
Attachment A: Resolution for Castle Rock Police Officers Affirming the election process for Police Officers to Determine Affiliation with the Fire and Police Pension Association (FPPA) of Colorado for purposes of coverage supplemental to Social Security.
Attachment B: FPPA Participating Jurisdictions
Attachment C: Employee and Town Contributions
Attachment D: Recommended Cost Sharing Arrangement