Title
An Ordinance Of The City Of Hollywood, Florida, Amending Section 33.025 Related To Providing The Availability Of Participation In A Deferred Retirement Option Plan (“DROP”) For All Members Of The City Of Hollywood Employees Retirement Fund And To Provide For Distribution Of DROP Account Balances.
Strategic Plan Focus
Financial Management and Administration
Body
Staff Recommends: Approval of the attached Ordinance.
Explanation:
Participation in the Deferred Retirement Option Plan (“DROP”) benefit was not open to all members of AFSCME and therefore not all members of the City of Hollywood Employees’ Retirement Fund (“COHERF”). In addition, the current Collective Bargaining Unit (“CBA”) stipulated that those employees AFSCME who were eligible to participate in the DROP were required to separate from the City upon completion of the DROP. Given the difficulties found nationally in recruitment for certain positions, it makes good business sense to provide for flexibility in instances where the City has a desire to keep an employee and that employee desires to continue working for the City to allow for such continuance of employment after completion of the employee’s DROP period.
Representatives of AFSCME Local 2432 (“AFSCME”) and the City met in Impact Bargaining to negotiate to provide the opportunity for all members of AFSCME to be able to participate in the DROP benefit and to remove language requiring separation from City employment upon completion of the DROP.
In a separate but related issue, non-represented (non-union) employees of the City who completed their DROP and have continued working for the City have been in the position of not being able to access their own funds in their DROP account until they separate from the City. And after the DROP period ends, no further interest is earned on DROP account balances, so those employees are and have been in the unfortunate and unfair position of having their own funds tied up, earning no interest and with no ability to receive a distribution of those funds for investment or use in their personal lives, or even use those funds as an asset to be able to borrow against.
Three Memorandums of Understanding were drafted between AFSCME and the City (one for each Bargaining Unit, the General, Professional and Supervisory Bargaining Units) to provide for all AFSCME members to be eligible to participate in the DROP benefit. And the Board of Trustees of COHERF, on February 12, 2025, voted unanimously to recommend changes and to draft language to section 33.025 of the Code of Ordinances for City Commission consideration to allow for distribution of DROP account balances to members upon completion of DROP, without constraints related to continued employment with the City.
The revisions in this proposed ordinance addresses these issues, providing for all member of COHERF to eligible to participate in the DROP benefit, removing the requirement for AFSCME members to separate from employment after completion of the DROP subject to mutual agreement between the City and the employee and subject to the approval of the City Manager, and providing for distribution of members’ DROP account balances upon completion of the DROP.
Fiscal Impact:
Approval of this ordinance is expected to have unquantifiable but minimal positive or negative fiscal impact to the City. Agreements between COHERF and the IRS stipulate that funds in DROP accounts, which otherwise provide interest earnings to members based on the net market rate of return, also have a floor of zero interest earnings. That means in those infrequent years when the market value basis of the Plan’s investment rate of return is less than zero, the Plan will “make up” the balance in the DROP accounts so members do not lose money. There is a floor of zero on the members’ DROP accounts investment earnings.
The Plan has experienced negative rates of return on a market value basis seven times in the last 47 years. Three of those seven years the negative return was less than (3%). Two of the seven were related to the dot.com bubble in 2001 and 2002, two of the seven were due to the global financial crisis in 2008 and 2009.
These costs will be offset by the City having no pension contributions to make for members who enter DROP in the future, and for any employees who continue to work upon completion of their DROP period. So to the extent that more employees are in DROP for five year periods that they would still have continued to otherwise work without being eligible for participation in DROP, the City will save in significant contributions toward funding those employees pension benefits.
DROP accounts are not considered by the actuaries when valuation reports are calculated. This means that allowing members to have distribution of their funds upon completion of DROP will have no impact upon the calculation of the City’s Annual Required Contribution.
Recommended for inclusion on the agenda by:
David E. Keller, Special Projects Administrator, City Manager’s Office
Adam Reichbach, Assistant City Manager