CITY of SAN DIEGO MEMORANDUM

Transcription

1 CITY f SAN DIEGO MEMORANDUM FII.. HO.f DATE Nvember TO,U!ifCTt All City Emplyees Paying Scial Security City Manager Withdrawal frm Scial Security Fr several years the City has been studying the pssibility f withdrawing frm the Scial Security system and in its place starting anther pensin plan t supplement yur regular City retirement prgram. On Nvember 4, the City Cuncil authrized an electin s that yu culd vte n this matter. Because f legal cnstraints, the CHy must ntify the Scial Security Administratin f ur intentins by December 31, Therefre. time is very shrt in which t tell yu abut the new plan and hld the electin. This mem and attached material is intended t let yu knw smething abut the new Supplemental Pensin Plan and anticipate sme f the questins yu may have. Hpefully, yu have already received a schedule fr meetings t be held n this subject. Withdrawal frm Scial Security and features f the new Supplemental Pensin Plan will be discussed at these meetings and yu will be given the pprtunity t ask any further questins yu may have. Attached t this mem is an ut1ine f the essential prvisins f the Supplemental Pensin Plan. A1s attached is a series f questins and answers mst likely t arise cncerning the plan and prpsed witbdrawal frm Scial Security. I realize the material is quite lengthy; hwever. it is imprtant and t yur advantage t review it carefully. Attachments SDPOA 0394

2 CITY OF SAN DIEGO Outline f Essential Prvisins f Supplemental Pensin Plan 1. EFFECTIVE DATE The effective date f the Plan will be January 8, PARTICIPATING EMPLOYEES. All emplyees currently paying Scial Security taxes are eligible and will be required t participate in the Plan. 3. ENTRY DATE All current eligible emplyees wili be enriled in the Plan as f January 8; All future el igible emplyees will jin the Plan immediately n their date f emplyment. 4. EMPLOYEE CONTRIBUTIONS Emplyee cntributins cnsists f tw parts: Mandatry Cntributin Each participant is required t make a cntributin f 3% f grss pay.* Vluntary Cntributin Each participant has the ptin t make an,additinal cntributin f up t 3.65% f his/her grss pay. This chice is made n the date f hire with the emplyee having an pprtunity t mdify his/her chice in January and July f each year. The ttal Emplyee Cntributin made under this Plan may nt exceed 6.65% f the participant's grss pay.. *Grss pay includes regular bi-weekly salary, shift differential and ther special assignment pay, paid sick leave. paid annual leave. pay-in-lieu f annual leave. payments int deferred cmpensatin, and payments fr vertime. Fr this purpse t grss pay des nt include industrial leave, injury leave. wrkers' cmpensatin, lng-term disability pay, bnus awards, suggestin awards, terminatin payffs. retirement and deferred cmpensatin benefit payments, and any death benefits. 5. EMPLOYER r tatching CONTRIBUTIONS The City f San Dieg will cntribute an amunt equal t the Mandatry and Vluntary Cntributins made by the participant. SDPOA 0395

3 -2 6. INVESnlENT OF CONTRIBUTIONS All cntributins made by participants and the City will be depsited in the City f San Dieg Supplemental Pensin Plan Trust Fund. 7. ALLOCATION OF INVESTMENT EARNINGS Investment earnings will be credited t each participant's accunt balance at the end f each calendar quarter. 8. PARTICIPANT ACCOUNT BALANCE Each Participant Accunt Balance cnsists f the fllwing: Q Mandatry Cntributin Accunt Vluntary Cntributin Accunt Emplyer Matching Cntributin Accunt Investment Earnings At the end f each calendar quarter> the Plan Administratr will furnish each participant a statement which will give the fllwing infrmatin fr each f the abve accunts: 9. VESTING* Accunt balance as f the beginning f the quarter Current cntributins made fr the quarter Investment earnings fr th: quarter Amunt f withdrawal fr the quarter, if any The Emplyee Required r'landatry and V1untary Cntributins are always 100% vested. The Emplyer ~1atching Cntributins are 100% vested fr all participants wh are n the City's payrll as f January 7~ 1982, including thse wh are n leave with pay. * Vesting means that yu have a right t this mney. In ther wrds, it's yurs as sn as it's credited t yur accunt subject t withdrawal prcedures. SDPOA 0396

4 -3 Fr all ther participants, vesting percentage fr the Emplyer Matching Cntributin Accunt will be determined accrding t the fllwing schedule:' Cmpleted Years f Service Vestina Percent 1 20% 2 40% 3 60% 4 80% 5 100% At the time f Nnnal Retirement, Early Retirement, Death, r Disability, the Emplyer Matching Cntributins plus investment earnings will becme 100% vested. 10. TYPE OF BENEFITS (a) Nrmal Retirement Benefit If nt already 100% vested, upn attainment f age 65, the participant will becme 100% vested. (b) Early Retirement Benefit Upn becming eligible fr Early Retirement under the City Emplyees' Retirement System,(CERS}, the participant will becme loo% vested. (c) Death r Disability Benefit Upn death r ttal and permanent disability,* the participant and/r his/her heirs will receive 100% f his/her Participant Accunt Balance. * Ttal and permanent disability means cmplete inability t engage in any gainful ccupatin r emplyment fr which yu are qualified r becme reasnably fitted by reasn f educatin; training, experience r rehabilitatin as certified by a registered physician. 11. NORMAL FOru~ OF BENEFIT PAYMENTS Lump sum payment within 30 days f separatin. 12. WITHDRAWALS OF CONTRIBUTIONS WHILE IN ACTIVE EMPLOYMENT A participant may request a withdrawal frm his/her Accunt Balance nce every calendar year subject t the fllwing cnditins: (a) (b) N withdrawal within first tw years participatin. If the withdrawal is made after tw years but prir t cmpletin f five years f Plan participatin, he/she may nly withdraw his/her wn vluntary cntributins and investment'earnings attributable t the amunt withdrawn. SDPOA 0397

5 -4 - If he/she is less than 50% vested, he/she,will frfeit all Emplyer Matching Cntributins plus investment earnings attributable t the amunt withdrawn. - If he/she is 50% vested, he/she will frfeit the nn-vested Emplyer Cntributins plus investment earnings attributable t the amunt withdrawn. - Participants wh are 50% r mre vested will have the ptin f paying back the withdrawn amunt within ne year in rder t recver the frfe; ted amunt. ' (c) If the withdrawa1is made after cmpletin f five years f partici w patin in the, Plan, the participant may withdraw all r part f ' ' his/her Vluntary Accunt Balance (with interest) and the Emplyer Matching Cntributins plus investment earnings attributable t the amunt withdrawn withut any frfeitures r pena1ties. 13. LOANS TO PARTICIPANT The participants are nt allwed t brrw frm the trust fund f this Plan. Emplyees may nt pledge any part f the Participant Accunt Balance fr purpses f btaining a lan. 14. PLAN A,J<1ENDHENT After the effective date Qf the Plan, amendments will be adpted nly by a vte f the active Plan participants. A simple majrity vte is required t effect an amendment PLAN ADMINISTRATION The Plan will be administered by the City f San Dieg. csts will be paid by the City. Plan administratin SDPOA 0398

6 WHAT HAPPENS IF WE PUll OF SOCIAL SECURITY? Fllwing are the mst cmmn questins asked cncerning hw withdrawal frm Scial Security will affect City emplyees. The questins and answers are divided int five categries: 1) Retirement Benefits; 2) Survivr Benefits; 3) Disability Benefits; 4) Medicare Hspital Insurance; 5) Medicare Medical Insurance.!lUESTION RETIREMENT BENEFITS ANS\;/ER 1. Will I lse my Scial Security a. If an emplyee has the necessary quarters f cverage (30 in eligibility if the City withdraws? 1981 increasing ne quarter per year t a maximum f 40 in 1991) there wuld be a vested right t Scial Security retirement benefits. b. If an emplyee did nt have the necessary quarters f cverage~ the number f quarters wuld nt be lst uut wuld remain t the emplyee's credit. The defic"ient quarters culd be made up prir t r subsequent t leaving the City by earning wages subject t Scial Security taxatin f at 0\ 0\ least $340 per quarter r by self-emplyment earnings f at M least $400 per year. ~ 2. Will this Supplemental Pensin Plan N. The prpsed Plan wuld slightly imprve the ~ take away r reduce any f my current current methd f cmputing yur retirement benefit. r:/) ty Retirement System Benefits? 3. Will the City Cuncil guarantee this This Plan will have the same quarantees as the current retirement Supplemental Pensin Plan? system: Changes wi 11 have t be vted n by the members. 4. Will the emplyees have t negtiate N. fr this Plan every year? 5. Hw will the funds cntributed be a. Funds will be placed in a Trust Fund and will be invested t invested and can they be used fr get the highest return as with ther City funds. general City purpses? b. The funds will nt be available fr general City use.

7 QUESTION 6. If the City drps Scial Security will we be able t rejin? 7. Are Plice and Fire persnnel included in the Supplemental Pensin Plan? 8. Wi 11 cntributins t the Supplemental Pensin Plan be tax deferred? 9. Hill my cntri buti ns t the Supplemental Pensin Plan change? ANSWER N, unless mandated by Federal 1a\l'/. N. Included in the Plan are emplyees in the Scial Security Q system; Plice and Fire persnnel are nt in the Scial Security [/) system. As f nw, emplyee cntributins will be made with after tax dllars as are current Scial Security taxes. Hwever, we are attempting t make the prgram eligible fr Deferred Cmpensatin, in which case there will be the ptin f making cntributins th befre tax dllars up t yur legal limit. Emplyer cntributins and investment earnings frm bth emplyer and emplyee cntributins will be tax deferred. Yes, but nly as yur salary changes. Fr instance, if yu leave yur cntributin percentage at the maximum (6.65%) yur cntributins will increase as yur salary increases. Unlike Scial Security, the 6.65% will always remain the maximum percentage cntributin. "'i" -< The City's Plan.calls fr a mandatry cntributin f 3%. Why? T insure. tax exempt status fr emplyer cntributin and investment earnings and t insure that emplyees have sme future b~nefits What's in this ~lan fr the City f San Dieg? 12. Have ther public agencies withdrawn frm Scial Security? Cst avidance. Bth the City and the emplyees cntinue t pay gher and higher Scial Security taxes and n a higher maximum salary. By taking bth the City and the emplyee's taxes at tday's rate and putting that mney in anther plan the future increases are avided. In 1981 yu pay 6.65% f yur wages up t a maximum f $1, In 1982 the Scial Security tax will be 6.70% n $32,400 t a maximum f $2, Yes. r1any pub1 ic agencies have withdrawn.

8 question 13. What kind f payback can I expect frm The answer t this questin will be different fr each individual the City's Plan as cmpared with because f salary~age at retirement, years f cntributin already Scial Security? made t Scial Security, and remaining years t cntribute t Scial Security r the City Plan. The cmparisn will als be affected by interest rates and pssible increases r cutbacks t the Scial Security prgram. The City's Ecnmist has prepared a chart f apprximate Scial Security payments fr emplyees retiring at age 65 and anther chart fr payments under a mnthly annuity using the City's Plan. The charts use the same assumptins s that yu can make a rugh estimate f cmparative benefits. ~1hen using the charts be sure t anticipate yur present and remaining years f taxes under Scial Security fr a prper cmparisn. Fr example. assume yu are 45 years ld, earn $18,000 per year, and have already paid Scial Security taxes fr 20 years. If we remain under Scial Security and yu retire at age 65, the... Scial Security payment chart shws a payment f $593 per mnth '<:t (20 years participatin at present plus 20 mre years until yu reach 65 - see 35 plus clumn n the chart). Under the < City Plan yu wuld have 20 years t cntribute until.65 fr an 0... annuity f $618 per mnth plus $407 per mnth fr yur present 20 Q Cf} years f taxes t the Scial Security system fr a ttal benefit f $1,025 per mnth. SURVIVOR BENEFITS ANSWER 14. Hw will withdrawal affect Scial If an emplyee has the required quarters f Scial Security cverage, Security Survivr Benefits? there wuld be a vested right t full survivr benefits fr the first five years after terminatin. After the first five year perid, survivr benefits wuld be reduced partially each year until the 25th year, at which time there wuld be n survivr benefit entitlement. Scial Security SUrvivr Benefits depend n age and incme. They are basically intended fr the surviving spuse and dependent children. 15. What survivr benefits des the Emplyeels designated beneficiary (r beneficiaries) wuld receive Supplemental Pensin Plan prvide? full survivr benefits. The amunt f the benefit wuld depend n the amunt the emp10yee has invested in the Supplemental Pensin Plan. The emplyee's vested amunt will always be paid in full. 16. What death benefit des Scial The Scial Security death benefit is $255 - payable t a surviving Security prvide? spuse r dependent child.

9 guest~pf'l ANS~4ER 17. What death benefit des the City Current City.-paid life insurance ;s equal t ne year's annual M prvide? salary payable t any designated beneficiary. Additinal life insurance up t $212,500 will be ffered at grup rates n January 1 t DISABILITY BENEFITS hat di sabil ity benefits are prv; ded There is a five mnth waiting perid. A wrker earning $15,000 under Scial Security? per year wuld receive a disability payment f abut 55%. ~ ~ ~ Cl r/j 19. What happens t my Scia1 Security There is a vested right t.such benefits fr a perid f five years disability benefits if we withdraw? after withdrawal What disability benefits des the The City's lng term disability plan requires a ne mnth waiting City prvide? perid and pays 60% f basic mnthly earnings. MEDICARE HOSPITAL INSURANCE 21. What happens t Medicare Hspital If the emplyee has the necessary quarters f cverage (30 in 1981 benefits if we withdraw? increasing ne quarter per year t a maximum f 40 in 1991) there wuld be a vested right t hspital benefits. If the emplyee did nt have the necessary quarters,f cverage. the quarters wuld remain t the emp1yee's credit jlnd the deficient quarters culd be made up ~efre r after 1eaving 'the City by earning wages subject t Scial Security taxatin f at least $340 per quarter r by selfemplyment earnings f at least $400 per year., At age 65, an individual can btain hspital cverage if nt in Scial Security by the payment f premiums. 22. Hhat will the City prvide fr The retired emplyees will be included in the City health p1ans. hspital insurance? The City will pay fr the retired emplyee's health insurance premiums. These csts will nt be paid ut f tile Supplemental Pensin Plan.

10 QUESTION ANSNER MEDICARE r4edicalinsurance 23. \vhat des Scial Security prvide At age 65 anyne wh desires cverage must pay a premium fr fr Medicare Medical Insurance? Medicare Medical Insurance regardless f whether r nt there is Scial Security cverage. What will the City prvide fr Retired emplyees will be included in the City health plans. The medical insurance? City will pay the premiums. The cst f the premiums will nt cme frm the Supplemental Pensin Plan. -- M.q -< ~ CI'J

11 Financial Management Department Nvetttber 13, 1981 ONE TYPE OF MONTHLY ANNUITY POSSIBLE UNDER MONEY PURCHASE/THRIFT SAVINGS PLAN FOR WORKERS RETIRING AT AGE 65 (Emplyee cntributin -6.65% f salary. matched by City cntributin) YEARS OF CONTRIBUTION ANNUAL SALARY $10,000 $152 $343 $586 $ 730 $ 892 '4, ',022 1,248 18, ',054 '.313 1,605 22, ,,288,.605 1,962 26, ,522 1,897 2,319 " 30, ',030 1,757 2,1-89 2,675 NOTES AND ASSUMPTIONS 1. Figures shwn are a life annuity fr a male wrker calculated at 8% interest. While this annuity is built upn an assumed life expectancy f '3 years beynd retirement, it will pay the amunt shwn fr the wrker's entire life, n matter hw lng that is. Life annuity payments fr females wuld be smewhat less due t lnger life expectancy. 2. Annuity payments are nt indexed t inflatin, i.e., there is n cst f living adjustment. 3. Annuity payments in excess f wrker's cntributins are taxable. 4. All figures are in 198i dllars. SDPOA 0404

12 Financial Management Department Nvember 13, 1991 MONTHLY SOCIAL SECURITY P~YMENTS FOR WORKERS OORN AFTER 1929* AND RETIRING AT AGE 65 YEARS OF CONTRIBUTION ANNUAL SALARY Plus ** $10,000 $221 $306 $390 $433 14, B , ,000 30B , , * Wrkers brn befre 1930 will get greater benefits than shwn here. ** Under current laws, Scial Security Benefits are calculated n highest 35 years f cntributins. NOTES :I\ND ASSUMPTIONS 1. Figures are fr individual wrkers withut dependents. 2. Calculatins are based n tday's Scial Security laws. It is virtually certain that the laws will change, but hw and when is nt knwn. 3.. All figures are' 981 dllars. 4. Wrkers retiring at age 62 will receive 80% f amunts shwn here. 5. Wrkers brn after 1929 must cntribute t Scial Security fr a minimun f 10 years t be eligible fr retirement benetis. SDPOA 0405