Nov. , 2011 - Seattle City Employee’s Retirement System Update
At the request of Local 17 and the Coalition of City Unions (CCU), City Budget Director Beth Goldberg and Finance Director Glen Lee briefed the CCU on October 14, 2011. They provided information regarding the savings associated with the retirement board’s recent vote to change the interest rate on employee’s future contributions. By changing the interest rate, they project that the city’s general fund will see a $530,000 savings for 2012.
Currently, the City is responsible for making sure the retirement contributions provide adequate funding to support the retirement system into the future. The actuaries who are utilized by the City have stated that for 2012, in order to be adequately funded, the contributions to the system need to total 21.3 percent. The City will be contributing 11.27 percent, while employees will be contributing 10.03 percent, to reach the 21.3 percent contribution level recommended by the actuaries.
However, if the interest rate is decreased from 5.75 to 4.47 percent (see policy below) the contribution rate for 2012 could be lowered to 20.95 percent instead of 21.3. Therefore, the city’s contribution for 2012 would be 10.92 percent instead of the currently proposed 11.27. The decrease to the City’ responsibility would save the general fund $530,000 for 2012.
The City Council will vote on this with the budget in November. We have three weeks to talk with members about this issue and get feedback on how Local 17 should proceed with this. Local 17 will be holding a series of brown bag meetings in the next several weeks, which will be posted soon as we can schedule meeting rooms.
Policy
The following Statement of Credit Interest Policy was voted by the SCERS Board of Administration on October 5, 2011:
WHEREAS, the Seattle Municipal Code section 4.36.140 gives the SCERS Board of Administration (Board) the power to “make any necessary changes in the rate of interest” and goes on to say that “(n)othing in this section shall be construed to limit the right of the Board, subject to approval of the City Council, to make changes in rates of interest whenever the Board deems it necessary or advisable;”
The City of Seattle Retirement Board adopts the following policy and asks the Seattle City Council for its approval:
1. The Board intends to review the rate of interest paid on eligible member accounts annually. To the extent practicable, the board intends to adopt an interest rate each year to be effective the following year by the date of its regular meeting in July.
2. The Board will set the interest rate with a view toward the market returns of other low-risk or risk-free investments. The Policy target for the SCERS interest rate effective each January 1 will be the average yield on 30-year U.S. Treasury Bonds during the most recently preceding June 1 to May 31 period, plus 0.25 percent, with a maximum credit interest rate equal to 5.75 percent. For the period of June 2010 to May 2011, the 12-month average yield on 30-year U.S Treasury Bonds was 4.22 percent.
3. For Calendar year 2012, SCERS will pay the following rates of interest on eligible members accounts:
a. For all employee contributions made on or before December 31, 2011-5.75 percent annual rate, compounded annually.
b. For all employee contributions made after December 31, 2011 -4.47 percent annual rate, compounded annually.
4. All employee contributions made after December 31, 2011 will be subject to the new rate set annually to the board.
5. For all former employees of the City of Seattle with membership in SCERS who have less than five (5) years of creditable service (are not vested) and have not established dual membership as promulgated under SMC 4.36.400 and the RCW 41.54.061; after twenty-four (24) months from the date of separation from City employment, SCERS will cease applying compounding credit interest on the former employees’ accumulated contributions with interest (ACWI).
6. The board directs SCERS staff to communicate this policy to all non-retired members and make any necessary changes to the SCERS handbook, website, and other system publications and procedures.
7. This policy is subject to change as deemed necessary or appropriate by the board, without reservation of any of the Board’s rights or duties under Seattle Municipal Code section 4.36.140 or any other provision of applicable law.
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