2 Special Committee on City Pension Sustainability
1 CITY OF JACKSONVILLE
2 SPECIAL COMMITTEE ON CITY PENSION SUSTAINABILITY
3 MEETING
4
5
6 Proceedings held on Tuesday, October 20,
7 2009, commencing at 3:10 p.m., City Hall, Council
8 Chambers, 1st Floor, Jacksonville, Florida, before
9 Diane M. Tropia, a Notary Public in and for the State
10 of Florida at Large.
11
12 PRESENT:
13 MICHAEL CORRIGAN, Chair.
WARREN JONES, Vice Chair.
14 REGINALD BROWN, Committee Member.
KEVIN HYDE, Committee Member.
15
16 SUBJECT MATTER EXPERTS:
17 HENRY COOK, Jax Retirement System Trustee.
JOHN KEANE, Police/Fire Pension Administrator.
18 ALAN MOSLEY, Chief Administrative Officer, COJ.
SHEILA SHARP-CAULKINS, Retired Employees Assoc.
19 DAVID E. KILCREASE, Corrections Advisory Comm.
20
ALSO PRESENT:
21
KIRK SHERMAN, Council Auditor.
22 DERREL CHATMON, Office of General Counsel.
JEFF CLEMENTS, Chief of Research.
23 SHARONDA DAVIS, Legislative Assistant.
24 - - -
25
Diane M. Tropia, P.O. Box 2375, Jacksonville, Fl 32203
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1 P R O C E E D I N G S
2 October 20, 2009 3:10 p.m.
3 - - -
4 THE CHAIRMAN: Good afternoon, everyone.
5 We'll call to order the Special Committee
6 on City Pension Sustainability.
7 Good afternoon, everyone, and welcome to
8 our monthly meeting. It's a pleasure to see
9 everybody here, appreciate it.
10 Let the record reflect that council
11 members -- actually, committee members are
12 Councilmember Reggie Brown, Councilmember Kevin
13 Hyde, and I'm Councilman Michael Corrigan.
14 Councilmember Stephen Joost has an excusal and
15 will not be with us, and I think Councilmember
16 Warren Jones will probably join us sometime
17 during the meeting.
18 We really only have one topic we're going
19 to try to tackle today. There's another meeting
20 that several of us have to go to at 4 p.m., so
21 we're going to try to be finished and wrap it up
22 by then.
23 Today we are going to talk about the merits
24 of the DROP plan -- or plans, excuse me. And
25 I've asked John Keane if he'd be willing to take
Diane M. Tropia, P.O. Box 2375, Jacksonville, Fl 32203
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1 us through it and present to us, and then have
2 questions and comments from there.
3 So, John --
4 (Mr. Keane approaches the podium.)
5 THE CHAIRMAN: -- I appreciate your
6 willingness to do it, and good afternoon and
7 welcome.
8 MR. KEANE: Thank you very much,
9 Mr. Chairman, and members of the committee and
10 distinguished members of the audience.
11 We up and about yet? Stand by.
12 We're going to have a presentation here
13 about the Jacksonville Police and Fire Pension
14 Fund DROP plan. For edification of everyone,
15 DROP plans were originated in Louisiana in the
16 early '90s as an effort to retain trained and
17 qualified employees.
18 As you pointed out, my name is John Keane.
19 I'm with the Police and Fire Pension Fund.
20 What about the DROP? It's for any member
21 with 20, but 30 years less of service can get in
22 the DROP plan for five years; 30, but less than
23 31, you can get in for three; and 31, but less
24 than 32, you can get in for two; and after 32,
25 as they say in the country, your goose is
Diane M. Tropia, P.O. Box 2375, Jacksonville, Fl 32203
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1 cooked.
2 This is a win/win for the City, and we're
3 going to tell you how.
4 Here are some of the advantages to the City
5 of Jacksonville, Florida -- the advantages that
6 folks have been demonizing the members of the
7 Police and Fire Pension Fund for the last year
8 know but failed to tell people.
9 When someone is in the DROP, they're not
10 able to get a disability retirement. The
11 retirement leave accounts are frozen.
12 (Mr. Jones enters the proceedings.)
13 MR. KEANE: It provides for an alternate
14 distribution of the retirement leave account.
15 The main advantage to the City is workforce
16 management. It saves on recruiting and training
17 costs. In the past, there was some doubt of --
18 when senior members of the workforce would
19 leave, once they get in the DROP plan, their
20 maximum day on the workforce is set.
21 This is another savings to the City: The
22 City no longer contributes to the pension.
23 That's a lot of money.
24 Since 1999, the reduction in contributions
25 for the City for members who entered the DROP
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1 for the 130 maximum pay periods, the
2 accumulative savings is -- behind door number
3 one -- $41,370,259.98.
4 Now, where they ran off with that money, we
5 don't know, but they sure didn't put it in the
6 Police and Fire Pension Fund. And if we hadn't
7 had the DROP plan -- there's some question how
8 y'all been able to balance the budget over these
9 last several years because here's 41 million
10 more you would have had to give to the pension
11 fund.
12 So you had a large number of employees
13 working and the City wasn't making a pension
14 contribution. That's called a very big bonus.
15 As I pointed out, the leave liability is
16 frozen. Once an employee enters the DROP, his
17 benefits no longer accumulate. If you get into
18 the DROP at 20 years at 60 percent, when you
19 leave at 25 years, you still leave at
20 60 percent. So that is a long-term savings of a
21 lot of money for the City.
22 The City retains senior experienced
23 employees. We had a discussion at our last
24 meeting how -- when somebody leaves and you
25 replace them, how you save money. Because of
Diane M. Tropia, P.O. Box 2375, Jacksonville, Fl 32203
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1 the step plan in the police and fire
2 departments, somebody comes in -- we'll just say
3 at 30,000. When they leave, after a long and
4 distinguished career, they're making 50-, you
5 replace them with the guy making 30-.
6 And I wish Mr. Joost was here so I -- I was
7 trying to explain that to him the other day,
8 when somebody leaves, how you save money with
9 the replacement. That's -- that's 20,000 right
10 there.
11 THE CHAIRMAN: I still don't understand
12 that, so you're welcome to explain it to me.
13 MR. KEANE: They got it in the bank.
14 It's also a win/win for the members. We
15 don't like to get in one-sided deals with the
16 City. We try to avoid that. Even though the
17 City is holding most of the aces, sometimes they
18 drop them.
19 Currently, we have 180 police officers in
20 the DROP and 149 firefighters. We have
21 320 police officers who've already exited the
22 DROP and 297 firefighters.
23 Since 1999, 946 dedicated public servants
24 have participated in the DROP plan.
25 What's good for our members? It provides
Diane M. Tropia, P.O. Box 2375, Jacksonville, Fl 32203
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1 them with some long-term financial planning.
2 There is the day they got their KMA patch
3 for 20 years or more (indicating).
4 After they are ready to leave the DROP
5 plan, they can take a partial distribution.
6 While they're in the DROP, the members'
7 contribution reduces from 7 percent to 2.
8 Some of the advantages of long-term
9 financial planning is the established rate of
10 interest on the DROP of 8.4. The City likes
11 that number. The City administration strongly
12 supported our efforts before the Division of
13 Retirement earlier this year to maintain that
14 interest rate assumption going forward. That
15 interest rate assumption saves the City millions
16 of dollars in additional contributions.
17 When members exit the DROP plan, they have
18 a choice to take a lump sum or they can take
19 biweekly payments not to exceed their table put
20 out by the IRS.
21 In working with our members who get in the
22 DROP, they think that we do a lot of things.
23 Some people over here in this building think we
24 do things that we don't do, but, nevertheless,
25 we do provide answers to members' questions
Diane M. Tropia, P.O. Box 2375, Jacksonville, Fl 32203
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1 within our guidelines, and we can provide the
2 members with a copy of the DROP section because
3 sometimes they can't find it. We give them a
4 copy of a durable power of attorney because
5 that's some of the things they need for their
6 planning purposes.
7 We notarize things for them. We can
8 calculate their current benefits. We're not
9 able to tell them -- you know, if I retire in
10 July, what's my benefit going to be because we
11 don't know what the salary schedule is going to
12 be.
13 We can give them all the information we
14 have, according to our files, of the correct
15 amount of credited service they have. We can
16 answer their technical questions.
17 Some things we cannot do. We don't give
18 any tax advice. We cannot recommend their
19 decision to them. People who have worked for
20 the government for many years come in and they
21 frequently say, you know, I'm in a quandary.
22 Should I do this or should I do that? And, as
23 Mr. Hyde knows, when people come to see the
24 lawyer, sometimes they say, what should I do?
25 We always tell them, what you want to do.
Diane M. Tropia, P.O. Box 2375, Jacksonville, Fl 32203
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1 One of the things we cannot do is -- we do
2 hope they're going to have a long, rich life,
3 but we cannot give them an estimate, what's
4 going to happen next year or off in the future.
5 We answer a lot of "what if" questions. I
6 never knew who "what if" was until we started
7 this DROP program. They got -- a lot of people
8 have "what if" questions. What if this happens,
9 what if that happens. We don't know. We're not
10 their personal financial advisor, although we
11 recommend that they consult with one before they
12 make their decision.
13 We're not tax consultants or tax
14 consequence advisors or estate planners, and
15 we're not financial planners or investment --
16 but most important, we're not selling them
17 anything. We're here to help them once they
18 make their own decision. We're here to serve
19 our members and protect their financial future
20 with retirement options.
21 And because of the press of time, we're
22 going to dispense with the rest of the program
23 and see if we can have any questions answered.
24 And I certainly apologize that Chief
25 Financial Officer Miller was taken ill and had
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1 to leave the building before this presentation.
2 But, Mickey, if you see us, we hope you
3 have a speedy recovery.
4 THE CHAIRMAN: Thank you.
5 Well, I will recognize that Michael Givens
6 is here as a representative for Mickey. Good to
7 see him here.
8 I got --
9 (Simultaneous speaking.)
10 MR. KEANE: -- (inaudible) fine treasurer
11 does a great job for us.
12 THE CHAIRMAN: I've got a couple of
13 questions, and I'm going to -- I guess on the
14 41 million that the City didn't put into the
15 fund, did they unilaterally do that or was there
16 an agreement to do that or --
17 MR. KEANE: When they enacted the DROP
18 ordinance, they provided, "We will not make a
19 contribution."
20 THE CHAIRMAN: And did the Fund support the
21 DROP program or --
22 MR. KEANE: We were for the DROP program.
23 THE CHAIRMAN: Okay.
24 MR. KEANE: But you know how these things
25 get down at the last minute and one is doing
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1 this and one is doing that, and we're going to
2 do this if you do that. Y'all just went through
3 that for a long, painful summer. You recall
4 what I'm talking about.
5 But the City provided that they would not
6 make a contribution. On the other hand, the
7 Florida Retirement System, which is the model
8 they followed in the adoption of this, the
9 Florida Retirement System makes a full
10 contribution to the members while they're in the
11 DROP plan. They have a maximum of five years,
12 seven if you're in education, but generally five
13 for the public safety people. But there is a
14 required contribution while the people are in
15 the DROP.
16 But this is a good program, and it's good
17 for the City and it's good for the City
18 employees. And coming late to the party but
19 ultimately getting there, the general employees
20 now have a modified version of this benefit.
21 THE CHAIRMAN: The other question that I
22 had was -- go back to your -- to the DROP
23 scenario you used a minute ago. The advantage
24 to -- to everybody, I guess -- when an employee
25 DROPs, that's still the thing I can't grasp.
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1 I mean, if you look -- we've got three JSO
2 employees on the front row there. If Mr. Cuba,
3 on the left, DROPs at the $50,000 number you
4 referenced earlier, it seems to me that the next
5 two guys get up and move over two chairs and we
6 hire a new person on a lower level on the right;
7 is that -- is that not what happens?
8 MR. KEANE: Well, it's certainly not going
9 to happen in this illustration that Nelson is
10 leaving, contrary to what some people might --
11 When he does leave -- for this
12 illustration, we're going to make him a
13 lieutenant.
14 THE CHAIRMAN: Sure.
15 MR. KEANE: We're going to take the next
16 gentleman, he's going to -- he's a serg- -- he's
17 going to get promoted to lieutenant. That fills
18 that spot.
19 THE CHAIRMAN: Right.
20 MR. KEANE: We're going to take the next
21 one and make him a sergeant, but the person
22 we're going to hire -- the third person that's
23 going to be sitting on that row, he's going to
24 come in at 30,000 versus the 50,000 to the
25 person -- there's the savings.
Diane M. Tropia, P.O. Box 2375, Jacksonville, Fl 32203
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1 THE CHAIRMAN: Yeah, but here's the
2 problem: If Mr. Cuba is the $50,000 guy and he
3 leaves, the gentleman that goes over to his seat
4 is going to make $50,000.
5 MR. KEANE: Uh-huh.
6 THE CHAIRMAN: And if the next guy made
7 $40,000, when the person moves, he's going to
8 make $40,000. And the new person you're going
9 to hire, you're going to hire at $30,000, so I
10 don't --
11 MR. KEANE: Let's do it this way.
12 THE CHAIRMAN: You're still going to have
13 the same total --
14 MR. KEANE: Let's do it this way:
15 50-, 45-, 40-. These two move up. The new
16 guy comes in at 30-. The new person is going to
17 start at the bottom of the pay scale.
18 THE CHAIRMAN: I guess in all my six years
19 here, I've never seen where we have that big of
20 a void. We always have -- well, JSO, for
21 example, we're constantly trying to find enough
22 qualified, great individuals to be the next JSO
23 officer, so we always have a first-year
24 officer. We never -- we never have a period
25 where there's a 30- to $40,00 window.
Diane M. Tropia, P.O. Box 2375, Jacksonville, Fl 32203
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1 MR. KEANE: No, it's not a 30- to $40,000
2 window. The window is between the senior man
3 leaving, who's at the top of his pay scale, in
4 this case, a lieutenant, and he's being replaced
5 by a police patrolman, who comes in at the
6 bottom of the pay scale.
7 You're still going to have three people,
8 Winking, Blinking and Nod, but Nod is getting at
9 the bottom of the pay scale instead of at the
10 top.
11 THE CHAIRMAN: Okay.
12 MR. KEANE: Believe me, it works that way.
13 THE CHAIRMAN: I'm sure it does. I guess I
14 can't -- I think small business person, and I
15 don't -- I don't see how it works in that
16 process, though. I guess I'll have to take your
17 word for it at this point.
18 MR. KEANE: It works that way, doesn't it,
19 Kirk?
20 MR. SHERMAN: I don't know about that.
21 THE CHAIRMAN: I mean, does anybody else
22 have input on it? I mean, I don't want to be
23 the only one talking here, but -- you know, I
24 just -- it seems like that -- when we did DROP
25 originally, it had a purpose and everything
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1 else.
2 It troubles me that we continue to lose, as
3 your slide said, $41 million that we don't put
4 it in, and that -- we've got Blinking, Winking
5 and Nod there. Is it now time to stop doing
6 DROP or is it no longer a necessary -- if it's
7 hurting our unfunded liability, then why are we
8 continuing to do it I guess is --
9 MR. KEANE: Well, rather than it cancelling
10 the program, the City can start making a
11 contribution.
12 THE CHAIRMAN: Well -- but that's
13 dollars -- I mean, the City is either going to
14 put dollars in over here or over here. It's
15 still dollars one place or the other.
16 MR. KEANE: Assuming that you cancelled the
17 program for discussion purposes and we take all
18 the people that are currently in the DROP and
19 put them back as an active employee, the pension
20 contribution is going to go up $15 million in
21 one year.
22 THE CHAIRMAN: Well, I'm never going to
23 propose that the people in DROP, to put them
24 back active. I'm just saying, do we need to
25 continue to allow people to DROP is the
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1 question.
2 And no discussion we've had in this -- and
3 we've gone retroactively. We're always talking
4 prospectively.
5 MR. KEANE: We seem to think it's a very
6 good program.
7 THE CHAIRMAN: Okay. I guess -- what I
8 heard you say earlier was it wasn't a good
9 program, but -- that you lost too much money.
10 Councilman Brown.
11 MR. BROWN: Is there ever an impasse? I
12 mean, because, you know, the myth out there is
13 that one day the City is going to be bankrupt by
14 investing in the DROP program, and I think --
15 you know, if there is a possibility that one day
16 we may face this, I think we need to start
17 planning. I think that's what I'm hearing. I
18 think we need to start planning.
19 And you're the subject matter expert in
20 this, and if at one point the City is really
21 going to be in a bad position, I would like
22 to -- at this point, to start to plan in that
23 direction, financially.
24 MR. KEANE: Good.
25 Well, let me respond to that. The City is
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1 in a difficult financial position now because of
2 the millage rollback. It's not because of the
3 DROP plan. JCCI just completed a six- or
4 seven-month study, and the result of that study
5 said that the reduction of the millage during
6 the '90s and early 2000 is the cause of this
7 fiscal crisis that the City faces now.
8 Now, the pension fund -- the entire City
9 pension system is underfunded. There's a lot of
10 talk about that Police and Fire Pension Fund.
11 It's the whole system, all three parts of it.
12 We're not broke, we're not financially
13 flush, but -- we're doing fine. We're on the