Memorandum To: Greg Burris From: Scott Hunt Stephen J, Evans Date: October 2, 2015 Subject: Springfield Police Officers and Firefighters Retirement Fund ("P&F Plan”) Cer Jeffery McPherson ‘A. Background Facts/Assumptions ‘You have asked us to address the Additional Funding Contribution (“AFC”) described in Section 2-455 of the Springfield City Code ("City Code”), The AFC is an additional employee contribution intended to pay the cost of the “Additional Three-Tenths Percent (0.3%) Multiplier” (“Additional 0.3% Multiplier”) pension benefit enhancement described in Section 2-465 of the City Code, which is provided to “Tier I" employees under the P&F Plan, who are employees eligible for the additional benefit and. employed prior to June 1, 2006, |m 2006, the City of Springfield ("City") passed General Ordinance 5546, which made employees hired on or after June 1, 2006, ("Tier il Employees”) ineligible for the Additional 0.3% Multiplier and removed the AFC payment obligation for Tier Il employees. This Ordinance effectively closed the group of employees paying the AFC to Tier | employees. {n August, 2009, the AFC was recalculated, taking into account the original cost as well as the effect of the exclusion of Tier Il Employees. The actuarially recommended cost of the AFC increased to 7.52% for the upcoming five-year period. By majority vote, the Pension Board recommended this AFC level be adopted, but also encouraged the exploration of potential alternatives, including cost sharing, ‘based on the fact that the City changed and effectively limited the group of employees paying the AFC (Tier | Employees only) in 2006, In 2008, the voters of the City passed a Pension Sales Tax “solely for the purpose of providing revenues for the Springfield Police and Firefighters Pension System.” This Pension Sales Tax was renewed by the voters in 2014. Further, in response to the increase in the AFC resulting from closing the P&F Plan to new participants effective June 2, 2006, the City Managef and Springfield Police Officers Association ("SPOA”) and Local 152 of the International Association of Fire Fighters (“IAFF”) held meet ‘and confer sessions to propose various options for funding of the Additional 0.3% Multiplier. ‘As described in the response to Question Number 1 below, the City Manager and SPOA and IAFF greed on a proposal which was adopted by the City and enacted by Resolution 9786, dated June 14, 2010, and General Ordinance $932, which was passed by the City Council on May 2, 2011, to amend the Portion of the City Code governing the P&F Plan. According to the terms of Section 2 of General Ordinance 5932, the City Manager sent each employee participant in the P&F Plan, each member of the Pension Board, and each employee P&F Plan representative 2 copy of the ordinance prior to its passage PAGE & by the City Council. Individuals who were going to be impacted by the provisions of the ordinance were required to file their objections to the changes to the City Code within 30 days of the date General Ordinance 5932 was passed or they would be treated as having accepted the terms of the changes to ‘the City Code and as having agreed to be bound by such terms, Based on the information provided to us, \we are not aware of any objections that were made, and we assume for purposes of our analysis that the City, Pension Board, employee participants in the P& Plan, and the employee representatives agreed to the terms of the proposal agreed to and passed by the City Council, We also assume that the terms of the “Formalization of AFC Resolution” memorandum discussed in the City Manager’s remarks ‘on General Ordinance 5932 mirrors the terms of Resolution 9786 and General Ordinance 5932 enacted by the City Coun. The current AFC percentage is 6.13% of a Tier | Employee's pay. The AFCis due to be recalculated in October 2015 to go into effect on July 1, 2016. in preparing for the new AFC calculation ‘and potential proposals related to the AFC and the funding of the Additional 0.3% Multiplier which are ‘due by July 1, 2016, the City submitted five questions to us concerning the discussion process and the future for the Additional 0.3% Multiplier’s funding. In reviewing these issues, we have examined various provisions of the Springfield City Charter, the Springfield City Code, and various memoranda and materials generated by City staff. We have not undertaken to give an unqualified legal opinion, but rather to provide a discussion of some relevant concerns in connection with the discussions surrounding the AFC and Additional 0.39 Multiplier. Our discussion should be taken merely as our thoughts and Useful guidance as to how the law should be interpreted based upon our assumptions herein stated, the ‘analysis contained herein, and our professional judgment. This memorandum is not intended to be used ‘or relied upon by any person or entity other than the City or counsel to the City and is not to be quoted in whole or in part in any letter or document, except by the aforementioned parties, without our prior written consent. Questions for Legal Analys ‘Question Number 1. ifthe Pension Sales Tax ballot language indicates the tax will sunset once the pian achieves 100% funded status, does that include full funding of the AFC, too? Short Answer Number 1. No. General Ordinance 5932 limited the use of Pension Sales Tax by amending Section 2-455(d) of the City Code to provide that “neither the City nor the taxpayers shall be liable or responsible in any way” for the AFC and Additional 0.3% Multiplier. ‘The Pension Seles Tax was first voted on and approved by voters on February 3, 2009. The ballot language for the proposal asked voters: ‘Shall the City of Springfield impose a sales tax at a rate of 1 percent solely for the purpose of providing revenues for the Springfield Police and Firefighters Pension System with sald tax to ‘sunset upon the earlier of A) Five (5) years from the date of commencement of collection of this tax of 8) the Pension System fund reaching a fully funded (100%) status as determined by an independent actuarial study conducted for the Pension System Board of Trustees? ‘The Pension Sales Tax was renewed by the voters on April 8, 2014. The Pension Sales Tax language does not distinguish between the AFC and non-AFC liabilities of the P&F Plan, Neither do various Resolutions passed by the City Council relating to the Pension Sales Tax indicate whether the tax is intended to be used to fund the Additional 0.3% Multiplier. See Resolution 9651, Resolution 9714, and ResolutionS PAGE 3 10093, The latest of these Resolutions, Resolution 10093, includes the same generic language that “the City will continue to place 100 percent of the proceeds received into the Police Officers’ and Fire Fighters’ Retirement Fund, with oversight provided by the Citizens’ Sales Tax Oversight Committee.” Resolution 10093, at 5. Beginning in early 2010, the City and the SPOA and IAFF held “meet and confer” sessions to discuss the AFC and the Additional 0.3% Multiplier. The City made various proposals to the representatives of the SPOA and IAFF to deal with future unfunded liability in the P&F Plan related to the AFC and Additional 0.3% Multiplier. The City Council passed Resolution 9786 on June 14, 2010, Which adopted “Option A” as the method for funding the AFC and directed the City to propose the amendments to the City Code necessary to implement Option A. The terms of Option A most relevant to this discussion include the following: 1. The City agreed to contribute $4.75 million toward the AFC-related unfunded liability which was calculated to be the difference in AFC funding levels as a result of the City closing Tier |, 2. The AFC increase was set at 2% for the AFC funding cycle, 3. The City will “owe no more contributions toward the AFC at any point in the future, ‘egardless of the amount of future AFC increases. Tier ! employees will own any and all current and future liability associated with the AFC-related benefit.” 4. ‘The AFC would be recalculated every three years (instead of five) 5. The Fiscal Year 2013 AFC increase would remain fully refundable to employees upon their retirement. Resolution 9786, at 8. Resolution 9786 and its accompanying documents indicate that the SPOA and IAFF agreed to propose Option A to the City Council. On May 2, 2014, the City Council passed General Ordinance 5932 to enact the provisions of Option A through amendments to the City Code, General Ordinance 5932 amended Section 2-455(d) of the City Code by adding the following new Section 2- 45510)(7): Only funds allocated to the AFC Bookkeeping Account as provided in Subsection (5) shall be available to pay the Additional 0.39% Multiplier. Employee plan participants entitled to the additional 0.3 percent multiplier, who are employed on or after June 14, 2010, shall be fully responsible for any and all costs of providing the additional 0.3 multiplier for retirees. Except for the city’s $4.75 million contribution, neither the city nor the taxpayers shall be liable or responsible in any way for the additional 0.3 percent ‘muttiplier unless the city takes an action described in Subsection (6). {§2-455(d)(7) (emphasis added). The recitals for General Ordinance 5932 state “the employee group ‘roups agree that they accept and understand on behalf of their members that al future funding of the ‘AFC shall and will be the responsibility of said employee Plan participants and that except for the one- time, lump sum contribution in the amount of $4.75 million the City will owe no more contributions toward the AFC at any time in the future .....” 6.0. 5932, at 1-2. PAGE 4 Based on the information available to us, we assume the City has not taken any of the actions described in Section 2-455(4)(8) of the City Code that trigger the City's obligation to pay for the increase in cost of providing the Additional 0.3% Multiplier caused by such action. In its written resporise to the meet and confer proposals, the SPOA noted that Option A and the other proposals may have the effect of limiting the use of the Pension Sales Tax for the Additional 0.3% Multiplier. Resolution 9786, at 32 (‘Either the tax was for the underfunding of the pension or it wasn't. ifit was... then all tax proceeds must be fully applied to all underfunded aspects of this fund. Therefore we find it disheartening to even be discussing these issues at such a premature point in time”) ‘The Pension Sales Tax language, when read in conjunction with the discussion between the City and SPOA and IAFF and the terms of their agreement and General Ordinance 5932, creates an ambiguity surrounding the use of Pension Sales Tax proceeds for the purpose of funding the Additional 0.3% Multiplier. To resolve the conflict between the general Pension Sales Tax language and the explicit release of the City and taxpayer's liability for the Additional 0.3% Multiplier included in Section 2- 455(d)(7), the in para materia doctrine of statutory interpretation may be used. That doctrine “recognizes that statutes relating to the same subject matter should be read together, but where one statute deals with the subject in general terms and the other deals ina specific way, to the extent they conflict, the specific statute prevails over the general statute.” Turner v. Sch. Dist. of Clayton, 318 S.W.3d 660, 668 (Mo. 2010). ‘The Pension Sales Tax and Section 2-455(d)(7), both deal with the funding of the P&F Plan; however, Section 2-455(d)(7) provides specific funding rules: 1) employee plan participants entitled to the benefit and employed on or after June 14, 2010, are fully responsible for the Additional 0.3% ‘Multiplier; and 2) neither the City nor the taxpayers shall be liable for the Additional 0.3% Multiplier. Under the doctrine of in para materia, the Pension Sales Taxis limited by the specific funding rules of Section 2-455(d)(7). Therefore, although the Pension Sales Tax ballot language did not address the AFC, 6.0. 5932 is Ikely to be read as a specific limitation on the use of Pension Sales Tax proceeds because it contains specific provisions and limitations on funding the Additional 0.3% Multiplier. As a result of this timitation, effective May 2, 2021, Section 2-455(d)(7) of the City Code can reasonably be read to ‘explicitly release the City and the taxpayers from any liability for the Additional 0.3% Multiplier. Question Number 2. If there is any unfunded liability remaining in the AFC fund after the last contributing employee leaves employment, which entity (or entities) “owns” the remaining liability? Short Answer Number 2. Unfunded liability remaining in the AFC fund after the last contributing employee has left employment is owned solely by the P&F Plan participants who meet the following two conditions: 1) the employee is entitled to the Additional 0.3% Multiplier; and 2) the employee was employed on or after June 14, 2010. Section 2-455(d)(7), as added to the City Code by General Ordinance 5932 and pursuant to the ‘agreement reached between the City and SPOA and IAFF described in response to Question Number 1 above, states that “[e]mployee plan participants entitled to the Additional 0.3 % Multiplier, who are ‘employed on or after June 14, 2010, shall be fully responsible for any and all costs of providing the ‘Additional 0.3 % Multiplier for retirees.” As discussed in response to Question Number 1 above, this language limits the lability for the Additional 0.3% Multiplier to those employee participants in the P&F Plan who are entitled to receive the benefit. PAGE 5 ‘Question Number 3. What is the role of the Pension Board in dealing with the unfunded AFC liabilities? Short Answer Number 3. The Pension Board has a duty to track the AFC amounts and liabilities, a duty to invest or delegate investment of the amounts in the P&F Plan, and 4 duty to, prior to July 4, 2016, meet, confer, and propose any amendments to the ‘Additional 0.3% Multiplier for the City’s consideration. ‘The Pension Board maintains exclusive management and control of the P&F Plan pursuant to Sections 2-443 and 2-446 of the City Code. Under Section 2-450 of the City Code, the Pension Board's ‘management and control of the P&F Plan includes the duty to obtain actuarial data as needed and to ‘monitor the operating experience of the P&F Plan. Further, under Sections 2-458 and 2-459 of the City Code, the Pension Board’s powers include the power to Invest the.emounts held by the P&F Plan (with the approval of the director of finance) or to delegate the power to invest the amounts held in the P&F Plan to investment counselors, With regard to the AFC, the Pension Board is required to maintain a separate bookkeeping. account “to determine and keep track of the value of all the AFC amounts contributed by employee plan participants... all historical and future income and losses attributed to such AFC amounts, and the $4.75 million one-time lump sum contribution of the City of Springfield made pursuant to Resolution No. 9786." § 2-455(d)(6). Further, prior to July 1, 2016, the Pension Board “members shall, if they deem it Necessary, propose any amendments to the Additional 0.3 % Multiplier to the City for its consideration, {§2-455(d)(9). It appears that the duty to propose amendments to the Additional 0.3% Multiplier by July 41, 2016, also contemplates a corresponding duty to meet and confer regarding the status of the AFC and Additional 0.3% Multiplier and any proposed amendments prior to the July 1, 2016 deadiine. As a means of summary with respect to AFC amounts, the Pension Board appears to have the following duties: 1, The duty to determine and keep track of the AFC amounts and liabilities; 2, The duty to invest or delegate investment of amounts in the P&F Plan, including AFC ‘amounts, to plan for and cover the related liabilities of the P&F Plan; and 3. To meet, confer, and propose any amendments to the Additional 0.3% Multiplier for the City Councit’s consideration prior to the July 1, 2016, deadline as described in Section 2- 455(d)(9). Question Number 4. What is the role of the City Council in dealing with the unfunded AFC ities? Short Answer Number 4. The City Council must consider amendments to the Additional 0.3% Multiplier proposed by the Pension Board and/or proposals that result from meet and confer session between the City and the employee participants in the P& Plan. Further, the City may, if Section 2-455(d)(7) is modified, make contributions toward the unfunded AFC liabilities, Pursuant to Section 2-455(d)(8) ofthe City Code, the City is required to meet and confer with employee participants in the P&F Plan to discuss the Additional 0.3% Multiplier and whether or not any PAGE b prospective changes should be considered or made to the benefit. Section 2-455(d)(9) requires that the Pension Board will also present to the City any amendments to the Additional 0.3% Multiplier that its members deem necessary. The City Council, as part of the City, will therefore be required to consider ‘any proposed changes which require amendments to the P&F Plan provisions of the City Code. ‘The City Council, pursuant to Section 2-457 of the City Code, also has the discretion to make contributions to the P&F Pian from revenue which would otherwise be used for pay and benefit increases if the P&F Plan is determined to be less than 75% funded: ()— Onand after June 1, 2006, revenue which would otherwise be available for pay and benefit increases for employees employed in positions defined as Participants under the Retirement Plan, may, in the discretion of the City Council, be directed in whole or part to meeting the actual costs of the Plan over and above the amount of the participant contributions and the income received from the investments of the Fund assets as described in subsection (b) above, if the Plan is actuarially determined, based upon the latest actuarial study completed prior to the proposed increase, to be less than 75% funded, and, following such actuarial determination, the funded ratio of the Plan does not move in a positive direction for each of three (3) consecutive fiscal years immediately prior to the proposed increase. However, Section 2-455(d)(7) states that “neither the City nor the taxpayers shall be liable or responsible in any way for the Additional 0.3 % Multiplier. . ..” When read together with Section 2-457, Section 2-455(d)(7) limits the City’s ability to make contributions to the P&F Plan so that the City may only contribute to the non-AFC portion of the P&F Plan. Thus, Section 2-455(d)(7} would need to be ‘modified to allow the City to make contributions to the AFC portion of the P&F Plan if the City Council decides to make contributions to that portion of the P&F Plan, Question Number 5. What is the role of collective bargaining in dealing with the unfunded AFC liabilities? Short Answer Number 5. The City and employee participants in the P&F Plan are required to “meet and confer” on the status of the Additional 0.3% Multiplier. Section 2-455(d)(9) of the City Code, which was added by General Ordinance 5932, requires the > City and employee participants in the P&F Plan to “meet and confer to discuss the status of the Additional 0.39% Multiplier and whether or not any prospective changes should be considered and/or made to said benefit” after the Fiscal Year 2013 AFC was calculated. The duty to meet and confer with the employee participants in the P&F Plan does not appear to have an end date. Therefore, because the Fiscal Year 2013 AFC was calculated in July 2013, the City’s duty to meet with the employee participants ‘was triggered at that time and is currently ongoing. ttis important to note that any potential reduction in benefits would be governed by Section 6.8 of the City Charter, which states: ‘The scope or extent of pension benefits for city employees shall not be reduced by action of the City for those vested or receiving payments under a pension system, or for those who are PAGE 7 ‘members of a pension system at the time the reduction is effective, unless the reduction has been submitted to and adopted by the voters of the city. Therefore, proposals to change the Additional 0.3% Multiplier that are the result from the bargaining process may require submission to the City’s voters for approval. Further, we note that, consistent with prior guidance contained in our July 8, 2009, letter to Greg Burris concerning vested rights under the P&E Plan, itis more likely than not that a Missouri court would determine that vested rights cannot be Impaired or reduced and that Section 6.8 of the City Charter requires any changes in future benefits for current employees to be approved by the voters. We are available to discuss the contents of this memorandum at your convenience.