Agenda Item 9
May 18, 2010
Action
MEMORANDUM
TO:
Management and Fiscal Policy Committee
FROM:
SUBJECT:
Robert
H.
Drummer, Senior Legislative
Attorney~
Action:
Expedited Bill 16-10, Personnel - Retirement - Imputed Compensation
Limit
Management and Fiscal Policy Committee recommended (3-0) to approve Expedited Bill
16-10 without amendment.
Expedited Bill 16-10, Personnel - Retirement - Imputed Compensation Limit, sponsored
by Councilmember Andrews, was introduced on April 6, 2010. A public hearing was held on
April 27 and a Management and Fiscal Policy Committee worksession was held on April 29.
Background
Although the Executive and each of the 3 County employee unions representing police,
fire, and general government workers agreed to "postpone"
1
the previously negotiated general
wage adjustments for FYlO last year, Expedited Bill 18-09 required that the calculation of
regular earnings used to determine a retirement benefit include the FYlO general wage
adjustment as if the employee had received it on July 1, 2009.
2
This imputed compensation is
scheduled to carry over into the calculation of regular earnings used to calculate a defined benefit
pension for the rest of an employee's County career. Expedited Bill 16-10 would amend the
retirement laws to limit the effect of the imputed compensation to the calculation of regular
earnings for FYlO only.
Last year, the County's actuary, Mercer, estimated that this imputed compensation would
require the County to increase its annual contribution to the Employees' Retirement System
Trust Fund by $8.589 million per year for the next 40 years. A copy of Mercer's April 27, 2009
report is at ©5-7 and a memorandum reviewing it from the Council's actuarial advisor, Thomas
Lowman of Bolton Partners, Inc. dated May 6, 2009, is at ©8. The Fiscal Impact Statement,
based upon a 2010 actuarial report prepared by Mercer, estimates that the actual savings from
limiting this imputed compensation to FYlO is $7.025 million for FYI
1.
See 18-22. Annual
savings would continue for a total of 40 years.
1
Although the collective bargaining agreements use the term "postpone," the Council did not fund these wage
adjustments in the Approved FY 11 Operating Budget.
2
Employees of the Montgomery County Public Schools also agreed to "postpone" a negotiated general wage
adjustment for FY l 0, but did not receive this imputed compensation.
 PDF to HTML - Convert PDF files to HTML files
Public Hearing
There were 5 speakers at the public hearing. Joan Fidler, President of the Montgomery
County Taxpayers League (©23), Margaret Greene (©24-25), and Marvin Weinman testified in
support of the Bill based upon the County's decreasing revenue. John Sparks, President of the
Montgomery County Career Fire Fighters Association (IAFF) opposed the Bill, although he
agreed that his union's intent in 2009 was to limit the imputed compensation to FYlO regular
earnings.
Walter Bader, representing the Fraternal Order of Police Lodge 35, testified that the
original intent of the 2009 agreement between the Executive and the FOP was to limit the effect
of the imputed 4.25% GWA to the calculation of regular earnings for FYIO. See ©26-29. Mr.
Bader testified that Bill 18-09, which carried this imputed GW A into all future years, did not
embody the actual intent of the parties. Mr. Bader added that since the FOP agreed with the
Executive in collective bargaining this year to postpone the FYlO 4.25% GWA for FYl 1, the
Bill should be amended to limit the imputed GWA to FYlO and FYI
1.
Mr. Bader stated that
future years beyond FYl 1 would be subject to collective bargaining. With this amendment, Mr.
Bader would support the Bill.
MFP Worksession
The Committee recommended (3-0) approval of Bill 16-10 without amendment at the
April 29 worksession.
Council Resolutions Indicating Intent to Reject Economic Provisions of the Collective
Bargaining Agreements
As part of its review of the collective bargaining agreements with the 3 County employee
unions, the Council indicated its intent not to fund the imputed compensation beyond FYlO in
Resolutions 16-1326 (FOP), 16-1327 (IAFF), and 16-1328 (MCGEO), adopted on May 4, 2010.
Issues
1.
How would this Bill affect employees in the 3 bargaining units?
The County has three different retirement plans for its employees.
3
All public safety
employees (police, fire, corrections, and deputy sheriffs) are members of the Employees'
Retirement System (ERS). Although pension benefits differ between different ERS plans for
public safety employees, each is a defined benefit plan with a pension benefit calculated using a
formula based upon years of credited service and regular earnings. Non-public safety employees
hired before October 1, 1994 are also in the ERS defined benefit plan. All non-public safety
employees hired after October 1, 1994 are eligible for the Retirement Savings Plan (RSP) or the
Guaranteed Retirement Income Plan (GRIP). The RSP is a defined contribution plan where the
3
The County has a separate Elected Officials Retirement Plan that would not be affected by this Bill.
2
 PDF to HTML - Convert PDF files to HTML files
County contributes 8% of an employee's salary and the employee contributes 4% of salary to a
self-directed investment account.
4
An
employee's RSP benefit is based upon the value of the
account at retirement. RSP participants may elect to participate in the GRIP instead of the RSP.
The GRIP is a cash balance plan that creates a separate account for each employee funded by an
8% employer contribution and a 4% employee contribution. However, an employee's GRIP
account is invested by the County Board of Investment Trustees (BIT). The County credits each
account with a return on investment of
7.25%
without regard for the actual returns received by
the BIT.
The imputed GWA enacted by Expedited Bill
18-09
last year will provide a one-time
payment of
.36%
of salary to members of the RSP and GRIP, averaging
$186
per member. The
total cost of this one-time additional payment is
$919,750.
Bill 16-10 would not affect the
pension benefit received by these employees.
The imputed GWA provided a much larger benefit for ERS employees. Bill
18-09
included the GWA that employees did not receive in
FYIO
in the calculation of an employee's
regular earnings for
FYlO
and compounded this imputed GWA into the calculation of regular
earnings for each future year of an employee's County career. As noted above, the County's
actuary estimated that this provision would cost
$8.6 million
per year for up to
40
years. Most
of these costs are due to the compounding ohhis imputed GWA in future year salaries.
In
short,
it requires the County to pay a defined pension benefit based, in part, on regular earnings that
were never paid.
Bill 16-10 would not eliminate the use of the imputed GWA in FYlO
earnings, but it would limit its use to the calculation of FYlO earnings.
An employee's
defined benefit pension is based upon the highest earnings over either
12
months or
36
months.
If
an employee's
FYlO
regular earnings are part of the employee's highest
12
or
36
months of
earnings, then the employee would receive the benefit of the imputed GWA. However, Bill
16-
10 would prevent the compounding of the
FYIO
imputed GWA in the calculation of future
earnings. Therefore, if an employee's
FYIO
regular earnings are not part of the employee's high
12
or
36
months, the employee would not benefit from the imputed GW
A.
The breakdown of employees in each retirement group broken down by bargaining unit
is:
5
4
The 8% employer contribution should be compared with the average County contribution for ERS employees,
which is currently almost 35% of salary.
5
The following chart was provided by the Office of Human Resources at the request of Council staff.
3
 PDF to HTML - Convert PDF files to HTML files
County Employees
Retirement Enrollment
By Plan as of April 1, 2010
ERS - Employees Retirement System
GRIP - Guaranteed Retirement Income Plan
RSP - Retirement Savings Plan
The County's actuary, Mercer, now estimates that limiting the provision to FYIO would
save $7.025 million in FYI
1.
The Council's actuarial advisor estimates a savings of $7.2
million in FYll and for future years as well. Total savings could exceed $200 million. These
savings from Bill 16-10 would not affect the pension benefit for 65% of the employees (3283 of
6
5046) represented by MCGEO or 54% of the unrepresented employees (921 of 1694).
6
The 10 furlough days in the Executive's FYI I Recommended Budget are limited to non-public safety employees,
which overwhelmingly targets RSP and GRIP employees who do not benefit from the ghost GW A after FY I 0.
4
 PDF to HTML - Convert PDF files to HTML files
2. Legal Authority.
Bill 16-10 would modify a law that was enacted to implement collective bargaining
agreements with each of the 3 County employee unions.
7
This raises the question as to the
Council's legal authority to enact this Bill. The County Attorney and Council staff agree that
Bill 16-10 would not violate the Contract Clause of the United States Constitution because it
does not substantially impair vested legal rights. The Bill would apply prospectively to the
calculation of regular earnings in future years that have not yet occurred. A copy of the County
Attorney's Opinion dated April 18, 2010 is at ©9-12, and a copy of a Council staff legal opinion
dated April 1, 2010 is at ©13-17.
3. What was the intent of the parties in collective bargaining last year?
Mr. Bader, on behalf of the FOP, and Mr. Sparks, on behalf of the IAFF, both testified
that their intent was to limit the imputed GWA to FYlO only, subject to future collective
bargaining. The Council requested a statement of intent from the Executive Branch at the public
hearing. The Executive Branch response to Walt Bader's public hearing testimony about the
intent of the parties in negotiating the imputed GWA provision in the 2009 collective bargaining
agreement is at ©69. The Executive Branch disputes Mr. Bader's version of the intent of the
parties in 2009.
It
is clear from the Council packets before the MFP Committee and the Council during
deliberation on Bill 18-09 that the Executive Branch represented that the agreement between the
parties would carry over the imputed GWA for the rest of an employee's career for the purpose
of calculating retirement benefits. See the Bill 18-09 Action Packet dated May 13, 2009 at ©30-
53, the Bill 18-09 Supplemental MFP Packet dated May 13, 2009 at ©54-64, and the Bill 18-09
MFP memo dated May 8, 2009 at ©65-68. No union officials disagreed with the Executive's
description of the agreement at any of the Council sessions in 2009. In fact, the only dispute
between the Executive and a union on this Bill was whether the parties intended to include the
imputed GWA for RSP and GRIP employees represented by MCGEO. See ©52-53.
The Bill 18-09 packets are also clear that the Bill, as enacted, would carry over the
imputed
GWA
for the rest
of
an employee's career. See
©31-32.
An amendment proposed to
limit the imputed GWA to FYlO was rejected by both the MFP Committee and the full Council.
See ©32, 52, 67.
It
is unnecessary for the Council to determine the actual intent of the parties in 2009. Bill
18-09 amended the definition of regular earnings to include the imputed GWA for FYI 0 and
beyond. A legislative amendment is necessary to change this law. Bill 16-10 would do this.
7
Mr. Bader's testimony at the public hearing, on behalf of the FOP, raises doubt on the conclusion that Bill 16-10
would modify the existing collective bargaining agreements. See the discussion in section 3.
5
 PDF to HTML - Convert PDF files to HTML files
4. Should the Bill be amended to add FYll?
Mr. Bader testified that the Executive and the FOP agreed in their current collective
bargaining agreement to extend the effect of the imputed GW A to FYI I. The extension of the
imputed GWA to regular earnings in FYI I would reduce the estimated savings of $7.024 million
in FYI
1.
MCGEO's actuary estimated the additional cost to extend the imputed GWA through
FYI I for the FOP, MCGEO, and unrepresented employees at $544,000 each year for a total cost
of $6.47 million. The MCGEO estimate is at ©70-72. MCGEO's actuary did not include the
cost of extending the GWA through FYI I for Fire and Rescue employees. Although we do not
have a formal estimate from the County's actuary, Douglas Rowe, the preliminary estimate is
between $500,000 and $1 million each year with a 40-year amortization schedule. The FOP,
IAFF, and MCGEO have each requested an extension of the imputed GWA through FYI I. A
May 3 letter from John Sparks on behalf of the IAFF explaining this request is at ©73-74.
Although we do not know the precise cost of this amendment, it is difficult to justify this
extension while the County is forced to balance its budget through a reduction-in-force and
furloughs.
5. Should the Council approve the Bill?
The cost of carrying the imputed GWA for the rest of an employee's career is almost half
of the projected savings from the 10-day furlough recommended by the Executive. It is a benefit
for less than half of the County employees. Finally, the testimony at the public hearing indicates
that at least 2 of the 3 unions negotiating this agreement did not intend to extend this imputed
GWA beyond FYIO last year. The cost of extending the imputed GWA for even one additional
year is also significant.
Committee recommendation (3-0):
approve the Bill as introduced.
This packet contains:
Expedited Bill 16-10
Legislative Request Report
Mercer Report
Bolton Partners Memorandum
County Attorney Opinion dated April 18, 2010
Council Staff Legal Opinion dated April 1, 2010
Fiscal Impact Statement
Testimony
Joan Fidler
Margaret Greene
Walter Bader
Bill 18-09 Action Packet dated May 13, 2009
Bill 18-09 Supplemental MFP Packet dated May 13, 2009
Bill 18-09 MFP Memo dated May 8, 2009
Executive Branch Response to FOP Testimony
MCGEO cost estimate
May 3 letter from John Sparks
Circle#
1
4
5
8
9
13
18
23
24
26
30
54
65
69
70
73
6
 PDF to HTML - Convert PDF files to HTML files
Expedited Bill No. _1.:..::6'--1'""'0'-------
Concerning: Personnel - Retirement -
Imputed Compensation Limit
Revised: April 1. 2010 Draft No.
LJ
Introduced:
April 6, 2010
Expires:
October 6 2011
Enacted: - - - - - - - - - -
Executive: - - - - - - - - -
Effective: - - - - - - - - - -
Sunset Date: _,_N-'-'o"'"'n=e_ _ _ _ __
Ch. _ _ , Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmember Andrews, Trachtenberg, and Berliner
AN EXPEDITED ACT
to:
(1)
amend the definition of regular earnings to limit certain imputed compensation
under the employees' retirement system to FYl 0 only; and
(2)
generally amend the law regarding the employees' retirement system.
By amending
Montgomery County Code
Chapter 33, Personnel and Human Resources
Sections 33-35
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deleted.from existing law by original bill.
Added by amendment.
Deleted.from existing law or the bill by amendment.
Existing law unqffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
 PDF to HTML - Convert PDF files to HTML files
Expedited Bill 16-10
1
Sec.
1.
Section 33-35 is amended as follows:
Sec. 33-35 Definitions
2
3
In this Article, the following words and phrases have the following
meanmgs:
4
5
6
*
*
*
Regular earnings:
Except as otherwise provided, gross pay for actual hours
7
8
9
worked, not including overtime. To calculate regular [Regular] earnings_,_ for FYI 0
only, a Group A, E, or H member who is employed on July I, 2009 and
participates in the integrated or optional plan must include amounts as if the
member had received an increase of 4.5% in the member's gross pay as of July I,
2009, except for the purpose of calculating a member's contribution under Section
33-39. To calculate regular [Regular] earnings_,_ for FYI 0 only, for a Group F
member who is employed on July I, 2009 and participates in the integrated or
optional plan must include amounts as if the member had received an increase of
4.25o/o in the member's gross pay as of July 1, 2009, except for the purpose of
calculating a member's contribution under Section 33-39. To calculate regular
[Regular] earnings_,_ for FYI 0 only, for a Group G member who is employed on
July 1, 2009 and participates in the integrated or optional plan must include
amounts as if the member had received an increase of 4%
in
the member's gross
pay as of July I, 2009, except for the purpose of calculating a member's
contribution under Section 33-39. Regular earnings for an elected official is gross
pay for services rendered to the County. Regular earnings must not exceed the
limit under Internal Revenue Code Section 40l(a)(l 7), as adjusted by the Internal
Revenue Service. Gross pay must be used to determine benefits even if the County
implements a pick-up plan under Section 414 of the Internal Revenue Code. Gross
pay must be used to determine benefits even if a member has agreed to a reduction
in earnings under:
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
F:\LAW\BILLS\1016 Imputed Compensation Limit\Bill 2-1.Doc
 PDF to HTML - Convert PDF files to HTML files
Expedited Bill 16-10
28
(a)
the County's deferred compensation plan under Section 457 of the
Internal Revenue Code; or
29
30
31
32
33
34
35
36
37
38
(b)
any statutory fringe benefit program sponsored by the County and
permitted by the Internal Revenue Code.
*
*
*
Sec. 2. Expedited Effective Date.
The Council declares that this Act is
necessary for the immediate protection of the public interest. This Act takes effect
on July 1, 2010.
Approved:
Nancy Floreen, President, County Council
39
Date
Approved:
40
Isiah Leggett, County Executive
41
Date
This is a correct copy a/Council action.
42
Linda M. Lauer, Clerk of the Council
Date
UJ-
F:\LAW\BILLS\l 016 Imputed Compensation Limit\Bill 2-1.Doc
 PDF to HTML - Convert PDF files to HTML files
LEGISLATIVE REQUEST REPORT
Expedited Bill 16-10
Personnel-Retirement-Imputed Compensation Limit
DESCRIPTION:
Bill 18-09 required that the calculation of regular earnings used to
determine a retirement benefit include the general wage adjustment
for FYIO as if the employee had received it on July
1,
2009. This
imputed compensation is scheduled to carry over into the calculation
of regular earnings used to calculate a defined benefit pension for the
rest of an employee's County career. Expedited Bill 16-10 would
amend the Retirement Laws to limit the effect of the imputed
compensation to the calculation of regular earnings for FYIO only.
The County has experienced a severe reduction
in
revenue and must
reduce its FYI I expenditures in order to balance the budget.
The estimated savings of $7.2 million for FYI 1 would partially offset
the need to use furloughs or a reduction-in-force to reduce
expenditures.
Human Resources, County Attorney
To be requested.
To be requested.
To be requested.
To be researched.
Robert H. Drummer, Senior Legislative Attorney
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNICIPALITIES:
PENALTIES:
Not applicable.
Not applicable
f:\law\bills\1016 imputed compensation limit\lrr.doc
 PDF to HTML - Convert PDF files to HTML files
Douglas L.
Principal
R~1.:.;e,
FSA, MAAA, EA
MERCER
:'
MARSH
MERCER
~
GUY CARPENTER
KROLL
OLIVER WYMAN
120 East Baltimore Street, 20th Floor
Baltimore, MD 21202-1674
410 347 2806 Fax 410 727 3347
douglas.rowe@mercer.com
www .mercer.com
April 27, 2009
Mr. Wes Girling
Montgomery County Government
101 Monroe Street, Seventh Floor
Rockville, MD 20850-2589
Confidential
Via Electronic Mail
Subject:
Imputed Compensation Pension Cost
Dear Wes:
This letter summarizes the cost calculations you requested for the imputed compensation bill. The
calculations are based on .the July 1, 2008 actuarial valuation data for group A, E, F, G and H
members. The actuarial assumptions and methods and plan provisions are the same as those used in
our July 2008 actuarial valuation report except for the assumptions and incentive provisions noted
below. Please note that actual cost of the imputed compensation will differ based on the number of
individuals that are active as of July 1, 2009.
We have projected all costs from the July 1, 2008 valuation date to the effective date of July 1, 2009
using standard actuarial approximation techniques. By cost/savings, we mean the change in Normal
Cost and an amortization of any changes in unfunded liability unless otherwise indicated.
Cost/savings will change over time as experience develops.
Cost Calculated From Two Viewpoints
We have calculated the cost of imputing pay from two viewpoints - just the legislation (which
increases benefits by imputing pay) that we were provided, and as a package which takes away
previously negotiated pay increases, but then calculates pensions as if those pay increases had
occurred. The cost for the second viewpoint is that employee contributions are not made on the
imputed pay.
Other Considerations - Legislation Only Viewpoint
We have recommended that the County consider a shorter amortization period for future plan
improvements in order to restore the funded ratio more quickly following a benefit improvement and in
order to better align the cost of the improvement with the service of participants receiving an increase
for service already performed. Applying that concept to this retirement program might result in a 10 to
20 year amortization period. We show detailed results below for the County's traditional 40 year
amortization period.
The dollar impact of the Normal Cost increase on the County's contribution will tend to increase as
employees near retirement, but decrease as the number of affected employees decreases over time.
Please let me know if you would like a projection to quantify this pattern. Everything else being equal,
the cost impact will increase (decrease} if actual future pay increases exceed (trail) assumed pay
Consulting. Outsourcing. Investments.
®
 PDF to HTML - Convert PDF files to HTML files
MERCER
!~-
MARSH
MERCER
~
GUY
CARPENTER
KROLL
OLIVER WYMAN
Page 2
April 27, 2009
Mr. Wes Girling
Montgomery County Government
increases. The amortization payment will remain level for the chosen period - 40 years unless a
shorter period is chosen.
Other Considerations - Package Viewpoint
Lower employee contributions also reduce "refund" benefits (e.g., the return of employee contributions
to nonvested terminated employees) but this impact is negligible compared to the contributions
themselves. Employee contributions are subtracted from the total required contribution each year to
determine the County's contribution. The reduced subtraction (which results in a higher County
contribution) due to the package will decrease over time as employees on July 1, 2009 leave
employment.
Plan Provisions
Employees on July 1, 2009 in groups A, E, and H would receive benefits as if their gross pay
increased 4.50% on July 1, 2009 and remained 4.50% higher than actual pay for the remainder of
their careers. This does not include benefits that are based on employee contributions.
Employees on July 1, 2009 in group F would receive benefits as if the.ir gross pay increased
4.25% .on July 1, 2009 ano remained 4.25% higher than actual pay for the remainder of their
careers. This does not include benefits that are based on employee contributions.
Employees on July 1, 2009 in group G would receive benefits as if their gross pay increased
4. 00% on July 1, 2009 and remained 4.00% higher than actual pay for the remainder of their
careers. This does not include benefits that are based on employee contributions.
This legislation does not apply to Retirement Savings Plan or Guaranteed Retirement Income
Plan participants.
Est.imated Costs of Proposed Changes
Annual Costs using 40-year amortization for represented and non-represented members.
Legislation Alone
Package
Group A
E
$1,656,000
$ 975,000
$2,233,000
$1,938,000
$1,787,000
$8,589,000*
$155,000
$
90,000
$185,000
$190,000
$155,000
$775,000
F
Group G
H
Total
Numbers may not add up due to rounding.
*The total would increase to $10,673,000
if
a 15 year amortization period is used.
 PDF to HTML - Convert PDF files to HTML files
MERCER
r-c
MARSH MERCER KROLL
~
GUY CARPENTER OLIVER WYMAN
Page 3
April 27, 2009
Mr. Wes
Girling
Montgomery County Government
Presumably, you want to use one column above or the other, depending on the viewpoint. You would
not want to add the columns.
Increase in Actuarial Accrued Liability for represented and non-represented members
Legislation Alone
Package
A
$14,166,000
$ 7,094,000
$16,968,000
$14,962,000
$15,058,000
$68,248,000
lns.ignificant
Decrease
E
F
Group G
H
Total
up due to round(ng.
Please let me know
if
you have any questions or need any further information. I can be reached at
410 347 2806. I meet the Qualification Standards of the American Academy of Actuaries to render the
actuarial opinion contained in this letter. I am not aware of any direct or material indirect financial
interest or relationship, including investments or other services that could create a conflict of interest
that would impair the objectivity of our work
Sincerely,
:tl~~ ·~
Dou(iasl.Rowe,FSA,MAAA,EA
Principal
Copy:
Aquil Ahmed, Mercer
The information contained in this document (including any attachments) is not intended by Mercer to
be used, and it cannot be used, for the purpose of avoiding penalties under the Internal Revenue
Code that may be imposed on the taxpayer.
g:\wp51 \db'mgewaslimputed compensation2.doc
 PDF to HTML - Convert PDF files to HTML files
MEMORANDUM
DATE:
TO:
FROM:
SUBJECT:
May 6, 2009
Management and Fiscal Policy Committee
Thomas Lowman, Bolton Partners, Inc.
~L
Comments on the Pension Amendment/definition of compensation
I have reviewed the May
4th
memo from Joseph Beach to Phil Andrews, and Mercer's April
27th
letter to Wes Girling. These both addressed the pension cost associated with changing the
definition of compensation due to elimination of previously negotiated wage increases. The
higher annual pension cost of $8.589 million looks reasonable, given that the active liability is
about $1.5 billion.
I was asked to comment on the amortization period. I agree with the fourth paragraph of
Mercer's April 27th letter that a 10-20 year amortization period would be more appropriate.
Basically, there is no good reason to fund this beyond the time when those benefiting from the
change will be working. Thus, Mercer's 15 year amortization cost of $10.673 million is more
appropriate.
My understanding is that this change is permanent for all current employees; this means that
someone retiring 20 years from now, will have their pension based on a higher pay amount then
they actually will be receiving in 17-20 years (however, someone hired on 7/1/09 will not have
such an advantage). There are reasons to argue an alternative position: any change of this sort
should apply as an add-on but only to pay earned during the duration of the union contract (when
the additional pay increase was eliminated). This more limited design would have a materially
lower cost and can legitimately be said to addresses the same issue (even if leaving open the
need to have future negotiations over whether the pay levels have "returned" to the appropriate
level).
My understanding is that Montgomery County is not alone in considering this issue. Anne
Arundel County has also prepared proposed legislation. However, Anne Arundel County's
proposal only increases compensation in FYl 0.
If
someone's final average pay does not include
pay in FYlO (most will leave far enough into the future that it will not include FYlO), there
would be no impact on their pension. This makes the cost materially less than what Mercer
determined for the more generous proposal.
My main concern is over the funded status of the plan and the projected contribution increases.
The plan's recent serious investment losses will start showing up in FYl l contributions and be
fully reflected by FYl 5. The current FYl 0 contribution of $115 million, will likely climb by
tens of millions. I appreciate the reason for passing a bill of this nature, but it should not be
passed without a full appreciation of the future funding demands that will arrive shortly (and
ideally a belief that these increases can be handled).
(j)
Bolton
Partners, Inc.
 PDF to HTML - Convert PDF files to HTML files
OFFICE OF THE COUNTY ATTORNEY
Isiah Leggett
County Executive
Marc P. Hansen
Acting County Attorney
MEMORANDUM
TO:
FROM:
Wes Girling
Office of Human Resources
Marc Hansen
/IYJt:.2.4.i&-
//-~
Acting County Attorney
April 18, 2010
Bill 16-10, Retirement-Imputed Compensation Limit
DATE:
RE:
Kathleen Boucher, Assistant Chief Administrative Officer, has asked this Office to review for
legal sufficiency Bill 16-10. The Bill, which limits an imputed compensation increase for
retirement benefits calculation purposes to FY 2010, raises the issue of whether the Bill violates
the contract clause of the United States Constitution. I conclude that Bill 16-10 does not violate
the contract clause, because the legislation operates prospectively.
Contract Clause Analysis
Article I,
§10,
clause 1 of the United States Constitution provides that "No State shall ... pass any
Law impairing the Obligations of Contracts ... " Courts have held that this clause does not
prohibit govenunents from impairing contracts, but limits a government's right to do so. A
violation of the contract clause occurs only if the government substantially impairs a party's right
under the contract. Legitimate expectations of the parties determine whether the impairment was
substantial. However, a government may substantially impair a contract
if
reasonable and
necessary to serve a legitimate public purpose. Courts generally defer to the government in
determining the reasonableness and necessity of a particular measure, unless the government
seeks to impair its own contracts.
But where the government acts to impair its own contracts, the courts apply a more rigorous
analysis to determine if the impairment is appropriate. A court will not uphold legislation that
IOI Monroe Street, Rockville, Maryland 20850-2540 • amy.moskowitz@montgomerycountymd.gov
240-777-6793 • TTD 240-777-2545 • Frut 240-777-6705
·1
 PDF to HTML - Convert PDF files to HTML files
impairs a government's own contracts unless the impainnent is both reasonable and necessary.
Reasonableness is determined in light of whether the contract had "effects that were unforeseen
and unintended by the legislature". Necessity means that the government did not have a less
drastic modification available and the government could not achieve its goals without altering
the contractual terms.
1
Maryland courts have held that pension plans statutes establish contractual rights between
employees and the government. Although the pension plans constitute contractual benefits,
under certain circumstances, governments can modify the terms of a pension plan as long as the
changes do not adversely affect the benefits, or if adversely affected, are
r~laced
with
comparable benefits.2 In
Baltimore Teachers Union v. Mayor and City Council,
the Fourth
Circuit Court of Appeals noted that the Supreme Court provided little guidance as to what
constitutes substantial impairment, but concludes that a substantial impairment occurs "where the
right abridged was one that induced the parties to contract in the first place . . . or where the
impaired right was one on which there had been reasonable and especial reliance."
4
Following
the Fourth Circuit's decision in
Baltimore Teachers Union,
the United District Court for
Maryland found that the diminution of pension benefits is more likely than not a substantial
impairment because individuals plan their lives based on pension benefits.
5
The Contract Clause Prohibits Retroactive Impainnent
Generally a contract clause issue only exists
if
the legislation operates retroactively, not
prospectively. There can be no expectation that pension plans can not be altered as to future
benefits to be earned by future service. As the United States District Court for Maryland noted
in
Maryland State Teachers Association, Inc.
v.
Hughes6,
a government cannot enter into a
contract binding subsequent legislatures to pay government employees a specified level of
compensation in the future. The Court stated,
In
fact, the plaintiffs [the Teachers Association], presumably recogmzmg the
preposterousness of a position that a contract of this type is irrevocable, admit that the
contract asserted to exist here may be altered.
Under Maryland law, the State has reserved the power to amend or alter pension
contracts, and that reserved power "... is part of each pension plan which a legislature
enacts, whether explicitly or not." [Citations omitted}
7
Hughes
involved a number of prospective changes to the Maryland teachers' retirement system
that included a change to the formula used to calculate retirement benefits from 1.8% of average
United States Trust ofNew York v. New Jerse)l,
431 U.S. 1 (1977);
Allied Structural Steel Co. v. Spannaus,
438
U.S. 234.
2
City ofFrederick v. Quinn,
371 A.2d 724 (1977).
3
6
F.3d 1012
(4th Cir.
1993).
4
Id.,
1017.
5
Andrews v. Anne Arundel County,
931
F.Supp.
1255 (1996),
affinned without opinion,
114 F.3d 1175 (1997),
cert.
denied
522 U.S. 1015 (1997)
6
594
F. Supp.
1353, 1362 (1984).
·See also, Howell v. Anne Arundel County,
14
F. Supp.
2d 752
(D.
Md. 1998).
7
Id.,
1362.
IOI
Monroe
Street,
Rockville, Maryland
20850-2540 •
amy.moskowitz@montgomerycountymd.gov
240-777-6793 • TTD 240-777-2545
•Fax
240-777-6705
1
 PDF to HTML - Convert PDF files to HTML files
final compensation to .8% of average final compensation for years of service earned after the
effective date of the legislation. The Court upheld these changes because they were prospective.
Impairment Permitted if Necessary and Reasonable
If
there is a retroactive impairment, the necessity and reasonableness of a particular legislative
act is a factual inquiry. In
Baltimore Teachers Union v. Baltimore,
8
the Fourth Circuit held that
a mid-year City salary reduction plan adopted to meet immediate budgetary shortfalls did not
violate the contract clause. Although the court found that Baltimore City had substantially
impaired its contract with its employees, the Court concluded that the City's action was
reasonable and necessary. Preserving the City's financial integrity was a significant public
purpose justifying City action.
Although the US District Court in
Hughes
held that the plaintiffs did not suffer any impairment
because the changes to the pension plan were prospective, the Court discussed whether the
changes were reasonable and necessary had there been an impairment. The Court conc1uded that
due to the financial circumstances of the pension system and the State, the non drastic nature of
the impainnent and the unavailability of a more moderate comse of action, the changes would be
permitted.
On the other hand, in
Andrews v. Anne Arundel Count/,
which involved retroactive changes to a
pension plan, the Court did not find the County's action to be reasonable and necessary.
Although the County argued the legislation was necessary for the restoration of the actuarial
soundness of the A&E Plan, the Court ruled that the County "has failed to make a sufficient
showing that the means which
it
has adopted to address the problem is the least drastic
available."
10
The Court also noted that the County acknowledged that an emergency did not
exist and that courts have typically upheld "such extreme modifications only in the face of an
emergency or temporary situations".
11
Application to BiH 16-10
The Montgomery County Code creates a contract by providing the terms of the defined benefit
retirement plan (ERS). The ERS provides a monthly retirement benefit generally based on the
highest average consecutive 36 months of earnings and years of credited service. Last year, in
accordance with the collective bargaining agreements, the Council amended the definition of
earnings to provide that a member's benefit would include a 4.5% cost of living adjustment
(COLA) for FY 2010--even though the COLA was not, in fact paid to employees. This means
that, unless amended, any future increase in earnings would include the 2010 COLA and could
impact a member's retirement benefit regardless of the year a member retired. The proposed
legislation limits the 2010 COLA to 2010 earnings. This means that only members who retire
with 2010 included as their highest average consecutive 36 months of earnings would benefit.
s
6 F.3d 1012 (4th Cir. 1993),
cert. denied, 510
U.S. 1141 (1994).
9
10
See
fn
5, supra.
931 F.Supp. at
1266,
'
.
11
Id.
101 Monroe Street, Rockville, Maryland 20850-2540 • amy.moskowitz@montgomerycountymd.gov
240-777-6793 • TTD 240-777-2545 •Fax 240-777-6705
 PDF to HTML - Convert PDF files to HTML files
All other members would no longer have the COLA included in their earnings for the purpose of
calculating their pension benefit.
In order for a contract clause violation to occur in a pension plan statute, the legislation must
operate retroactively. Bill 16-10 operates prospectively because the effective date is July 1,
2010, and earnings would include the imputed COLA for fiscal year 2010. The imputed COLA
would not apply to future earnings and any member whose highest average consecutive 36
months of earnings includes 2010 receives the imputed COLA.
One might argue that the legislation does have a retroactive effect because the majority of
members will no longer have the imputed COLA included
in
their earnings for years of service
earned before June 30, 2010. For example, without the proposed legislation a member whose
imputed COLA equaled $1,000 would have that $1,000 included
in
the member's benefit even if
that member retired in 2020. Under the Bill, the member no longer receives that $1,000 COLA
even with regard to service earned before the. change in law. But this argument assumes
continued COLA's that will build on top of the elevated base created by the imputed COLA
granted in FY 2010. Employees have no contractual right to expect compensation increases in
the future. In fact, no legal principle would prevent a future Council from nullifying the effect of
the imputed COLA by offsetting a future COLA by an appropriate amount. Basing an argument
for retroactivity on some perceived right
to
future compensation increases is flawed for the
reason pointed out in
Hughes-the
power to amend pension contracts is reserved to the
government.
Because I have concluded that the Bill does not have a retroactive effect, I have found that it is
not necessary to determine whether the change made by Bill 16-10 would constitute a necessary
and reasonable impairment. Nevertheless, because litigation has been threatened by at least one
employee union, I recommend that significant information concerning the depth of the current
budget crisis that has overtaken the County should be included in the legislative history of Bill
16-10 so that an alternative argument can be made that the change proposed by Bill 16-10 is
reasonable and necessary.
Please let me know if you have any questions. or concerns about this advice.
Cc:
Kathleen Boucher
Amy Moskowitz
Joe Beach
Joe Adler
Ed Lattner
Bob Drummer
101 Monroe Street, Rockville, Maryland 20850-2540 • amy.moskowitz@montgornerycountvmd.gov
240-777-6793 • TID 240-777-2545 •Fax 240· 777-6705
 PDF to HTML - Convert PDF files to HTML files
MEMORANDUM
April 1, 2010
TO:
Steve Farber, Council Staff Director
FROM:
SUBJECT:
Robert H. Drummer, Senior Legislative
Attorney~
Council's Authority to Amend the Imputed Compensation Law
You have requested an opinion concerning the Council's authority to amend the changes
to the retirement laws enacted in Expedited Bill 18-09, Personnel-Retirement-Imputed
Compensation. Specifically, you have requested a review of the Council's authority to amend
the retirement laws to limit the effect of the imputed compensation to the calculation of regular
earnings for FYlO only.
Background
Bill 18-09 was introduced at the request of the Executive to implement collective
bargaining agreements with the 3 County employee unions last year. Each of these agreements
contained a provision to "postpone" a previously negotiated general wage adjustment, but also
provided that the calculation of regular earnings used to determine a retirement benefit must
include the general wage adjustment for FYIO as ifthe employee had received
it
on July l, 2009.
This imputed compensation is scheduled to carry over into the calculation of regular earnings
1
used to calculate a defined benefit pension for the rest of an employee's County career. The
County's actuary estimated that this imputed compensation would require the County to increase
its annual contribution to the
ERS
Trust Fund by
$8.589
million per year for the next
40
years.
2
Issues
1.
Can the Council, without further collective bargaining, enact a Bill that would modify
laws which resulted from collective bargaining agreements or involves issues that are
within the scope of collective bargaining?
For the reasons discussed below, Council staff concludes that the Council has complete
authority to enact legislation which involves a mandatory topic of collective bargaining or
amends a law that was enacted to implement a collective bargaining agreement.
Bill 18-09 also provided an imputed compensation increasing the Employer's contribution to the Retirement
Savings Plan and the Guaranteed Retirement Income Plan for FYlO only.
2
The actual savings from limiting this imputed compensation to FYlO is estimated to be $7.2 million for FYI
l.
1
 PDF to HTML - Convert PDF files to HTML files
Delegation of legislative authority. The current County Charter was adopted by the
voters in 1968, as authorized by Article XI-A of the Maryland Constitution. Article XI-A, §3
provides that:
Every charter so formed shall provide for an elective legislative body in which
shall be vested the law-making power of said City or County.
Such legislative
body in the City of Baltimore shall be known as the City Council of the City of
Baltimore, and in any county shall be known as the County Council of the County.
... the
County Council of said County,
subject to the Constitution and Public
General Laws of this State,
shall have full power to enact local laws of said City
or County including the power to repeal or amend local laws of said City or
County enacted by the General Assembly,
upon all matters covered by the express
powers granted as above provided, and, as expressly authorized by statute.
(Emphasis added)
Charter
§
101 vests all of the County's legislative powers in the County Council:
All legislative powers which may be exercised by Montgomery County under the
Constitution and laws of Maryland, including all law making powers heretofore
exercised by the General Assembly of Maryland but transferred to the people of
the County by virtue of the adoption of this Charter, and the legislative powers
vested in the County Commissioners as a District Council for the Montgomery
County Suburban District, shall be vested in the County Council .....
(emphasis
added)
*
*
*
The Maryland Court of Appeals has consistently restricted the delegation of the
legislative power assigned to a county council in a home rule charter county. See
Mugford v.
Baltimore,
185 Md. 266 (1945) (agreement with union to deduct dues from employees was an
unlawful delegation of governmental power);
MCEA v. Anderson,
281 Md. 496, 508 (1977)
(arbitration to determine public employees compensation was an unlawful delegation of
legislative authority);
Baltimore v. AFSCME,
281 Md. 463 (1977) (MOU between union and
employer could not bind the employer to propose certain budget appropriations for employee
salaries). In
Office & Professional Employees v. Mass Transit Administration,
295 Md. 88, 97
(1982), the Court opined with regard to collective bargaining:
It is established in this State that, absent express legislative authority, a
government agency cannot enter into binding arbitration or binding collective
bargaining agreements establishing wages, hours, pension rights, or working
conditions for public employees.
The express legislative authority for a County to enter into binding collective bargaining
agreements must flow from either a public general law enacted by the General Assembly or the
County Charter. In this County it derives from the Charter. Charter §510 authorizes the Council
2
 PDF to HTML - Convert PDF files to HTML files
to enact a collective bargaining law with binding arbitration for police officers.
3
§510A does the
same for career fire fighters, and §511 authorizes the Council to enact a collective bargaining law
for other County employees that may include binding arbitration.
The legislative history of the first collective bargaining law for police officers in 1982
(Bill 71-81) indicates that the Council interpreted Charter §510 to authorize arbitration of
collective bargaining impasses that binds the Executive, but not the Council. Both the Executive
and the police union (Fraternal Order of Police Lodge 35) agreed that §510 required the new
collective bargaining law to include interest arbitration of collective bargaining impasses, but
disagreed on whether the Council, as well as the Executive, must be bound by an arbitration
award. The FOP argued at the Council worksessions that if interest arbitration was not binding
on the Council it could not be considered classic interest arbitration. The Council ultimately
rejected this argument, and the interest arbitration included in the enacted law did not bind the
Council.
4
The Council enacted a separate collective bargaining law under each of these Charter
amendments (Police: County Code §§33-75 through 33-85; County employees: County Code
§§33-101through33-112; Fire and Rescue employees: County Code §§33-147 through 33-157).
Each collective bargaining law provides that the Executive, as the employer, must bargain with
the certified employee representative over certain mandatory topics of bargaining. Under each
law the Council must approve -- and retains the authority to reject -- any term or condition of a
collective bargaining agreement that requires an appropriation of funds or enactment, repeal, or
modification of a County law or regulation.
In none of these laws did the Council delegate its
legislative power to enact and amend County legislation.
The Executive has a duty under
each collective bargaining law to bargain with a certified employee representative; the Council
does not.
For example, the collective bargaining agreement executed by the Executive and
MCGEO in 2008 provided that
"the parties shall submit legislation
to the County Council that
would establish a one-time irrevocable choice between the Retirement Savings Plan (RSP) and
the Guaranteed Retirement Income Plan (GRIP) for non-public safety employees hired on or after
July 1, 1994."
(emphasis added)
The agreement did not bind, and could not have bound, the
Council to enact the proposed legislation.
(The Executive submitted this proposed legislation
and the Council enacted it as Bill 11-08.)
The Council's exercise of its legislative power to implement a collective bargaining
agreement necessarily includes the power to repeal or amend the same legislation at any point in
A recent reported decision by the Court of Special Appeals in
Wicomico County FOP v. Wicomico County,
No.
2034 (February I, 20 I 0) calls into question the legality of the Montgomery County Charter provisions requiring the
Council to enact collective bargaining laws for police and fire with binding arbitration. The Court held that a charter
provision requiring the Council to enact a collective bargaining law with binding arbitration violated the Maryland
Constitution because it was tantamount to enacting legislation in the Charter. The Court held that the collective
bargaining law enacted by the Wicomico Council was therefore invalid. Montgomery County Charter §510 (police)
and §510A (frre) each requires the Council to enact a collective bargaining law with binding arbitration.
4
This legislative history is detailed on pages 66-70 of Office of Legislative Oversight Report No. 2009-5, released
December 2, 2008, written by Leslie Rubin of OLO.
3
3
 PDF to HTML - Convert PDF files to HTML files
the future. This legislative power exists without regard to whether the law involves a mandatory
topic of bargaining under the collective bargaining laws or was enacted to implement a collective
bargaining agreement executed by the Executiye and an employee representative; nothing in the
Charter or the collective bargaining laws limits it in those cases.
2. Would a law limiting the imputed compensation to the calculation of regular earnings
for FYlO impair a County employee's contractual rights in violation of the Contract Clause
of the United States Constitution?
The Executive agreed with each of the 3 County employee unions during collective
bargaining in 2009 to submit legislation to the Council providing for the imputed compensation.
Each collective bargaining agreement was transmitted to the Council for approval of items
requiring funding or legislation. The Council enacted Expedited
Bill
18-09 to implement the
imputed compensation. Therefore, it is important to determine if a law limiting this imputed
compensation to FYlO only would impair a County employee's contractual rights in violation of
the Contract Clause of the United States Constitution (Art. I,
§
10). In
Parker v. Wakelin, 123
F.3d 1 (1st Cir. 1997), cert. denied, 140
L.
Ed 2d 813, 118 S. Ct. 1675 (1998),
the Court
summarized the analysis necessary to determine this question:
The Supreme Court has elaborated an analysis under which a court must first
ascertain whether a change in state law has resulted in "the substantial impairment of
a contractual relationship."
General Motors Corp.
v.
Romein, 503 US. 181, 186, 112
S. Ct. 1105, 1109, 117
L.
Ed. 2d 328 (1992)
(quoting
Allied Structural Steel Co.
v.
Spannaus, 438 US. 234, 244, 98 S. Ct. 2716, 2722, 57
L.
Ed. 2d 727 (1978)).
Next,
the reviewing court must determine whether the impairment is nevertheless justified
as "reasonable and necessary to serve an important public purpose."
United States
Trust Co., 431 US. 1 at 25, 97
S.
Ct. 1505 at 1519, 52
L.
Ed 2d 92 ....
The first
step described above can be further broken down into "three components: whether
there is a contractual relationship, whether a change in law impairs that contractual
relationship, and whether the impairment is substantial."
In
Bd. of Trustees.
v.
Mayor
&
City Council of Baltimore City,
317 Md. 72, 100 ( 1989),
the Maryland Court of Appeals held that "under Maryland law, pension plans create contractual
duties toward persons with
vested
rights under the plans."
(emphasis added)
Therefore, a County
retirement plan can create a contractual duty toward an employee with a vested right under the
plan. However, a law enacted by the Council during FY 10 that limits the imputed compensation
to the calculation of regular earnings for FYIO would only apply prospectively. In
Howell v.
Anne Arundel County,
14 F. Supp. 752 (D. Md. 1998), the Court held that a County law
decreasing the maximum cost of living adjustment to a County pension that only applied to
benefits accrued after the effective date of the law did not violate the Contract Clause because it
did not retroactively reduce a member's vested benefits. Similarly, a law enacted in FYIO that
limits the imputed compensation to FYIO only does not retroactively reduce a vested benefit. It
only affects the calculation of regular earnings for future years. Therefore, the law would not
impair a contractual relationship in violation of the Contract Clause.
4
 PDF to HTML - Convert PDF files to HTML files
Even, assuming
arguendo,
if an employee's contractual rights have vested, every
modification of a contract does not result in an unconstitutional impairment.
5
The legislative
body always retains the right to make reasonable modifications to vested rights for an important
· public purpose.
In
Baltimore Teachers Union, et al v. Mayor and City Council of Baltimore,
6
F.3d 1012 (4
1
h
Cir. 1993), the Court held that a furlough imposed during a fiscal year did not
violate the Contract Clause even though it was a substantial impairment of vested contractual
rights because the modifications made by the City were reasonable under the circumstances. The
Court relied on evidence of reductions in State funding that caused a budget deficit for the City.
The Court held that the City's decision to use furloughs to help balance its budget was a
reasonable alternative to more detrimental actions, such as layoffs.
The County's historic reduction in revenue in the past two years and its recent reduction
in reserve funds would provide strong factual support for a Court to conclude that a law limiting
the imputed compensation to FYIO was a reasonable modification for an important public
purpose. The recent decision in
FOP v. Prince George's County,
645 F. Supp. 2d 492 (D. Md.
2009), holding that a County-imposed furlough violated the Contract Clause underscores the
importance of evaluating the facts surrounding the decision to modify a contract.
In
FOP
v.
Prince George's County,
the Court held that the decision to impose furloughs on employees soon
after approving pay raises and refusing to dip into a $230 million reserve fund made the County's
decision unreasonable under the circumstances. The facts in
FOP v. Prince George's County
are
distinguishable from the facts behind a law which the Council could enact during FYlO that
would limit the imputed compensation.
For these reasons, a law limiting imputed compensation to the calculation of regular
earnings in FYI 0 would not violate the Contract Clause in Article I,
§
10 of the United States
Constitution.
Since the collective bargaining agreement with the FOP and MCGEO each expires on June 30, 20 I 0, a law limiting
the imputed compensation to FYIO earnings enacted during FYIO may not even modify an existing contract.
However, the collective bargaining agreement with the IAFF expires on June 30, 2011.
5
5
@)
 PDF to HTML - Convert PDF files to HTML files
056246
OFFICE OF MANAGEMENT AND BUDGET
Isiah Leggett
County Executive
Joseph
F.
Beach
Director
MEMORANDUM
April 23, 2010
re:
,;:_:·-:.:..:J
TO:
FROM:
SUBJECT:
Nancy Floreen,
Pres~ty
Council
Joseph F. Beach, DirUtor
v
Expedited Bill 16-10 - Imputed Compensation Limit
C:?
\.n
V1
The purpose of this memorandum is to transmit a fiscal impact statement to the
Council on the subject legislation.
LEGISLATION SUMMARY
Expedited Bill 16-10 limits the effect oflegislation the Council adopted last year
as part of the wage concession agreements with the County's three employee organizations.
Those agreements required the calculation of regular earnings used to determine a retirement
benefit include the FYI 0 general wage adjustment that was not paid in FYI 0. The expedited bill
amends the Employees' Retirement System to limit the effect of imputed compensation on the
calculation of regular earnings to FYI 0 only.
FISCAL SUMMARY
The legislation is expected to reduce retirement system costs because the
permanent benefit enhancement approved last year would instead be a one-time improvement
limited to FYIO only. The attached letter from the plan actuary, Mercer Consulting, outlines the
assumptions used to estimate the cost savings of between $7.1 million and $7.5 million. As the
plan actuary notes, cost savings
will
change over time due to experience and the ultimate savings
will depend on the pattern of future pay increases and the timing of plan members' retirement.
The County Executive's budget adjustment package transmitted on April 22, 2010 assumes tax
supported savings of $6.6 million and non-tax supported savings of $424,510 related to this
legislation. The detailed allocation of these reductions across all departments has been
transmitted separately to Council staff.
~~~--:-~---=-~~~~~:____~~~~~~___:
Office of the Director
@8
101 Monroe Street, 14th Floor• Rockville, Maryland20850 • 240-777-2800
www.montgomerycountymd.gov
 PDF to HTML - Convert PDF files to HTML files
Nancy Floreen, President, Collilty CoWlcil
April 23, 2010
Page 2
The following contributed to and concurred with this analysis: G. Wesley Girling,
Office of Human Resources, Alex Espinosa and Lori O'Brien, Office of Management and
Budget.
JFB:ae
Attachment
c: Joseph Adler, Director, Office of Human Resources
Kathleen Boucher, Assistant Chief Administrative Officer
Dee Gonzalez, Offices of the County Executive
G. Wesley Girling, Office of Human Resources
Alex Espinosa, Office of Management and Budget
Lori O'Brien, Office of Management and Budget
 PDF to HTML - Convert PDF files to HTML files
Douglas L. Rowe, FSA, MAAA, EA
Principal
MERCER
LJ_
MARSH
MERCER
~
GUY CARPENTER
KROLL
OLIVER WYMAN
120 East Baltimore Street, 20th Floor
Baltimore, MD 21202-1674
+1410347 2806
Fax +1410727 3347
doug.rowe@mercer.com
www.mercer.com
Confidential
Via Electronic Mail
Mr. Wes Girling
Montgomery County Government
101 Monroe Street, Seventh Floor
Rockville, MD 20850-2589
April 21, 2010
Subject:
Expedited Bill 16-10 - Imputed Compensation Limit
Dear Wes:
This letter summarizes the savings calculations you requested for the imputed compensation
limit bill. The calculations are based on the July 1, 2009 actuarial valuation data for groups
A, E, F, G and H members. The actuarial assumptions and methods and plan provisions are
the same as those used in our July 2009 actuarial valuation report except for the
assumptions and provisions noted below.
By cost/savings, we mean the change in Normal Cost and an amortization of any changes in
unfunded liability unless otherwise indicated. Cost'savings will change over time as
experience develops. Please note that actual ultimate savings of the imputed compensation
will depend on the pattern of future pay increases and the timing of plan members'
retirement. For example, there will be no savings for anyone who retires on or before July 1,
2010. The maximum savings will be realized for any member who retires at a time when
his/her average final earnings exceeds his/her average final earnings at July 1, 2010.
We have based the savings on the July 1, 2009 valuation date assuming that the County
would prefer to recognize the savings in FY2011. However, recognizing the savings from
this bill without recognizing the cost of the Retirement Incentive Plan/Discontinued Service
Pension in the same period may be an issue with the County's auditor and/or bond rating
agencies.
Other Considerations
We have recommended that the County consider a shorter amortization period for future
plan improvements in order to restore the funded ratio more quickly following a benefit
improvement and in order to better align the cost of the improvement with the service of
participants receiving an increase for service already performed. Applying that concept to
this change might result in a 10 to 20 year amortization period. We show detailed results
below for the County's traditional 40-year amortization period. Amortizing this savings over a
shorter period than the amortization for last year's bill which adopted imputed compensation
would be questionable.
Consulting. Outsourcing. Investments.
 PDF to HTML - Convert PDF files to HTML files
MERCER
MARSH MERCER KROLL
GUY CARPENTER OLIVER WYMAN
Page 2
April 21, 2010
Mr. Wes
Girling
Montgomery County Government
The dollar impact of the Normal Cost decrease on the County's contribution will tend to
increpse as employees near retirement, but decrease as the number of affected employees
decreases over time. Please let me know if you would like a projection to quantify this
pattern. Everything else being equal, the savings impact will increase (decrease) if actual
future pay increases exceed (trail) assumed pay increases. The amortization payment will
remain level for the chosen period - 40 years unless a shorter period is chosen.
Plan Provisions
The 4.50% (for Groups A, E and H), 4.25% (for Group F) and 4.00% (for Group G) imputed
compensation increases that were adopted last year for employees on July 1, 2009 would
only apply to earnings for FY2010.
Estimated Savings for Proposed Change
Annual savings using 40-year amortization for represented and non-represented
members: $7.1to7.5 million
Reduction in Actuarial Accrued Liability for represented and non-represented members:
$55-58 million
Assumptions
No savings will be realized by employees in the Optional Non-Integrated or Optional
Integrated Plan because they will retire when FY2010 pay affects their Average Final
Earnings.
5% to 10% of the value of benefits for Mandatory Integrated employees will be paid based
on FY2010 pay, thus not producing savings.
Mercer has prepared this letter exclusively for the Montgomery County Government for the
purpose of illustrating the contribution reduction for the proposed bill. This letter may not be
used or relied upon by any other party or for any other purpose. Mercer is not responsible for
the consequences of any unauthorized use.
This letter includes projections of future funding costs and/or benefit related results. To
prepare these projections, various actuarial methods and assumptions, as described above
and in our 2009 actuarial valuation report, were used to project two scenarios from a range
of possibilities. However, the future is uncertain, and the system's actual experience will
 PDF to HTML - Convert PDF files to HTML files
MERCER
~ ~~~~~RP~~T~~ER OL~VRE~~YMAN
Page 3
April 21, 2010
Mr. Wes Girling
Montgomery County Government
likely differ from the assumptions utilized and the scenarios presented; these differences
may be significant or material. In addition, different assumptions or scenarios may also be
within the reasonable range and results based on those assumptions would be different.
This report has been created for a limited purpose, is presented at a particular point in time
and should not be viewed as a prediction of the system's future financial condition.
Because actual plan experience will differ from the assumptions, decisions about benefit
changes, investment policy, funding amounts, benefit security and/or benefit-related issues
should be made only after careful consideration of alternative future financial conditions and
scenarios and not solely on the basis of a valuation report or reports.
This letter is based on data provided by the County and plan provisions as described in our
2009 actuarial valuation report. The County is solely responsible for the validity, accuracy
and comprehensiveness of this information. If the data or plan provisions supplied are not
accurate and complete, the valuation results may differ significantly from the results that
would be obtained with accurate and complete information; this may require a later revision
of th is letter.
The information contained in this document (including any attachments) is not intended by
Mercer to be used, and it cannot be used, for the purpose of avoiding penalties under the
Internal Revenue Code that may be imposed on the taxpayer.
Please let me know if you have any questions or need any further information. I can be.
reached at410 347 2806. I meet the Qualification Standards of the American Academy of
Actuaries to render the actuarial opinion contained in this letter. I am not aware of any direct
or material indirect financial interest or relationship, including investments or other services
that could create a conflict of interest that would impair the objectivity of our work
Sincerely,
~~k
Douglas L. Rowe, FSA, MAAA, EA
Principal
g:\wp51\dblmgewasUmputed compensation (bill 16-1 O).doc
 PDF to HTML - Convert PDF files to HTML files
Testimony before the County Council
on Expedited Bill 16-10, Personnel- Retirement- Imputed Compensation Limit
Joan Fidler, President, Montgomery County Taxpayers League
April 27, 2010
Madam President and members of the Council, thank you for the opportunity to testify against
the continuation of the phantom or "ghost" COLA that was passed by the Council last year.
I am Joan Fidler, President of the Montgomery County Taxpayers League and I am here today on
behalf of the taxpayers of the County and
in
support of Expedited Bill 16-10. As
a
well-known
author once wrote:
"It
was the best of times, it was the worst of times". These are not the best of
times for Montgomery County. We are facing a budget shortfall of close to $1 billion with
painful decisions ahead of you that will have, in many cases, a devastating impact on the services
offered to the residents of the County. You have no choice but to repeal the ghost COLA you so
generously offered County employees last year. Though the COLA has been characterized as a
phantom, in reality, it has already cost us taxpayers $7 million this year. If continued, this
phantom will loom over us in the amount of $200 million over the next 2 decades. We cannot
afford it.
Which brings us to the irony of the situation. The cost of living actually dropped last year, yet
the Council voted for a ghost COLA. More ironic, you denied County employees a one-year
COLA yet gave them a lifetime ghost COLA.
As I have testified before, the Taxpayers League recognizes the value of our County employees -
they are dedicated and hard-working. We are proud of the services they provide us. And yes, I
expect they will say a deal is a deal.
But the fact is that revenues continue to drop - and the predicted budget gap increases. In
September 2009, the budget gap was $370 million. By December, it grew to $608 million. On
March 15, it was $779 million. On April 22, the County Executive reported the gap had grown
to nearly $1 billion, or more than 25% of the tax-supported budget. To add to the gloom and
doom, Montgomery County now has 30,000 unemployed workers. The stimulus funds which
have served as a band aid will soon end. Our draining of the Rainy Day Fund has not gone
unnoticed by Moody's. Need I say more?
Members of the County Council, the journey of eliminating a deficit of $1 billion begins
with
$7
million? Won't you take the first obvious step and vote for Bill 16-10?
Thank you.
 PDF to HTML - Convert PDF files to HTML files
5
Margaret Greene
Testimony on "Imputed Compensation"
A.pril
27,
2010
The financial outlook for Montgomery County and for local
governments across the nation is rapidly deteriorating. The usual
sources of money - state governments and local property taxes - have
been hit hard by the recession. Federal stimulus money that is
earmarked for education has largely been spent. Hundreds of thousands
of teachers across the United States may lose theirjobs in June. The
outlook for local revenue looks worse for 2010-11 than in the current
year.
In Montgomery County, County Executive Ike Leggett has proposed
both the elimination of pay raises for county employees and the
imposition of furloughs. The picture is bleak. Libraries have been cut
22%, transportation has been cut 23%, the Department of Housing and
Community Affairs by
24o/o,
and Health and Human Services by 11
%.
I
attended the public hearing in Rockville on proposed cuts to Metro. The
testimony from the county's less privileged and special needs residents,
who are particularly dependent on public transportation, was enough to
make you cry.
Even last year, when the extent of the revenue decline wasn't known, the
County realized that it could not afford a 4% scheduled wage increase
for 5,000 police officers, firefighters and general government workers.
In place of the wage increase Ike Leggett negotiated lifetime pension
benefits for these workers based on the pay increases that they were not
going to receive. The Council went along with this unusual
arrangement. Today it is clear to all that the County cannot afford these
co-called "phantom COLAs" and should never have committed the
taxpayers to future expenses of about $7 million annually, totaling $200
million over the next forty years.
Over the past year it has become apparent that public employee pensions
are a fast-growing problem and may soon pose the next big financial
threat to the nation's economy. Since states and counties, unlike the
 PDF to HTML - Convert PDF files to HTML files
Federal Government, cannot
print
money,
it
is imperative for
Montgomery County to pursue a conservative and prudent fiscal policy.
Therefore the arrangement guaranteeing benefits based on pay increases
that were never received must be rescinded.
 PDF to HTML - Convert PDF files to HTML files
Fraternal Order of Police
Montgomery County Lodge 35
18512 Office Park Drive
Montgomery Village, Maryland 20886
Bill No.
16-10,
Retirement- Imputed Compensation Limit
April 27, 2010
Good afternoon. I am Walter E. Bader representing Fraternal Order of Police, Montgomery
County Lodge 35 and am here to testify concerning Bill 16-10.
County Code Section 33-35 Definitions, enacted just last year1, has its origins in what has been
called a "concession agreement" between FOP Lodge 35 and the County.2 This provision was
intended only to preserve the pension benefit for those who actually retire and who otherwise
would have their pensions adversely affected as a result of the voluntary postponement of the
previously negotiated and scheduled FY 2010 General Wage Adjustment ["GWA"].
Under the agreement, an amount equal to the "postponed" General Wage Adjustment is included
in the calculation of pension benefits only for those who retire with the postponed GW A
included in their Average Final Earnings ["AFE"]. Without this provision, the postponed GWA
would have resulted in a permanent, lifetime reduction in pensions for those whose AFE include
any period of the wage postponement.
This Bill has identified a gross misunderstanding between what we intended and what the
executive thought was bargained. Obviously, we looked at Bill 19-09 in the context of our intent
while others are looking at it as something far more costly. I will try to clear up the confusion.
This is nothing but the residual preservation of a benefit in the context of employees' generous,
peaceful give-back of cash compensation.
It
is neither phantom, nor a "COLA".
It
is not a gift from the county either.
For FY 10, police officers gave back nearly $5 Million in negotiated wages for one year. Now,
we have agreed to postpone the GWA for a second.consecutive year. Importantly, had the GWA
not been postponed, the county would not have realized the $4.9 Million in pay concessions,
however, the pension benefit for those retiring in the near future would have been exactly what it
is with the imputed compensation. See example, attached.
There never was an intent that this imputed benefit would apply to anyone after the postponed
G WA is no longer a factor in calculating final earnings. Let me be clear:
It
is not now, and
never was, our intent that this be a permanent 4.25% enhancement for all future retirees hired
after July 1, 2009.
3
1
2
Expedited Bill No. 18-09, Introduced April 14, 2009.
Article 57, Section M.7, CBA, July l, 2009-June 30, 2011.
In Fairfax County, VA police officers receive a pennanent 3% enhancement to their average final earnings.
 PDF to HTML - Convert PDF files to HTML files
In a May 6, 2009 memorandum to the MFP Committee, actuary Thomas Lo"Wman of Bolton
Partners, Inc., said that his "understanding is that this change [Bill 18-09] is permanent ... this
means that someone retiring 20 years from now will have their pension based on a higher pay
amount [than] they actually will be receiving in 17-20 years .... "
4
While this may have been the
executive's understanding, it was not our intent.
Mr. Lowman goes on to say,
"If
someone's final average pay does not include pay in FY 10
(most will leave far enough into the future that it will not include FY 10), there will be no impact
on their pension. This makes the cost materially less than what Mercer determined for the more
generous proposal." Indeed,
this is consistent with our bargained intent.
5
The only difference between the effect of Bill 16-10 and the intent of our contract and, what we
thought was the intent and effect of Bill No. 18-09, is that our contract provides that all years of
the "postponed" GWA be included whereas Bill 16-10 includes only FY 10.
We support the bargained intent for all years of the postponed 4.25% GWA and oppose any
attempt to limit
it
to any fiscal year. This results in a FY 11 savings of about $7 Million.
Thank you.
~
Memorandum is at circle 8 of the April 27, 2010 packet for this public hearing. (Agenda Item 10.)
~
This would now include FY 11 due to continued postponement of the GWA, as well as all years of continued\
postponement.
 PDF to HTML - Convert PDF files to HTML files
FOP Intent:
A Police Officer III (Pay Grade P4) with 25 years credited service who retires on July 1, 2010
would have a pension based on the high consecutive 36 month (typically, three year) average of
wages of $83,437, $86,774, $86,774 plus an imputed amount equal to the postponed 4.25%
GWA or ($90,462 $86,774)
=
$3,688. Average Final Earnings:
$86,891.~
Without the imputed amount, AFE would be $85,662 (a reduction of 1.4%).
~"--/
Had the GWA not been voluntarily postponed, the final average would have been
$86,891.
(The actual pension would be considerably less than AFE. The exact amount depends on the
payment option elected.)
Council Bill 16-10
Attachment to Testimony
FOP Lodge 35
April 27, 2010
 PDF to HTML - Convert PDF files to HTML files
Average Final Earnings With Voluntary Wage Concessions
Effective
Date (Pay
or Retire)
Percent of
Scheduled/
Pay
Bargained Pay
Postponed
Dollars
Postponed
Actual Pay
(Bargained -
Postponed)
+
Difference
Pay for
"Imputed"
Difference
Retirement Actual Average Average Final (Imputed - (Imputed -
Actual)/
Calculations
&
Final Earnings
Actual)
Earnings
u1...,..-.,+..,,,.an
Arf>''"'I
Avg Final
Earnings -
Actual
i:; ...
,.1
o,.v
Jul-05
Ju/-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
$74,608
$77,615
$83,437
$86,774
$90,462
$90,462
$90,462
$93,176
$95,971
0.00%
0.00%
0.00%
0.00%
4.25%
4.25%
0.00%
0.00%
0.00%
$0
$0
$0
$0
$3,688
$3,688
$0
$0
$0
$74,608
$77,615
$83,437
$86,774
$86,774
$86,774
$90,462
$93,176
$95,971
$74,608
$77,615
$83,437
$86,774
$90,462
$90,462
$90,462
$93,176
$95,971
$78,553
$82,609
$85,662
$86,774
$88,003
$90,137
$93,203
$78,553
$82,609
$86,891
$89,233
$90,462
$91,367
$93,203
$0
$0
$1,229
$2,459
$2,459
$1,229
$0
0.00%
0.00%
1.42%
2.72%
2.64%
1.28%
-$8,221
-$4,165
$117
-$1,229
-$2,714
-$4,605
Average Final Earnings w/o Voluntary Wage Concessions
Effective
Date (Pay
or Retire)
Percent of
Scheduled/
Pay
Bargained Pay
Postponed
Dollars
Postponed
Actual Pay
(Bargained -
Postponed)
Difference Avg Final
Pay for
"Imputed"
Difference
(Imputed - Earnings -
Retirement Actual Average
Average Final (Imputed-
Final Earnings
Actual)/
Actual
Calculations
&
Earnings
Actual)
.11. ...... ,,..
1mn.11+0'4
l:in'll
D"'"
0
11
Ju/-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
$74,608
$77,615
$83,437
$86,774
$90,462
$90,462
$90,462
$93,176
$95,971
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
$0
$0
$0
$0
$0
$0
$0
$0
$0
$74,608
$77,615
$83,437
$86,774
$90,462
$90,462
$90,462
$93,176
$95,971
$74,608
$77,615
$83,437
$86,774
$90,462
$90,462
$90,462
$93,176
$95,971
$78,553
$82,609
$86,891
$89,233
$90,462
$91,367
$93,203
$78,553
$82,609
$86,891
$89,233
$90,462
$91,367
$93,203
$0
$0
$0
$0
$0
$0
$0
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
-$8,221
-$7,853
-$3,571
-$1,229
-$2,714
-$4,605
Assumes Police Officer Ill with 2S Years Credited Service at Salary Maximum
July 2005 fully effective January 2006
July 2006 fully effective January 2007
July 2012 and July 2013 assume 3% increase/year
FOP 35 04/21/10 (web)
 PDF to HTML - Convert PDF files to HTML files
Agenda Item 11
May 13, 2009
Action
MEMORANDUM
TO:
FROM:
SUBJECT:
County Council
Robert H. Drummer, Legislative Attorney
~CJ
Action:
Expedited Bill 18-09, Personnel - Retirement - Imputed Compensation
Management and Fiscal Policy Committee recommendation:
no recommendation. MFP
Committee to meet on May 13 at 9a.m.
Expedited Bill 18-09, Personnel - Retirement - Imputed Compensation, sponsored by the
Council President at the request of the County Executive, was introduced on April 14, 2009. A
public hearing was held on May 5. The Management and Fiscal Policy Committee reviewed the
Bill at worksessions on May 8 and 11.
Background
Expedited Bill 18-09 would implement provisions of the most recent collective
bargaining agreements negotiated by the Executive and the Municipal & County Government
Employees Organization/United Food and Commercial Workers Union, Local 1994 (MCGEO)
and the Fraternal Order of Police, Montgomery County Lodge 35 (FOP). The Bill would amend
the definition of regular earnings to include certain imputed compensation under the Employees'
Retirement System (ERS). Both of these collective bargaining agreements contain provisions
that would "postpone" previously negotiated general wage adjustments (4.5% for MCGEO and
4.25% for FOP) during FYlO in recognition of the County's projected revenue shortfall.
The Bill would provide that the calculation of regular earnings used to determine an ERS
retirement benefit for a Group A, E or H member, including those represented by MCGEO, must
include the 4.5% general wage adjustment for FYlO as ifthe employee had received
it
on July l,
2009. The Bill would not affect the retirement benefit for an employee represented by MCGEO
who participates in the Retirement Savings Plan or the new Guaranteed Retirement Income Plan.
The Bill would also make a similar 4.25% adjustment in the regular earnings used to calculate a
retirement benefit for a Group F member, including those represented by the FOP. The Bill
would take effect on July
l,
2009.
Public Hearing
The Council held a public hearing on Bill 18-09 on May 5. The only speaker, George
Lacy of the Office of Human Resources (OHR), testified in support of the Bill on behalf of the
Director of OHR and the Executive. See written testimony of Joseph Adler at ©11-12. Mr.
Lacy testified that the Executive has recently reached a similar "concession" agreement with the
International Association of Fire Fighters, Local 1664 (IAFF). Mr. Lacy requested the Council
{j§J
 PDF to HTML - Convert PDF files to HTML files
to amend Bill 18-09 to implement the similar imputed compensation provision in the agreement
with the IAFF.
May 8 and 11 Worksessions
The Committee recommended (3-0) amending the Bill to include Group G (Fire), but
deferred action on the Bill due to a dispute between the Executive and MCGEO on the
interpretation of this part of the concession agreement. President Renne asserted that the COLA
credit was intended to apply to employees in the Retirement Savings (defined contribution) Plan,
as well as the Employees Retirement System (defined benefit plan). OHR Director Adler
disagreed with that assertion. When the Committee met briefly on May 11 to follow this item
up, the parties had not settled that disagreement. The Committee deferred action on the Bill until
the Executive reports back on the disagreement with MCGEO over the terms of their agreement.
Issues
1.
What is the fiscal impact of the imputed compensation?
The Bill would permanently increase an eligible employee's earnings used to calculate
retirement benefits throughout the employee's career. In other words, an eligible employee who
retires 10 years from now would receive a retirement benefit based on a final salary that is
greater than the actual salary the employee received. The Fiscal Impact Statement attached a
letter from the retirement plan's actuary, Douglas Rowe of Mercer. See ©8-10. Mr. Rowe
estimated the annual cost of the imputed compensation, using both a 40-year amortization period
and a 15-year amortization period. Although OMB used the 40-year amortization schedule for
its estimate of a $6.651 million annual cost, Mr. Rowe recommended the 15-year amortization
schedule as more appropriate since the eligible employees cannot be expected to work for the
next 40-years.
Although the Bill does not include Group G (Fire), Mr. Rowe estimated the annual cost
including Group G. Mr. Rowe estimated an annual cost over 15-years at $10.673 million for
Groups A, E, F, G, and H. The annual cost for all groups using the 40-year amortization
schedule is $8.589 million. Mr. Rowe also estimated the annual cost of paying the employee's
contribution, in addition to the employer's contribution, to be $775,000 for a 40-year
amortization schedule. Mr. Rowe concluded that the total actuarial liability for represented
and non-represented employees in all 5 groups is $68.248 million.
The costs to implement this Bill would not begin until FYl l because the plan actuary
calculates the County's required contribution to the ERS with a one-year delay. The cost would
be paid over time, beginning in FYI 1, for the number of years used to amortize the full cost. It
effectively balances the FYI 0 budget at the expense of future budgets. Council staff asked the
Council's actuary, Thomas Lowman of Bolton Partners, Inc., to review Mr. Rowe's fiscal
analysis. See ©13 .. Mr. Lowman agreed with the analysis and also agreed that the 15-year
amortization schedule is more appropriate. Mr. Lowman expressed concern over any additional
burden on future liabilities of the ERS trust fund because of recent investment losses caused by
the downturn in the equity markets. Mr. Lowman pointed out that the historic losses of the past
year will begin to require additional employer contributions in FYI I and be fully reflected in
2
 PDF to HTML - Convert PDF files to HTML files
FY 15. The additional liability created by this imputed compensation would only compound the
County's future problem.
1
The Executive pointed out that these costs (less the
$775,000
cost to pick up the
employee's contribution) would have been incurred if the general wage adjustment (GWA) was
paid in FYIO. The GWA has two components - cash paid in FYlO, and increased retirement
benefits paid in later years at retirement. The
3
"concession" agreements only "postponed" the
first component. While intuition may lead one to believe that the second component is small,
actuarial analysis shows otherwise.
Mr. Lowman described similar legislation before the Anne Arundel County Council that
would limit the imputed compensation to the calculation of earnings for FYIO only. Under this
method, a member's retirement benefit would only be increased if the member's final average
earnings ("high
3
years") include FYIO. Mr. Lowman projected this change to cost materially
less. This would leave the decision whether this imputed compensation should be carried over to
future years to future collective bargaining. Staff amendment
1
at
© 18
would do this.
Committee recommendation (3-0):
defer action on the
Bill
in order to permit the Executive and
MCGEO to resolve their dispute.
2. Is the imputed compensation in the Bill equitably distributed?
The
Bill
would only provide an imputed GWA to employees enrolled in the Employees
Retirement System.
It
would not apply to employees in the Retirement Savings Plan (RSP) or
the new Guaranteed Retirement Income Plan (GRIP). These Plans include represented and non-
represented non-public safety employees hired on or after October 1, 1994. These employees
would lose both components of the GW
A.
Since these employees participate in a defined
contribution plan,
2
any imputed compensation for them would require an outlay of FYlO
operating funds.
The recently negotiated "concession" agreement with the IAFF contains a parity
provision which conditions the postponement of the IAFF unit member's GWA on the Executive
returning his legally mandated pay increase and that "no general wage adjustment is given in
FY 10 to any appointed member of the Senior Management Team." See
©
17. How would the
County explain the equity in eliminating only part of the GWA for employees
in
the ERS and all
of the GWA for other employees?
3. What did MCGEO and the Executive agree to?
The Memorandum of Agreement between MCGEO and the Executive contained the
following language on this issue:
The parties agree to jointly submit legislation to the County Council providing
that
for the purposes of retirement benefit calculation, all bargaining unit
members
shall be credited at the annual salary amounts as if a 4.5% cost of living
adjustment had been paid in FY-2010. (emphasis added)
At a recent breakfast meeting, the Executive recommended that the Council consider the effect of its FYIO budget
decisions on the projected deficit for FYI 1.
2
The GRIP is a hybrid plan with a defined contribution a;d a guaranteed rate ofreturn.
1
@
 PDF to HTML - Convert PDF files to HTML files
OHR Director Joe Adler explained at the May 11 worksession that the term "for the purposes of
retirement benefit calculation" could only apply to a defined benefit plan in the ERS where final
salary is a component in the calculation of the benefit. Mr. Adler pointed out that the benefit
from the RSP is based upon the value of the employee's account at retirement and not calculated
on the basis of final earnings. Mr. Renne relies upon the phrase "all bargaining unit members"
for his conclusion that this provision applies to the MCGEO bargaining unit members who
participate in the RSP.
3
Despite the ambiguity in the language of the agreement, the Bill, as sent to the Council by
the Executive on April 1, 2009, limited eligibility to ERS members in Groups A, E, F, and H.
It
does not appear that MCGEO notified the Executive of its different interpretation of the
agreement until shortly before the May 8 Committee worksession. The first written notification
of this dispute by MCGEO appears to be an email message dated May 11 attached at ©19-20.
The Committee deferred action on the Bill in order to give the Executive and MCGEO
additional time to resolve their dispute. We did not receive a resolution of this dispute from the
parties when this packet was published.
4. Should Group G be added to the Bill?
The Executive and the IAFF agreed to submit legislation to the Council providing for
similar imputed compensation for members of the IAFF after Bill 18-09 was introduced. The
Executive requested an amendment to this Bill adding Group G instead of a new Bill to
accomplish this. The title of Bill 18-09 is broad enough to permit this amendment without re-
advertisement and a new public hearing.
Committee recommendation (3-0):
amend the Bill to
add Group G. See lines 15-19 of the Bill at ©2.
This packet contains
Expedited Bill 18-09
Legislative Request Report
Memo from County Executive
Fiscal Impact Statement
Testimony of Joseph Adler
Lowman Memorandum
IAFF agreement excerpt
Staff amendment 1
MCGEO May 11 email message
F:\LAW\BILLS\0918 Personnel-Retirement-Imputed Compensation\Action Memo.Doc
Circle
1
4
5
6
11
13
14
18
19
All non-public safety employees hired on or after October 1, 1994 participate in the RSP.
approximately two-thirds of the unit members are in the RSP.
We believe
4
 PDF to HTML - Convert PDF files to HTML files
Expedited Bill No.
_1"'""'8""""-"'--09~---­
Concerning: Personnel - Retirement -
Imputed Compensation
Revised: May 11. 2009 Draft No.
-1._
Introduced:
April 14. 2009
Expires:
October 14. 2010
Enacted:
Executive: _ _ _ _ _ _ _ _ __
Effective: _ _ _ _ _ _ _ _ __
Sunset Date:
""""N""'"'o~n=e
_ _ _ _ _ __
Ch. _ _ , Laws of Mont. Co. _ __
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Council President at the Request of the County Executive
AN EXPEDITED ACT
to:
(1)
amend the definition of regular earnings to include certain imputed compensation
under the employees' retirement system; and
(2)
generally amend the law regarding the employees' retirement system.
By amending
Montgomery County Code
Chapter 33, Personnel and Human Resources
Sections 33-35
Boldface
Underlining
[Single boldface brackets]
Double underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment.
Deleted.from existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
 PDF to HTML - Convert PDF files to HTML files
Expedited Bill No. 18-09
1
Sec. 1. Section 33-35 is amended as follows:
Sec. 33-35 Definitions
2
3
In this Article, the following words and phrases have the following
meamngs:
4
5
6
7
*
worked~
*
*
Regular earnings:
Except as otherwise provided, gross pay for actual hours
[exclusive of] not including overtime. Regular earnings for
f!:
Group
A_,_
!h
8
9
or H member who is employed on July
L
2009 and participates in the integrated or
optional plan must include amounts as if the member had received an increase of
4.5% in the member's gross
~
10
11
as of July
L
2009, except for the purpose of
calculating
f!:
member's contribution under Section 33-39. Regular earnings for
fl:
Group F member who is employed on July
L
2009 and participates in the
integrated or optional plan must include amounts as if the member had received an
increase of 4.25% in the member's gross
~
12
13
14
15
as of July
L
2009, except for the
purpose of calculating
f!:
member's contribution under Section 33-39. Regular
earnings for a Group G member who is employed on July 1. 2009 and participates
in the integrated or optional plan must include amounts as if the member had
received an increase of 4% in the member's gross pay as of July 1. 2009. except
for the purpose of calculating a member's contribution under Section 33-39.
Regular earnings for an elected official is gross pay for services rendered to the
County. Regular earnings must not exceed the limit under Internal Revenue Code
Section 401(a)(l 7), as adjusted by the Internal Revenue Service. Gross pay must
be used to determine benefits even if the County implements a pick-up plan under
Section 414 of the Internal Revenue Code. Gross pay must be used to determine
benefits even if a member has agreed to a reduction in earnings under:
(a)
the County's deferred compensation plan under Section 457 of the
Internal Revenue Code; or
16
17
18
19
20
21
22
23
24
25
26
27
-@LAW\BILLS\0918 Personnel-Retirement-Imputed Compensation\Bill 3.Doc
@
 PDF to HTML - Convert PDF files to HTML files
Expedited Bill No. 18-09
28
(b)
any statutory fringe benefit program sponsored by the County and
permitted by the Internal Revenue Code.
29
30
31
32
33
34
35
*
*
*
Sec. 2. Expedited Effective Date.
The Council declares that this Act is
necessary for the immediate protection of the public interest. This Act takes effect
on July 1, 2009.
Approved:
36
Philip M. Andrews, President, County Council
37
Date
Approved:
38
Isiah Leggett, County Executive
39
Date
This is a correct copy of Council action.
40
Linda M. Lauer, Clerk of the Council
Date
~LAW\BILLS\0918
Personnel-Retirement-Imputed Compensation\Bill 3.Doc
@
 PDF to HTML - Convert PDF files to HTML files
LEGISLATIVE REQUEST REPORT
Expedited Bill 18-09, Personnel
Retirement
Imputed Compensation
DESCRIPTION:
The requested expedited legislation provides that for retirement purposes
certain employees will be treated as though they received the scheduled
general wage adjustment which has been eliminated.
The proposed legislation accomplishes the changes contained in the
Memorandum of Agreement between the Montgomery County
Government and the Municipal & County Government Employees
Organization/United Food and Commercial Workers Union Local 1994
and the Fraternal Order of Police Montgomery County Lodge 35 that was
negotiated pursuant to concession agreements for the current collective
bargaining agreements.
To implement provisions of negotiated concession agreement and pass
through by treating employees in Groups A, E, F, and H as though they
received scheduled general wage adjustments for retirement purposes.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
Office of Human Resources
FISCAL IMPACT:
Office of Management and Budget
ECONOMIC
IMPACT:
EVALUATION:
See County Executive's Recommended FYIO Operating Budget
n/a
®
 PDF to HTML - Convert PDF files to HTML files
OFFICES OF THE COUNTY EXECUTIVE
Isiah Leggett
County Executive
Timothy
L.
Firestine
ChiefAdministrative Officer
MEMORANDUM
April 1, 2009
TO:
Philip M. Andrews President
Montgomery County Council
Isiah Leggett, County Executive
FROM:
SUBJECT:
·~~
Expedited Bill to Amend the Employees' Retirement System
The attached expedited bill would provide that for retirement purposes,
employees in Groups, A, E, F, and
H
will be treated as though they received the scheduled
general wage adjustments which have been eliminated. This bill stems from the negotiated
agreements witli the Municipal
&
County Government Employees Organization/United Food
and Commercial Workers Union Local 1994 and the Fraternal Order of Police Montgomery
County Lodge 35.
Attachments
IL:
stc
101 Momoe Street • Rockville, Maryland 20850
240-777-2500 • 240-777-2544 TTY • 240-777-2518 FAX
www.montgomerycountymd.gov
 PDF to HTML - Convert PDF files to HTML files
~·t""'~
NAN
C!...C..
32
OFFICE OF MANAGEMENT AND BUDGET
Isiah Leggett
County Executive
Joseph
F.
Beach
Director
S~F­
t-\_
'Bb
\'\~
At-'\
MEMORANDUM
042107
May4, 2009
TO:
FROM:
Phil Andrews, President, County Council
Joseph F.
~'Office
of Management and Budget
SUBJECT: Expedited Bill 18-09, Personnel - Retirement - Imputed Compensation
The purpose of this memorandum is to transmit a fiscal impact statement to the
Council on the subject legislation.
LEGISLATION SUMMARY
The proposed legislation implements the Memorandums of Agreement negotiated
by the County Executive and the Municipal and County Government Employees Organization/
United Food and Commercial Workers Union, Local 1994 (MCGEO) and the Fraternal Order of
Police, Lodge 35 (FOP). The Memorandums of Agreement contain provisions eliminating the
previously negotiated general wage adjustments for FYIO. The proposed legislation provides
that for purposes of the retirement benefit calculation under the Employees' Retirement System
(ERS), employees in Groups A, E, F, and Hof the ERS will be treated as though they received
the FYI 0 general wage adjustment.
FISCAL SUMMARY
The County's actuary estimates an annual cost of imputed compensation of $6.651
million for Groups A, E, F, and H. As noted in the FYI 0 recommended budget, the proposed
legislation does not affect the actuarially determined FYI 0 retirement contribution. According
to the actuary, the estimated FYI I annual contribution would be $6.65I million greater than it
would otherwise be without the proposed legislation. It is important to note that, in the absence
of the concession agreements with the subject employee representative organizations, the County
would have been required to increase its contribution due to the previously agreed to general
wage adjustment. Reduction of the planned retirement benefit was not a concession obtained in
the recent amendments to the County's labor agreements.
~~···~~~~-=-:-:-~-::----:--:-:-=-~-::--~----~~~~~~~~~~~~-
Office of the Director
101 Monroe Street, 14th Floor • Rockville, Maryland 20850 • 240-777-2800
W¥lw.montgomerycountymd.gov
 PDF to HTML - Convert PDF files to HTML files
Phil Andrews, President, County Council
May4,2009
Page2
However, when the legislation is considered in combination with the elimination of
the previously negotiated wage adjustment, retirement benefits don't change, but the obligation
for employee contributions on the imputed compensation shifts to the County. The actuary
estimates this shift to cost $585,000 annually for employees in Groups A, E, F, and H. This is a
cost to the ERS because employee contributions are not made on the imputed pay. The $585,000
cost is a component of the total annual estimated cost of$6.651 million of the legislation.
The County may incur additional system programming costs associated with
implementing this provision which cannot be quantified at this time because the related business
process and technical requirements are not sufficiently defined.
The following contributed to and concurred with this analysis: Wes Girling, Office
of Human Resources, Karen Hawkins, Department of Finance, and Alex Espinosa, Office of
Management and Budget.
JFB:df
c: Kathleen Boucher, Assistant Chief Administrative Officer
Dee Gonzalez, Offices of the County Executive
Joseph Adler, Director, Office ofHwnan Resources
Jennifer Barrett, Director, Department of Finance
Brady Goldsmith, Office of Management and Budget
 PDF to HTML - Convert PDF files to HTML files
Douglas L.
P..o•·.:s,
FSA, MAAA, EA
Principal
MERCER
LJ_
~
MARSH MERCER KROLL
GUY CARPENTER OLIVER WYMAN
120 East Baltimore Street, 20th Floor
Baltimore, MD 21202-1674
410 347 2806 Fax 410 727 3347
douglas.rowe@mercer.com
www.mercer.com
April 27, 2009
Mr. Wes Girling
Moiitgomery County Government
101 Monroe Street, Seventh Floor
Rockville, IVID 20850-25e9
Confidential
Via Electronic Mail
Subject:
Imputed Compensation Pension Cost
Dear Wes:
This letter summarizes the cost calculations you requested for the imputed compensation bill. The
calculations are based on .the July 1, 2008 actuarial valuation data for group A, E, F, G and H
members. The actuarial assumptions and methods and plan provisions are the same as those used in
our July 2008 actuarial valuation report except for the assumptions and incentive provisions noted
below. Please note that actual cost of the imputed compensation will differ based on the number of
individuals that are active as of July 1, 2009.
We have projected all costs from the July 1, 2008 valuation date to the effective date of July 1, 2009
using standard actuarial approximation techniques. By cost/savings, we mean the change in Normal
Cost and an amortization of any changes in unfunded liability unless otherwise indicated.
Cost/savings will change over time as experience develops.
Cost Calculated From Two Viewpoints
We have calculated the cost of imputing pay from two viewpoints - just the legislation (which
increases benefits by imputing pay) that we were provided, and as a package which takes away
previously negotiated pay increases, but then calculates pensions as if those pay increases had
occurred. The cost for the second viewpoint is that employee contributions are not made on the
imputed pay.
Other Considerations - Legislation Only Viewpoint
We have recommended that the County consider a shorter amortization period for future plan
improvements in order to restore the funded ratio more quickly following a benefit improvement and in
order to better align the cost of the improvement with the service of participants receiving an increase
for service already performed. Applying that concept to this retirement program might result in a 10 to
20 year amortization period. We show detailed results below for the County's traditional 40 year
amortization period.
The dollar impact of the Normal Cost increase on the County's contribution will tend to increase as
employees near retirement, but decrease as the number of affected employees decreases over time.
Please let me know if you would like a projection to quantify this pattern. Everything else being equal,
the cost impact will increase (decrease) if actual future pay increases exceed (trail) assumed pay
Consulting. Outsourcing. Investments.
 PDF to HTML - Convert PDF files to HTML files
MERCER
!~]_
j_~
GUY CARPENTER
MARSH
MERCER
KROLL
OLIVER WYMAN
Page 2
April 27. 2009
Mr. Wes Girling
Montgomery County Government
increases. The amortization payment will remain level for the chosen period - 40 years unless a
shorter period is chosen.
Other Considerations - Package Viewpoint
Lower employee contributions also reduce "refund" benefits (e.g., the return of employee contributions
to nonvested terminated employees} but this impact is negligible compared to the contributions
themselves. Employee contributions are subtracted from the total required contribution each year to
determine the County's contribution. The reduced subtraction (which results in a higher County
contribution} due to the package will decrease over time as employees on July 1, 2009 leave
employment.
Plan Provisions
Employees on July 1, 2009 in groups A, E, and H would receive benefits as if their gross pay
increased 4.50% on July 1, 2009 and remained 4.50% higher than actual pay for the remainder of
their careers. This does not include benefits that are based on employee contributions.
Employees on July 1, 2009 in group F would receive benefits as if their gross pay increased
4.25% on July 1, 2009 and remained 4.25% higher than actual pay for the remainder of their
careers. This does not include benefits that are based on employee contributions.
Employees on July 1, 2009 in group G would receive benefits as if their gross pay increased
4.00% on July 1, 2009 and remained 4.00% higher than actual pay for the remainder of their
careers. This does not include benefits that are based on employee contributions.
This legislation does not apply to Retirement Savings Plan or Guaranteed Retirement Income
Plan participants.
Estimated Costs of Proposed Changes
Annual Costs using 40-year amortization for represented and non-represented members.
Legislation Alone
Package
A
E
F
G
Group H
Total
$1,656,000
$ 975,000
$2,233,000
$1,938,000
$1,787,000
$8,589,000*
$155,000
$ 90,000
$185,000
$190,000
$155,000
$775,000
Numbers may not add up due to rounding.
*The total would increase to $10,673,000 if a 15 year amortization period is used.
@
 PDF to HTML - Convert PDF files to HTML files
MERCER
MARSH
MERCER
GUY CARPENTER
KROLL
OLIVER WYMAN
Page 3
April 27, 2009
Mr. Wes Girling
Montgomery County Government
Presumably, you want to use one column above or the other, depending on the viewpoint. You would
not want to add the columns.
Increase in Actuarial Accrued Liability for represented and non-represented members
Legislation Alone
Package
A
$14.166,000
$ 7,094,000
$16,968,000
$14,962,000
$15,058,000
$68,248,000
ln~ignificant
E
F
G
H
Total
Decrease
Numbers may not add up due to rounding.
Please let me know if you have any questions or need any further information. I can be reached at
410 347 2806.
I meet the Qualification Standards of the American Academy of Actuaries to render the
actuarial opinion contained in this letter. I am not aware of any direct or material indirect financial
interest or relationship, including investments or other services that could create a conflict of interest
that would impair the objectivity of our work
Sincerely,
f!t;L
~e~
MAAA, EA
Principal
Copy:
Aquil Ahmed, Mercer
The information contained in this document (including any attachments) is not intended by Mercer to
be used, and it cannot be used, for the purpose of avoiding penalties under the Internal Revenue
Code that may be imposed on the taxpayer.
g:\wp511dblmgewas\imputed compensation2.doc
 PDF to HTML - Convert PDF files to HTML files
3
OFFICE OF HUMAN RESOURCES
Isiah Leggett
County Executive
Joseph Adler
Director
MEMORANDUM
May 5, 2009
TO:
Philip Andrews, President
Montgomery County Council
Joseph Adler, Director
Office of Human Resources
Testimony for Public Hearing on Tuesday, May 5, 2009
FROM:
SUBJECT:
Thank you for the opportunity to testify. I am here to express my support for
Expedited Bill 18-09 and Bill 19-09. These two bills are necessary to implement the agreements
between the County and MCGEO, UFCW Local 1994, the exclusive representative of the
OPT/SLT bargaining units, and between the County and the Fraternal Order of Police
Montgomery County Lodge #3 5.
In the concession agreement between the County and MCGEO, the Union agreed to
postpone the 4.5 percent general wage adjustment that would have gone into effect for bargaining
unit employees in July 2009. Similarly, in the concession agreement with the FOP, the Union
agreed to postpone the 4.25 percent wage increase scheduled to take effect in July 2009. The
purpose of Expedited Bill 18-09 is to treat for retirement purposes Group A, E, F, and H Members
of the Employees' Retirement System as though they received the scheduled general wage
adjustment in their gross pay effective in July 2009.
Bill 19-09 amends the law regarding the composition of the Board of Investment
Trustees by providing that the representative selected by MCGEO, and approved by the County
Executive, to the Board of Investment Trustees be designated as an
ex-officio
member. Currently,
under the statute, the Directors of OMB, Finance, and OHR, and the Council Staff Director have
ex-officio
status. From MCGEO's perspective, this change would provide a measure of continuity
since
ex-officio
members are not subject to a three-year term like other members of the Board of
Investment Trustees.
The recently concluded bargaining agreement between the Montgomery County
Government and the Montgomery County Career Fire Fighters Association, International
 PDF to HTML - Convert PDF files to HTML files
2
Association of Fire Fighters, Local 1664 provides that Group G Members of the Employees'
Retirement System be treated for retirement purposes as though they received the scheduled
general wage adjustment in their gross pay effective in July 2009. The IAFF agreement also
includes a proviso that the Employer will submit legislation to the Council providing the
representative selected by the IAFF, and approved by the County Executive, to the Board of
Investment Trustees be designated as an
ex-officio member.
Since these negotiated items are
identical to that contained in Expedited Bill 18-09 for the FOP and MCGEO, and Bill 19-09 for
MCGEO, the County Executive has recommended that the Cou..11cil consider amending these bills
to include the applicable provisions in the IAFF agreement rather than by acting through separate
legislation.
Thank you for your time and attention. I would be pleased to answer any
questions you may have.
 PDF to HTML - Convert PDF files to HTML files
MEMORANDUM
DATE:
May 6, 2009
Management and Fiscal Policy Committee
Thomas Lowman, Bolton Partners, Inc.
TO:
FROM:
SUBJECT:
-rL
Comments on the Pension Amendment/definition of compensation
I have reviewed the May 4th memo from Joseph Beach to Phil Andrews, and Mercer's April 27th
letter to Wes Girling. These both addressed the pension cost associated with changing the
definition of compensation due to elimination of previously negotiated wage increases. The
higher annual pension cost of $8.589 million looks reasonable, given that the active liability is
about $1.5 billion.
I was asked to comment on the amortization period. I agree with the fourth paragraph of
Mercer's April 27th letter that a 10-20 year amortization period would be more appropriate.
Basically, there is no good reason to fund this beyond the time when those benefiting from the
change will be working. Thus, Mercer's 15 year amortization cost of $10.673 million is more
appropriate.
My understanding is that this change is permanent for all current employees; this means that
someone retiring 20 years from now, will have their pension based on a higher pay amount then
they actually will be receiving in 17-20 years (however, someone hired on 7/1/09
will
not have
such an advantage). There are reasons to argue an alternative position: any change of this sort
should apply as an add-on but only to pay earned during the duration of the union contract (when
the additional pay increase was eliminated). This more limited design would have a materially
lower cost and can legitimately be said to addresses the same issue (even if leaving open the
need to have future negotiations over whether the pay levels have "returned" to the appropriate
level).
My understanding is that Montgomery County is not alone in considering this issue. Anne
Arundel County has also prepared proposed legislation. However, Anne Arundel County's
proposal only increases compensation in FYIO.
If
someone's final average pay does not include
pay in FYlO (most will leave far enough into the future that it will not include FYlO), there
would be no impact on their pension. This makes the cost materially less than what Mercer
determined for the more generous proposal.
My main concern is over the funded status of the plan and the projected contribution increases.
The plan's recent serious investment losses will start showing up in FYI 1 contributions and be
fully reflected by FY15. The current FYlO contribution of $115 million, will likely climb by
tens of millions. I appreciate the reason for passing a bill of this nature, but it should not be
passed without a full appreciation of the future funding demands that will arrive shortly (and
ideally a belief that these increases can be handled).
Bolton Partners, Inc.
 PDF to HTML - Convert PDF files to HTML files
OFFICE OF THE COUNTY EXECUTIVE
Isiah Leggett
County Executive
ROCKV1LLE, MARYLA."lD 20850
MEMORANDUM
May 4, 2009
TO:
Philip M. Andrews, President
Montgomery County Council
FROM:
SUBJECT:
Isiah Leggett, County
Executive~~~--~
/'/
~
Memorandum of Agreement between the County and IAFF
I have attached for the Council's review the agreement resulting from the recent
collective bargaining discussions between the Montgomery County Government and the
Montgomery County Career Fire Fighters Association, International Association of Fire
Fighters, Local 1664. The agreement reflects the changes that will be made to the existing
Collective Bargaining Agreement effective through June 30, 2011. I have also attached a
synopsis of the agreed upon items to assist in the Council's review of the document. A fiscal
impact statement will follow.
We have also agreed with the IAFF to file a joint motion with Labor Relations
Administrator Andrew Strongin seeking to vacate his March 28, 2009 decision in the "Budget
Dispute" case.
Since the legislation necessary to accomplish these negotiated items is identical
to that contained in Expedited Bill 18-09 and Bill 19-09, currently before the Council, I
recommend that the Council consider amending these bills to include the applicable provisions
in the IAFF agreement rather than by acting through separate legislation. Specifically, I propose
that Expedited Bill 18-09 be amended to include Group G Members. The purpose of Expedited
Bill 18-09, which flows from the County's recent agreements with the FOP and MCGEO, is to
treat for retirement purposes Group A, E, F, and H Members of the Employees' Retirement
System as though they received the scheduled general wage adjustment in their gross pay
effective in July 2009. We have agreed to do the same for fire fighters. I also propose that Bil1
19-09, which changes the law regarding the composition of the Board of Investment Trustees to
provide that the representative selected by MCGEO, and approved by the County Executive, to
the Board oflnvestment Trustees be designated as an
ex-officio member,
be amended to include
the representative selected by IAFF.
I want to express my deep appreciation to the IAFF and its leadership for
recognizing the fiscal crisis facing Montgomery County, working constructively with the
County, and agreeing to make sacrifices that are in the best interests of the residents of the
·county.
 PDF to HTML - Convert PDF files to HTML files
MEMORAND.UM OF UNDERSTANDING
BETWEEN
THE MONTGOMERY COUNTY GOVERNMENT
AND THE
MONTGOMERY COUNTY CAREER FIRE F1GHTERS ASSOCIATION
INTERNATIONAL ASSOCIATION OF FIRE F1GHTERS, LOCAL 1664
This memorandum of understanding between the Montgomery County Government and the
Montgomery County Career Fire Fighters Association, International Association of Fire Fighters,
Local 1664, is intended to memorialize the concession agreement reached during direct negotiations in
April 2009.
The parties agree to amend the contract as follows:
L
FYJO Wages:
Article 19 is amended to add anew subsection to Section 19.1
F. The 4 percent wage increase scheduled under Section 19.1 C. to be effective the first
full pay period on or after July 1, 2009 shall be postponed and shall not be effective
during FYl 0. Salary-based benefits shall not be diminished as a result of the
postponement, and such benefits will be calculated as if the postponed wage increase had
been received as scheduled.
2.
Personal Days:
Article 6 is amended to include a new Section 6.15
Section 6.15 Personal Leave Days
At the beginning of each leave year, each bargaining unit member assigned to a
2,496-hour work year shall be credited with 48 hours of personal leave to be used for any
purpose. Each bargaining unit member assigned to a 40- or 42-hour work week shall be
credited with a prorated number of hours of personal leave. The days must be used in
full shifts (no partial shifts) and must be used during the leave year. ·All unused days are
forfeited at the end of the leave year. Requests to use personal leave days will need to be
scheduled and authorized in the same manner as annual leave is scheduled and approved.
Personal leave benefit will be pro-rated for part-time employees. This additional personal
leave will be taken and used without additional personnel costs or use of overtime to
backfill for unit members on personal leave.
3.
Compensatory Leave:
Article 49 is amended include a new Section 49.4
Section 49.4 Compensatory Leave Credit
Each bargaining unit member assigned to a 2,496-hour work year and at Step O,
LSl or LS2 on the pay scale shall, on a one time basis, be credited with 72 hours of
compensatory leave on their service increment date. Each bargaining unit member
assigned to a 40- or 42-hour work week and at Step 0, LSl or LS2 on the pay scale in
FYl 0 shall, on a one time basis, be credited with a prorated number of hours of
compensatory leave on their service increment date. This compensatory leave must be
used as leave.
4.
Sick Leave Donation Bank.
Article 7 is amended by adding a new sentence at the end of Section
7.9 to read: "Accumulated sick leave must be forfeited upon separation for any purpose other than
retirement. Accumulated sick leave is creditable for retirement purposes as provided in the employee
retirement system of Montgomery County. Unused sick leave of any employee separated from
 PDF to HTML - Convert PDF files to HTML files
service that is subject to forfeiture shall be placed in a sick leave donation bank to be maintained
by MCCFFA for the use of employees in need of sick leave donations."
5.
Notice of Charges.
Amend the first sentence of Section 30.3.C. to read as follows: "Prior to an
exarEination, the Employer agrees to i:u.form the Union representative in writing (which may be done
by email communication) of the subject of the examination." Amend Section 30.5.C. to read as
follows: "The employee, and at the employee's discretion, the union, shall be notified by the
investigating official in writing of the alleged charges or conduct for which the employee is being
investigated upon notification of interview/examination being scheduled.
An
email communication is
sufficient to meet the writing requirement under this section."
6.
Board of Investment Trustees.
Article 51 is amended by adding a new Section F.
F. Prior to September 1, 2009, the Employer shall submit legislation to the County
Council providing that the representative selected by MCCFFA and approved by the
County Executive to serve on the Board of Investment Trustees shall be designated as an
Ex Officio
member.
7.
Retirement Benefit Calculation.
Article 51 is amended by adding a new Section G.
G. Prior to September 1, 2009, the Employer shall submit legislation to the County
Council pro'\'iding that, for purposes of retirement benefit calculation, all bargaining unit
members shall be credited at the annual salary amounts as
if
the postponed 4 percent
general wage increase had been paid in FYIO.
8.
Access to Centers.
Article 35 is amended by adding a new Section 35.6
Section 35.6
,A~ccess
to Centers
All bargaining unit employees will be granted access to, and use of, recreation center
gym/weight rooms and aquatic centers free of charge. In order to receive such access the
bargaining unit members shall follow the administrative process established by the
parties.
9.
LRA Decision.
The Union has filed an appeal ofLRA Strongin's March 28, 2009 Decision and
Award. The parties shall file a joint motion and proposed Order (attached as Exhibit A) with LRA
Strongin asking
him
to vacate the March 28, 2009 Decision and Award. If he signs the Order vacating
the Decision and Award, the Union will voluntarily dismiss its appeal. The parties agree that they will
neither cite nor attempt to rely on the vacated decision in any way.
In
the event that LRA Strongin
does not issue an Order vacating the March 28, 2009 Decision and Award, the parties shall file a joint
motion and proposed Order (attached as Exhibit B) with the Circuit Court requesting the Court to
vacate the LRA Decision and Award and to dismiss the appeal.
In
the event that the Circuit Court does
not enter the Order, the Union will pursue the appeal.
10.
Donation of Forfeited Annual Leave.
Article 30 is amended to add a new Section 30.8
Section 30.8 Donation of Forfeited Annual Leave
An
employee ·who accepts a forfeiture of annual leave in lieu of other discipline may elect
to have the forfeited sum (the salary-based value of the annual leave) donated to the
Union's Welfare and Benefit Fund upon written notice to the employer.
1 L
Employee Recognition.
Article 33 is amended by adding Section 33.D
2
 PDF to HTML - Convert PDF files to HTML files
Section 33.D IAFF members who are bargaining unit employees shall be authorhed to
wear and display the IAFF logo on all uniforms issued or authorized by the County. The
IAFF Logo shall be
in
the form of either a patch, pin, silk screened or embroidered logo.
In
addition all IAFF members who are bargaining unit employees shall be authorized
to
wear an IAFF logo patch on all County issued turnout gear and an IAFF logo helmet
sticker on all issued or approved structural fire fighting helmets. The specific IAFF logos
autho-rized under this section shall be determined by the Union. Location and size of the
union insignia identified in this section will be determined by the Union, subject to the
reasonable approval by the Fire Chief. All costs associated with the installation of the
union insignia
will
be at the expense of the employee.
12.
Driver Disposition Palicy.
A Driver Disposition Policy shall be developed no later than January 1,
2010 consistent with the April 1, 2005 memorandrnn from Chief Thomas W. Carr, Jr. to President Jol1n
Sparks.
13.
Good Faith.
The Parties agree to fully support all legislative proposals drafted and submitted
pursuant to this Agreement to ensure their approval by the Montgomery County Council.
14.
Parity.
Article 19 is amended to add a new subsection to Section 19.1
G. The parties recognize the economic situation facing the County, particularly the
shortfall in projected revenues for FYlO. The County is calling on all of its employees to
come together to deal with this grave situation. The Union and the County Executive, on
his own behalf and on behalf of the non-represented employees in County leadership
positions, are willing to make financial sacrifices in FYlO, and the parties call on each
member of the County Council to make similar sacrifices. Postponement of the general
wage increase described in Paragraph 1 above shall be rescinded and the County
Executive agrees to promptly seek funding from the County Council to retroactively pay
such general wage increase unless (a) the County Executive returns to the County the net
mandated pay increase required to go into effect in December 2009 under Section. Sec.
lA-106 of the Code and
(b)
no general wage adjustment is given in FYlO to any appointed
member of the Senior Management Team. The Parties recognize and agree that this
provision does not impact salary schedule step increases.
3
@
 PDF to HTML - Convert PDF files to HTML files
Staff Amendment 1
Amend lines 7-15 as follows:
TQmcalculate regular [[Regular]] earnings for FYI 0 only for
member who is employed on July
~
Group
At
~
or H
L.
2009 and participates in the integrated or
L.
2009, except for the purpose of
employed on
optional plan must include amounts as if the member had received an increase of
4.5% in the member's gross
calculating
~
QID:
as of July
~
member's contribution under Section 33-39.
Group F member who
[[Regular]] earnings for FYI 0 only for
July
L.
2009 and participates in the integrated or optional plan must include
as of July
amounts as if the member had received an increase of 4.25% in the member's gross
QID:
L.
2009, except for the purpose of calculating
~
member's
contribution under Section 33-39.
 PDF to HTML - Convert PDF files to HTML files
Drummer, Bob
From:
Sent:
To:
Subject:
Trachtenberg's Office, Councilmember
Monday, May 11, 2009 3:24 PM
Drummer, Bob
FW: ERS and RSP
O'Neill
Chief of Staff to Councilmember Duchy Trachtenberg
Montgomery County Council
100 Maryland Avenue
Rockville, MD 20850
240-777-7965 (office)
240-777-7989 (fax)
301-233-8582 (cell)
.oneill@montgomerycountymd.gov
Message-----
From: Gail H [mailto:gheath@mcgeo.org]
Sent: Monday, May 11, 2009 12:09 PM
To: Ike Leggett; Firestine, Timothy; Adler, Joseph; Andrews' Office, Councilmember;
Berliner's Office, Councilmember; Ervin's Office, Councilmember; Knapp's Office,
Councilmember; Leventhal's Office, Councilmember; Floreen's Office, Councilmember;
Trachtenberg's Office, Councilmember; Elrich's Office, Councilmember
Cc: Gino Renne; cbutsavage@butsavage.com; Bob Stewart; gailh@mcgeo.org
Subject: Fw: ERS and RSP
It is with
regret I must inform you of my disappointment in the County's change of
position/reneging with
to this section of the compromise agreement. Consequently, I
must inform you that the County's position of this matter is inconsistent with what our
membership ratified. In accordance with our ratification process we must inform you that
the compromise agreement between UFCW Local 1994 MCGEO and Montgomery County Government is
null and void. Please contact us immediately to discuss what
can be taken to reach
agreement in the delay of our 4.5% cost of living.
Gino
Original
From: Gino Renne
To: Gail H
Sent: Mon May 11 10:51:26 2009
ect: FW: ERS and RSP
Message-----
From: Adler, Joseph [mailto:
.Adler@montgomerycountymd.
Sent: Monday, May 11, 2009 8:11
AM
To: Gino Renne
Cc: Boucher, Kathleen;
George; Girling, Wes
Subject: ERS and RSP
Gino
The County is not able to extend the imputed GWA to members of the RSP. Our estimate is
that this would cost approximately an additional $1.5 million --all of which would have to
come out of the operating budget.
I realize that we have an honest difference of
on this, but our aim in making this concession was to
ERS members whole since their
final pension
is dependent upon salary and years of service, and not upon
investment performance as is the case with RSP members.
As you are aware, even the ERS portion of the current MOU's is generating opposition from
staff and members of the County Council. Add:ng another costly item during this time
of~
 PDF to HTML - Convert PDF files to HTML files
budget strain could well serve to
Joe Adler
reject the imputed GWA clause.
2
@
 PDF to HTML - Convert PDF files to HTML files
MFP Item 1
May 13, 2009
Supplemental Worksession
MEMORANDUM
TO:
FROM:
SUBJECT:
Management and Fiscal Policy Committee
Robert H. Drwnmer, Legislative Attorney
~
Supplemental Worksession:
Expedited Bill 18-09, Personnel - Retirement -
Imputed Compensation
After the publication of the action packet for Expedited Bill 18-09, Office of Human
Resources Director Joseph Adler forwarded an executed Memorandum of Agreement (MOA)
with the Municipal and County Government Employees Organization United Food &
Commercial Workers, Local 1994 (MCGEO) modifying their previously submitted MOA. See
©l. The revised MOA adds the following sentence to resolve their dispute over the agreement
on imputed compensation in Article 41.6 (See ©4-5):
The parties agree to jointly submit legislation to the County Council providing
that for the purposes of retirement benefit calculation, all bargaining unit
members shall be credited at the annual salary amounts as if a 4.5% cost of living
adjustment had been paid in FY-2010. This means that for
f!:
RSP or GRIP
participant who is on the County payroll as of June 30, 2009 and who is also on
the County payroll as of June
JQ,_
2010, the County will make
f!:
one time
contribution to the participant's RSP or GRIP account on the second
Pf!:Y
period
in
July 2010 of .36% of the participant's FY 2010
earnings~
defined in the RSP or
GRIP). (New language underlined)
This provision would provide RSP
&
GRIP employees in the bargaining unit with a one
time contribution to their retirement accounts of .36% of earnings. This amount represents the
equivalent of the additional amount an employee in the RSP would have received in the
employer's contribution for FYlO if the employee had received the postponed 4.5% general
wage adjustment (8% x 4.5%
=
.36%). Unlike the imputed compensation for the ERS
employees, the imputed compensation for RSP employees would be a one time contribution that
would not carry over to future years.
It
would not affect FY 10 operating funds because it would
be paid in FYl
1.
Effectively, this provision would advance money from FYl 1 to balance the
FYlO budget.
We do not have a Fiscal Impact Statement for this amendment yet. However, since it
would require the appropriation of FYI 1 operating funds, the legislation necessary to implement
this provision can be enacted in FYIO as a new Bill separate from Bill 18-09. However, if the
Committee wants to amend Bill 18-09 to implement this provision, we have drafted an
amendment that would add two uncodified sections to the Bill for this one-time contribution.
See the Executive Amendment at ©9.
 PDF to HTML - Convert PDF files to HTML files
This packet contains
Revised Memorandum of Agreement with MCGEO
Executive Amendment
1
9
F:\LA W\BILLS\0918 Personnel-Retirement-Imputed Compensation\MFP-Supplement Memo.Doc
2
 PDF to HTML - Convert PDF files to HTML files
MEMORAN'DUM OF
UNDERSTANDING
BETWEEN
THE MONTG011ERY COUNTY GOVERNMENT
.
AND THE
MlJN1CIPAL
&
COUNTY GOVERNMENT EMPLOYEES ORGANIZATION
UNITED FOOD
&
COMMERCIAL
WORKERS,
LOCAL
1994
This memorandum of understanding between the Montgomery County Government and the
Municipal
&
County Government Employees, UFCW Local 1994, is intended to memorialize
the concession agreement reached duiing direct negotiations
in
January 2009.
Please use the key below when reading this regulation:
Boldface
J.Jnd{:rlini_gg
[Single boldface brackets]
Headjng or defined term.
Added
lo
existing regulation by proposed regulation.
Deleted from existing regulation
by
proposed regulation.
The
parties
agree
to
amend
the
contract
as follows:
*
*
*
The
parties recognize the economic crisis
facing the Countv.
particularly the
9_venvhelming revenue short
fall projected for :fiscal
year
20 l
0.
The
County is
calling
on
all
of
its
em_m.ove~~J9
c9m_~
together
to
deal
with this grave situation. lt is in this context that the
Q_arties have agreed
to these amendments to the
Collective
Bargaining agree!llent for fiscal year
l.0
I Q_,_The__County intends to require simHar financial
sacrifices
from all employees in
fiscal
year
201Q""
*
ARTICLE 5-
WAGES, SALARY
AND
EMPLOYEE
COMPENSATION
*
5.2
Wages
*
*
*
*
*
(c)
Effective
the first full pay period following July 1, 2009, each unit member shall
receive a 4.5 percent
increase.
Bargaining unit
employees
shall be paid a base
salary pursuant to the uniform pay plan, which appears in Appendix VUC of this
agreement. This General Wage Adjustment shall be postponed and
shaJlnQ.t
be
effecti
v~
durtllli..fisc_aj_
year:...2010.
@
If
the
Co!,,mtv
gQY.~Dlill~nt
O.J
MCPS negotiates higher
compensation
jg1prov~.ID~!..4;Jor
.l!UY_Qf
its_~mp.l9J1.~~ org?.ffi_~µJ.igns_gpring_FY.:2..QJ
0.
~xcept
for
@
 PDF to HTML - Convert PDF files to HTML files
.HOC and
~fNCPPC.
those higher increases will be matched for bargaining unit
employees.
ill
In
the event the Countv's financial condition improves and there are funds in
excess of that necessary to maintain the current level of services, then the
parti~12.
may
reopen
this
agreement
tQ
discuss wages.
*
ARTICLE 6
6.1
*
*
SERVICE INCREMENTS
Service Increments
*
.(sJ
*
*
Bargaining Unit employees shall continue to be eligible for regularly scheduled
service increments in
FY-2010
under this article.
[<;!).
All
bargaining
unit
members who are
at
the top
of
their
salarv
grade
in FY-20 l 0.
shall on
aqne
time basis. be credited with sixty (60) hours of compensatorr_leave
on their service increment date. The employee must use the
sixty
hours
~
leave.
*
ARTICLE 21 -
BE~'EFITS
*
*
*
*
*
21.3
Employee Benefits Committee
(a)
(2)
make findings and/or recommendations to the parties regarding changes in
employee benefits and cost containment initiatives.
*
*
{21.4
}l~altll.ItQ.ncfit Revi~Yv:_for
Calendar
Yqars
1998-2000
The .Employee
Benefits
Committee
will
conduct a review of the County's health, life, and
dental benefits plan for calendar years 1998-2000. The Committee review shall include, but not
be limited to, the following topics:
(a)
improvements in dental, vision, and prescription benefits at same or lower costs;
unbundling of
dental,
health
and
life
benefits;
Pru-Plus out of network deductible;
podiatry care;
coverage of alternative medicine; and
(b)
(c)
(d)
(
e)
 PDF to HTML - Convert PDF files to HTML files
(f)
coverage for employee who live out of state.j
*
21.14
(b)
*
*
The parties agree to jointly establish an interagency labor/management study
committee that
will
review the feasibility of creating an interagency, multi-
employer Health Benefits Board
of
Trustees to assume
the
administration
of the
participating agencies' health insurance funds/programs. The joint s'tudy
committee
will
also consider all reasonable issues regarding the subject of health
benefit'> cost containment. Membership on the joint study committee will be
equally split between union and management representatives. Each
participating
agency and its unions will be represented
by
an equal number of participants.
The committee
will
present
its
report by [July 30, 2005] Dece_m.ber 3 L 2010.
*
ARTICI,E
27 -
REDUCTION-IN-ll'ORCE
*
*
*
*
27 .5
Bargaining Unit
Job Security
*
*
*
*
The
County
recognizes
the
bargaining units' support of the
County's
role
in
the
implementation of the
Personal Responsibilities and Work Opportunities Act
of 1996 and the
We(fare Innovations Act
of 1997. In implementing those acts, the County will comply with the
Agreement
as well as all federal, State, and County la\vs, regulations, and
policies
pe1taining to
employee
displacement
and job protections. The
Cour1~t@lLrnake
every effort to avoid the
lc;yoff
ofbargaining_unit members consjstgn.t
wi!h_Mifle
27 of this Agreement to include__
t_h~
elimination/redu~J:i9l1_Qf
services
provided
by
contr21:9_!_or(s)
either employed by an outside
yendor or
by
the county
~-~JLiP.dividual
contractor,
regardl~~§.Qf
funding source.
In
addition,
the
~punty
will continue to use
Discontinu?Q_S~rYice
Retirement as in the pas_t
*
ARTICLE
28 -
DISCIPLINARY ACTIONS
*
*
*
*
28.6
lnvestigati ve Examinations
·---
-"~---~
*
*
*
 PDF to HTML - Convert PDF files to HTML files
.(hl
Emn.lgvees
shall be
notified of
their right to
representation
upon notice that
they
are subject
to
investigation.
28.7
Rights
of
Union
Representative
During
Investigative
Examinations
*
*
*
ill
After
a
question
is
asked_Jhe steward can
advi§~
the bargaining
unit member on
how
tO__.§:_J;l.SW~L.
*
ARTICLE
36 -
UNION
ACTIVITIES
*
*
*
*
*
36.2
Paid time used under
this
Article
shall be
charged to
administrative
leave. There shall be
established an Administrative
Leave
Bank a maximum of [840} lOOQ hours per year for
use
by
SLT Unit Council representatives and a maximum of £1560] l 700 hours per year
for
OPT
Unit Council representatives as defined
in
this Agreement. Any leave used
under this procedure
shall
be recorded and charged in accordance with procedures agreed
upon by the parties. The Union
shall
make every effort
to
give as much advance notice
as possible. Leave not used in
any
year shall not be carried over to the ne:;,.'1 year.
*
ARTICL.K 41- RETIREMENT
*
*
*
*
*
*
*
41.3
Retirement Committee
*
ill
The parties
~gee
that
in
accordance
Yl.LtJ1Jhe
County
policy
on
Bo~rds
and
Commissions, to submit legislation
providi!ig
that the
reprcsentatiy~_selefted
by
UFCW Locgl 1994 a11d approved
by
the Countv Executive
t9
the Board of
Investment Trustees
sh~l
be
designated as an Ex
Offico
member.
*
*
*
D1e_Q_fil!i.~'!_agree
to joi:ntly
su}Jmit
legislation to the Cq_untv Council providi:p._g!Wlt for
!h~QY.rpos_es
of retirement
b~ne:fit
calculation,jaj.J bargaining unit me:rpbers shallbe
credited at the annua!_
sal~apiounts
as
if
a 4.5% g:tst of
living
adjustment
b.:e:Q:_peen
paid