1987-11-23 Regular Meeting - Laserfiche WebLink

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e e The special USC for transfers may be adopted along with the adoption of regular USC but may not be adopted by itself. The increase in the prior service contribution rate for the special USC is shown separately in case the city decides not to adopt the special USC. Similar in nature to the regular USC, a special USC will not change (except for 5% interest accumulation) until the city again adopts the special USC feature; so it should be considered a companion of the regular USC adoption. A city can adopt increases in the annuities for retired employees or their beneficiaries which are related to changes in the Consumer Price lndex for all Urban Consumers (CPI-U) published by the Bureau of Labor Statistics. The adoption of such increases does not set in motion a series of automatic annual increases that are tied to future changes in the CPI-U. Rather the increases are related to changes in the CPI-U during the period from December just preceding the effective date of retirement to December 1986. In addition, each time the city wants to put increases into effect, it must pass an ordinance. The city specifies a percentage of the change in the CPI-U, which may be at least 10%, not greater than 70%, and may be any multiple of 5%. In selecting the percentage, the city should consider not only the cost of the increases but also the amounts of increase that would be provided to each of the annuitants. The amount of increase with any selected percentage of the CPI-U will vary for each annuitant, depending upon the date of retirement, the original amount of the annuity, and the amount of any previous increases in the annuity. It should be pointed out that it is the original annuity which is increased. Previously granted increases, including those level percentage increases (not to exceed 5096) which may have been adopted from 1976 through 1981, are' recognized on an individual basis in determining the amount of increase that a new adoption of annuity increases will provide. For example, suppose a retiree originally received $100 per month. Since retirement the CPI-U has increased 150%. Granting 7096 of 150% would result in an increase of $105 (70% x 150% X $100). However, if the city had previously adopted a 50% increase in 1978 resulting in an increase of $50, then his current annuity would be $150. The calculated $105 increase would be reduced by that previous $50 increase so that the new increase would be $55, and the new total annuity would be $205. Increases in annuities may not be adopted unless the city simultaneously adopts USC. .. Since USC can be adopted as often as annually, increases in annuities can also be adopted annuaIly. The actuarial liability for the increases in annuities would be an addition to the unfunded accrued liability for the city's retirement plan and would be amortized over the 25-year funding period associated with the adoption of USC. The actuarial cost of fundi rig 'ttie increases in annuities is shown, therefore, as a contribution rate which would be added to the prior service contribution rate of the USC plan which the city decides to adopt. The best way to provide continuing protection against inflation for both employees and annuitants is to adopt USC and annuity increases on a regular basis, for example, every year. Yearly adoption not only will provide the best protection for benefits against inflation but also will result in more stable retirement contribution rates over the years. The longer a city waits between adoptions of USC and annuity increases, the more ground there is to make up against inflation and the more its contribution rate will have to be increased.