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Home My WebLink AboutS21 - Early Retirement Incentive ProgramCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. S2I January 12, 2010 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Services Department Richard C. Kurth, Acting Administrative Services Director 949 - 644 -3124, rkurth @newportbeachca.gov SUBJECT: Early Retirement Incentive Program ISSUE: Should the City Council approve budget amendments associated with the Early Retirement Incentive Program? RECOMMENDATION: Approve a budget amendment reducing department operating budgets by $1,850,000 and increasing fund balance by $1,850,000 to recognize Fiscal Year 2009 -10 savings associated with the Early Retirement Incentive Program. 2. Approve a budget amendment increasing expenditures in the Compensated Absence fund by $938,520 from unappropriated Compensated Absence Fund Balance to provide funding for the Early Retirement Incentive Program for FY 2009 -10. 3. Approve annuitization of the ERIP program through Pacific Life and delegate the City Manager to approve and execute implementing documents. DISCUSSION: Background: At its December 8, 2009 regular meeting, the City Council approved Resolution 2009 -90 authorizing an Early Retirement Incentive Plan (ERIP) through PARS. The ERIP is Phase I of a multi - pronged approach to help close the current $5.8- million deficit in the City's FY 09 -10 General Fund and institute long -term structural changes to balance the budget and ensure that the City remains financially sound. Highlights of impacts to the City's departments as a result of eliminating positions and making structural changes were presented to and reviewed by the City Council at the meeting. Early Retirement Incentive Program January 12, 2010 Page 2 Based on those proposed changes, our preliminary estimate of the personnel - related cost savings is $1,850,000 for the remainder of FY 2009 -10. This estimated cost savings is likely to change due to several factors. The Human Resources Department is in the process of developing a recruitment calendar so we cannot currently predict with any certainty when positions will be replaced or the salary levels for new hires or promoted employees. Positions filled through a promotional process will then require additional recruitments to fill the vacancies created. Further unknowns include the timing and results of reclassification studies, the number of limited -term contracts for employees retiring in January which will be brought to the City Council for approval at the January 26, 2010, Council meeting, and actual costs for services that will now be provided by private sector contract. Continuing personnel - related cost savings will be tracked and identified during the annual budget approval process. The appropriation reduction specified here is a conservative projection; it is more likely to be too small than too optimistic. The second budget amendment appropriates funds from the Compensated Absence Fund for the first installment (of five) of ERIP expenditures. As discussed at the previous City Council meeting, the actual program will go on for an extended period, but the City will absorb the full cost of ERIP over five annual payments. To that end, and at the City's request, the Newport Beach -based company known as PARS (Public Agency Retirement Services) solicited annuitization proposals from outside entities. Staff has explored similar annuity relationships in the past, and the cost is almost always prohibitive when compared to the cost of self funding by the City. However, in this case Pacific Life (also a Newport Beach -based business) responded with a program that actually results in slightly lower cost for the City than the projected cost of self- funding. It also fixes the City's cost by transferring interest rate risk and mortality risk to Pacific Life. PARS has reviewed providers of such programs, and finds only a limited number that offer a plan which permits funding over five installments rather than full payment up front. Of those, Pacific Life is consistently the most competitive, as well as the most reputable. The calculations are complex, with the assumption of future interest rates being the most significant variable. In this case, the City, with PARS concurrence, assumed a discount rate of 3% to establish the City's cost. At that rate, the Pacific Life annuity cost would be $24,037 per year less ($120,185 less over the five year funding period). Beginning now and for an extended period, the City would need to earn an average of approximately 4% on the funds set aside for the ERIP program for self funding to be financially advantageous. We think that is possible, but unlikely. So, all things considered, staff believes that fixing the program cost and eliminating risk by accepting the Pacific Life proposal is in the City's best interest. All costs are inclusive of the PARS Early Retirement Incentive Program January 12, 2010 Page 3 fee, which is unchanged from the discounted rate previously quoted. There are no commissions in conjunction with this transaction. Staff recommends that the ERIP program be funded through the proposed Pacific Life Annuity, with two exceptions, and that responsibility for signing the contract and other necessary documentation be delegated to the City Manger. The two exceptions are cases where IRS section 415 limits preclude the City from funding the ERIP in this manner. Those cases will be self- funded through PARS. Sample contract language and specific cash flow projections, with complete listings of individual employees, are available from Administrative Services if requested. Environmental Review: The City Council's approval of this item does not require environmental review. Public Notice: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). Funding Availability: Upon approval of the attached budget amendments and subsequent approval and execution of documents by the City Manager, funds will be expended from the following accounts for ERIP (current CAF fund balance is sufficient for this appropriation): Account Description Account Number Compensated Absence Fund 6210 -7098 Submitted by: Richard C. Kurth Acting Administrative Services Director Attachments: Budget Amendment 1 OBA -024 Budget Amendment 1 OBA -025 Amount $938,520 City of Newport Beach BUDGETAMENDMENT 2009 -10 EFFECT ON BUDGETARY FUND BALANCE: Amount Increase Revenue Estimates X Description Decrease Expenditure Appropriations AND 010 Transfer Budget Appropriations SOURCE: $1,602,100.00 Division - Account from existing budget appropriations 3605 from additional estimated revenues " $68,000.00 from unappropriated fund balance EXPLANATION: NO. BA- 10BA -024 AMOUNT: Increase in Budgetary Fund Balance X Decrease in Budgetary Fund Balance No effect on Budgetary Fund Balance This budget amendment is requested to provide for the following: To decrease expenditure appropriations for personnel- related savings due to approval of the Early Retirement Incentive Program. ACCOUNTING ENTRY: BUDGETARY FUND BALANCE Description Amount Fund Account Description Debit Credit 010 3605 General Fund - Fund Balance $1,602,100.00 Division - Account 230 3605 Tidelands Fund - Fund Balance " $68,000.00 Division - Account 500 3605 Water Fund - Fund Balance $52,300.00 Division - Account 610 3605 Equipment Fund - Fund Balance $127,600.00 Division - Account REVENUE ESTIMATES (3601) FundlDivision Account Description EXPENDITURE APPROPRIATIONS (3603) Description Division - Account 0310 -7098 City Manager- ERIP $39,200 Division - Account 0320 -7098 City Manager PIO - ERIP $42,700 Division - Account 0410 -7098 HR Personnel - ERIP $3,000.00 Division - Account 0420 -7098 HR Risk Management - ERIP $43,300 Division - Account 0611 -7098 Admin Svcs Res Mgmt - ERIP $7,750.00 Division - Account 0620 -7098 Admin Svcs Fiscal Svcs - ERIP $88.750.00 Division- Account 0630 -7098 Admin Svcs IT - ERIP $247,500.00 Division - Account 0640 -7098 Admin Svcs Revenue - ERIP $89,300.00 Division - Account 0650 -7098 Admin Svcs Accounting - ERIP $83,500.00 Division - Account 1820 -7098 Police Support Svcs - ERIP $34,400.00 Division- Account 1840 -7098 Police Traffic - ERIP $56,000.00 Division - Account 1850 -7098 Police Detectives - ERIP $28,800.00 Division - Account 2371 -7098 Tidelands - ERIP $68,000.00 Division- Account 2710 -7098 Planning - ERIP $63.600.00 Division - Account 2920 -7098 Bldg Inspections - ERIP $86,100.00 Division - Account 2930 -7098 Bldg Plan Check/Permit - ERIP $48,300.00 Division- Account 3140 -7098 Gen Services Operations Support - ERIP $191,600.00 Division - Account 3150 -7098 Gen Services Refuse - ERIP $105,500.00 Division- Account 3170 -7098 Gen Services Parks - ERIP $50,400.00 Division - Account 3180 -7098 Gen Services Street Trees - ERIP $31,400.00 Division - Account 4010 -7098 Library Support Services - ERIP $75,000.00 Division - Account 4020 -7098 Library Balboa - ERIP $45,100.00 Division - Account 5100 -7098 Public Works Engineering - ERIP $631900.00 Division- Account 5300 -7098 Utilities Electrical - ERIP $97,400.00 Division - Account 5500 -7098 Utilities Water - ERIP $52,300.00 Division- Account 6110 -7098 Equipment Maintenance - ERIP $127,600 ' Atlfom89C System Entry. //yy Signed: Financial Approval: Administrative Services Director Date Signed: Administrative Approval: City Manager Date Signed: City Council Approval: City Clerk Date City of Newport Beach NO. BA- 10BA -025 BUDGET AMENDMENT 2009 -10 AMOUNT: 593a,szo.00 EFFECT ON BUDGETARY FUND BALANCE: Increase Revenue Estimates Increase in Budgetary Fund Balance X Increase Expenditure Appropriations AND X Decrease in Budgetary Fund Balance Transfer Budget Appropriations No effect on Budgetary Fund Balance SOURCE: from existing budget appropriations from additional estimated revenues X from unappropriated fund balance EXPLANATION: This budget amendment is requested to provide for the following: To increase expenditure appropriations from unappropriated Compensated Absence Fund to provide funding for the Early Retirement Incentive Program. ACCOUNTING ENTRY: BUDGETARY FUND BALANCE Fund Account 620 3605 REVENUE ESTIMATES (3601) Fund /Division Account EXPENDITURE APPROPRIATIONS (3603) Division Account Division Account Division Account Signed: Signed: Signed: Amount Description Debit Credit Compensated Absence - Fund Balance $938,520.00 " Description Financial Approval: Administrative Services Director Administrative Approval: City Manager City Council Approval: City Clerk " Automatic System Entry $938,520.00 q t -.20/0 Date Date Date Description Number 6210 Compensated Absence Fund Number 7098 Early Retirement Program Number Number Number Number Financial Approval: Administrative Services Director Administrative Approval: City Manager City Council Approval: City Clerk " Automatic System Entry $938,520.00 q t -.20/0 Date Date Date