TO: HONORABLE MAYOR FROM: Jennifer Schembri
AND CITY COUNCIL
SUBJECT: SEE BELOW DATE: June 7, 2023
Approved Date
6/8/23
SUBJECT: ORDINANCE AMENDING THE FEDERATED EMPLOYEES’
RETIREMENT PLAN TO CLARIFY TIER 2 SURVIVORSHIP
BENEFITS
RECOMMENDATION
Approve an ordinance amending Sections 3.28.1470 and 3.28.1480 of Chapter 3.28 of Title 3 of the San José Municipal Code to clarify the eligibility definitions and benefits for Tier 2 survivors of retirees who die before retirement in the Federated City Employees’ Retirement Plan.
SUMMARY AND OUTCOME
By approving the Municipal Code changes in the proposed ordinance, City Council will clarify the specific eligibility requirements for Tier 2 survivorship benefits and the accrual formula used for the Tier 2 survivor death benefit.
BACKGROUND
The Federated City Employees’ Retirement System Board of Administration contracts with Segal, Co to perform audits of the actuarial valuations performed by the Board’s actuary. The result of these audits are recommendations for the Board to approve to ensure that the actuarial processes are conducted according to generally accepted actuarial principles and practices and that the calculations are reasonable. In January 2022, Segal performed an audit on the June 30, 2021 Federated City Employees’ Retirement Plan’s pension valuation.
Segal’s audit contained two recommendations regarding Tier 2 survivorship benefits set forth in San José Municipal Code Sections 3.28.1470 and 3.28.1480.
In San José Municipal Code Section 3.28.1470, there are specific eligibility definitions for survivorship benefits including Subsection 3.28.1470 A:
COUNCIL AGENDA: 06/20/23
FILE: 23-901
ITEM: 2.12
HONORABLE MAYOR AND CITY COUNCIL
June 20, 2023
Subject: Ordinance Amending the Federated Employees’ Retirement Plan to Clarify Tier 2 Survivorship Benefits
The benefits hereinafter specified in Section 3.28.1480 shall be payable to the persons specified in such section in each of the following situations, and none other:
A. Upon the death before retirement of a member who at the time of death was entitled to credit under this System for five (5) or more years of Federated City Service rendered after June 30, 1975
Segal initially interpreted Subsection 3.28.1470 A to apply to Tier 1 and Tier 2 members, although in their conversations with Office of Retirement Services staff and as provided in the Tier 2 fact sheet, Segal found that this provision was only applied to Tier 1 members, i.e., Non- Tier 2 members. The City was asked to clarify which Federated City Employees’ Retirement Plan members were eligible under this Subsection.
Additionally, Segal’s audit found that there was a discrepancy in how they were interpreting San José Municipal Code Section 3.28.1480 D, which states:
If the deceased person is a Tier 2 member on or after June 16, 2017 and meets the eligibility requirements of Section 3.28.1470, the Tier 2 member shall receive the same death benefits as provided to other members of this Plan under this Section 3.28.1480; provided, however, that in no event shall any such benefit exceed seventy percent (70%) of the Tier 2 member's final compensation.
Since the San José Municipal Code did not specify the accrual formula for the death benefits a Tier 2 member would receive, Segal interpreted the language to mean that the Tier 2 survivorship benefit multiplier would be 2.5% instead 2.0% because the Section read that the Tier 2 member will receive the “same death benefits provided to other members of this Plan.”
ANALYSIS
The Office of Employee Relations is bringing forward the proposed ordinance to clarify Sections
3.28.1470 and 3.28.1480 to align with the Alternative Pension Reform Framework Agreement between the City and the bargaining units with members in the Federated City Employees’ Retirement Plan.
The proposed ordinance clarifies that Subsection 3.28.1470 A applies only to Non-Tier 2 members based on the Alternative Pension Reform Framework Agreement. “Non-Tier 2 members” is a commonly used term in the Federated City Employees’ Retirement Plan to denote all the different variations of Tier 1 members in the Plan. Additionally, the proposed ordinance clarifies that the Tier 2 survivorship benefit set forth in Subsection 3.28.1480 D should be based on the benefit multiplier of 2.0% per year of service.
HONORABLE MAYOR AND CITY COUNCIL
June 20, 2023
Subject: Ordinance Amending the Federated Employees’ Retirement Plan to Clarify Tier 2 Survivorship Benefits
The Office of Employee Relations brought forward the proposed ordinance on November 17, 2022, to the Federated City Employee’s Retirement System Board of Administration (Board) Board for comment. The Board recommended that the Municipal Code change reflect that this change is retroactive to the implementation of the original ordinance, i.e., retroactive to June 17, 2017. The requested change was approved by outside tax counsel and incorporated in the proposed ordinance.
The proposed ordinance was also provided to the ten Federated bargaining units, and there were no comments.
EVALUATION AND FOLLOW-UP
There is no evaluation or follow-up needed for this San José Municipal Code change.
COORDINATION
The memorandum has been coordinated with the City Attorney’s Office.
PUBLIC OUTREACH
This memorandum will be posted on the City’s Council Agenda website for the June 20, 2023 Council Meeting.
COMMISSION RECOMMENDATION AND INPUT
The San José Municipal Codes changes were discussed during the November 17, 2022 Federated Board meeting. The request by the Board during that meeting has been incorporated in the proposed ordinance.
CEQA
CEQA: Not a Project, File No. PP17-008 General Procedure & Policy Making resulting in no changes to the physical environment.
HONORABLE MAYOR AND CITY COUNCIL
June 20, 2023
Subject: Ordinance Amending the Federated Employees’ Retirement Plan to Clarify Tier 2 Survivorship Benefits
PUBLIC SUBSIDY REPORTING
This item does not include a public subsidy as defined in section 53083 or 53083.1 of the California Government Code or the City’s Open Government Resolution.
Jennifer Schembri
Director of Employee Relations
Director of Human Resources
For questions, please contact Jennifer Schembri, Director of Employee Relations and Director of Human Resources, at (408) 535-8154.