To: Honorable Mayor and Members of Town Council
From: Jack Cauley, Chief of Police
Title
Resolution Approving the Affiliation of Eligible Police Officers of the Town of Castle Rock with the Fire and Police Pension Association of Colorado Statewide Defined Benefit Plan
Body
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Executive Summary
The purpose of this memorandum is to present Town Council with a Resolution (Attachment A) to approve the affiliation of eligible police officers of the Town of Castle Rock with the Fire and Police Pension Association (FPPA) of Colorado Statewide Defined Benefit (SWDB) plan for approval and adoption.
Currently, the Town of Castle Rock offers two retirement plans for its employees:
• FPPA Statewide Defined Benefit (SWDB) plan for eligible Fire Department employees.
• International City/County Management Association Retirement Corporation (ICMA-RC) for all other eligible Town employees (general and police officers).
In most professions, it is not unusual for individuals to work well into their 60s. However, working as a police officer at the line level at this age range is rare. Throughout their entire career, police officers must be prepared physically and mentally to respond to stressful and, at times, confrontational events. Police officers must be prepared to take immediate physical action with little or no warning. An officer’s ability to respond to the situation at hand is essential. This is not only what officers are paid to do but is what the community expects. This becomes more difficult as the age and physical ability between police officers and those encountered by the police become disparate. This is why it is critical to offer Castle Rock Police officers the FPPA Statewide Defined Benefit plan and why more than 200 Colorado fire and police agencies (including Castle Rock Fire and Rescue) have done the same.
While physically and mentally capable of performing duties to the high standard expected by the Castle Rock community, eligible police department employees should have the opportunity to work toward and anticipate a regular retirement benefit. FPPA’s Statewide Defined Benefit plan is designed to ensure this benefit for its public safety participants. Affiliation with FPPA for eligible police department staff is a good move for current and future employees of the Castle Rock Police Department.
The Castle Rock Police Department has the option to affiliate with FPPA and enter into the full Statewide Defined Benefit plan for retirement. Police employees will continue to pay into Social Security.
History of Past Town Council, Boards & Commissions, or Other Discussions
At the July 21, 2020 Town Council meeting, Town Council directed staff to prepare a Resolution authorizing the Town of Castle Rock to offer eligible police officers retirement benefits under the FPPA Statewide Defined Benefit Plan.
Discussion
About FPPA
The Statewide FPPA retirement plan has been in existence since 1980 and is considered very financially sound; the vast majority of public safety agencies in Colorado participate with FPPA for their retirement. As of January 2020, the preliminary Actuarial Valuation Report shows the FPPA Statewide Defined Benefit plan at a 97.6% funding ratio. In addition, as of January 2020, the plan has an overall asset base of over $5 billion. Over 200 police and fire jurisdictions participate in the Statewide Defined Benefit plan. A small example of Colorado police jurisdictions that participate in FPPA include Parker Police, Lone Tree Police, Englewood Police, and Brighton Police. A summary of all participating jurisdictions (Attachment B) is included.
Breakdown of Current Contributions
On April 1, 2020, Governor Polis signed House Bill 20-1044 into law that will increase the employer contribution rate for FPPA Statewide Defined Benefit plan effective January 1, 2021. The Colorado General Assembly summarizes House Bill 20-1044 (Attachment C). The current employer contribution rate will increase 0.5% per year from current 8.0% this year to 12% in 2028. The current FPPA employee contribution is 11% and will increase 0.5% per year until maxing out at 12% in 2022 (Attachment D).
Additionally, under the new Rule of 80, also passed in HB 20-1044, employer contributions will increase by 0.5% for years 2029 and 2030. This provision provides for a normal retirement as early as age 50, if a member’s combined years of service and age totals 80 or more.
Fire and Rescue Employees
Currently, eligible employees of the Town’s Fire and Rescue Department contribute 11% (increasing to 12% by 2021) of pre-tax wages toward FPPA for retirement; 1.4% for FPPA disability; and 1.45% for Medicare, totaling 13.85%. 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 1.4% for FPPA disability. It also contributes 3% toward a 457 deferred compensation account for these employees and 1.45% for Medicare, totaling 13.85%.
As a result of House Bill 20-1044, beginning January 2021, the Town’s contribution will increase 0.5% each year until 2030 at which time the Town contribution will reach 13%. No contribution is made into Social Security.
Current Police Officers
Currently, all police officers participate with ICMA-RC and contribute 5.6% of pre-tax wages along with 6.2% for Social Security and 1.45% for Medicare for a total contribution of 13.25%.
The Town contributes 8.6% to ICMA-RC, 6.2% for Social Security and 1.45 % for Medicare, totaling 16.25% for eligible police officers.
Police Department Officers (Proposed)
If the FPPA plan is approved for implementation in 2021, eligible officers would contribute 11.5% (increasing to 12% by 2022) of pre-tax wages to FPPA for retirement; 1.75% FPPA affiliation fee; 6.2% for Social Security; and 1.45% for Medicare, totaling 20.9%.
The Town would contribute 8.5% of pre-tax gross wages toward FPPA for retirement for eligible police officers. It would also contribute 1.75% for the FPPA affiliation fee, a 6.2% Town match for Social Security and 1.45% match for Medicare would bring the Town’s total for this option to 17.9%.
As a result of House Bill 20-1044, beginning January 2021, Town’s contribution to the FPPA Statewide Defined Benefit plan will increase 0.5% each year until 2030 to a maximum rate of 13%.
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 7% to ICMA-RC for all other Town employees, 6.2% for Social Security and 1.45% for Medicare, totaling 14.65%.
Affiliation Fee
The affiliation fee of 3.5% is required for departments new to the plan because on average employees are more experienced and closer to retirement and, therefore, more expensive. The contribution rate differential was suggested by the actuary to help ensure the members of the plan prior to affiliation are not subsidizing the new members.
FPPA will re-evaluate the fee on the second anniversary of the plan’s effective date to determine if an adjustment is needed. The fee may stay the same or decrease, but it cannot be increased.
Next Steps
The resolution will provide notice to FPPA of the Town’s intent to move forward with offering eligible police officers to participate in the plan. The agreement with FFPA becomes binding when FPPA receives the first contribution from the Town and the officers.
Eligible police officers will decide whether to continue to participate in the ICMA-RC option or move to the FPPA plan.
Once Castle Rock Police joins the plan, it will be mandatory for all new eligible police officers to participate in the plan.
Process
If the Town Council adopts a resolution authorizing eligible officers to participate in the plan, the following process will occur:
• Town files a non-binding resolution
o Designates plan.
o Current members have a choice to stay in current plan or move to FPPA.
o Future hires on or after the effective date will participate in FPPA - they would have no plan choice.
o Once Certification of Compliance is filed, the resolution becomes irrevocable.
• Educational meetings are held with the current active members.
o Current active members choose to stay in local plan or move to FPPA plan.
o Those moving to FPPA will have their current 401(a) local money purchase account balances moved to Fidelity.
§ Members continue to direct the investments.
§ Existing loans will be transferred.
§ Loan payments no longer made via payroll deduction. Done via ACH. Member will set up payments directly with Fidelity. Fidelity will handle reporting, etc. on all defaulted loans.
§ After members have been in FPPA plan for one (1) year, they may purchase service credit.
Budget Impact
Staff has conducted an analysis of the budget impact assuming all eligible officers (80 sworn officers) elected to participate in the FPPA plan (Attachment E). The increased cost compared to the current ICMA-RC plan to the Town is estimated to be $181,773 the first year, increasing each year primarily due to the mandatory 0.5% increase to the Town’s contribution rate. If this proposal is approved by Town Council, a target date for implementation would be winter of 2021.
Staff Recommendation
Staff recommends Council support of the Resolution Approving the Affiliation of Eligible Police Officers of the Town of Castle Rock with the Fire and Police Pension Association (FPPA) Statewide Defined Benefit plan.
Proposed Motion
“I move to approve the resolution as introduced by title.”
Attachments
Attachment A: Resolution
Attachment B: FPPA Participating Jurisdictions
Attachment C: House Bill 20-1044 Summary
Attachment D: Employee and Town Contributions
Attachment E: Cost Analysis