Agenda Item 16
June 15,2010
Public Hearing
MEMORANDUM
TO:
FROM:
SUBJECT:
County Council
.Robert H. Drummer, Senior Legislative Attorney
Public Hearing:
Expedited Bill 35-10, Personnel
Imputed Compensation
/1!iV
l~
Disability Retirement ­
Expedited Bill 35-10, Personnel - Disability Retirement - Imputed Compensation,
sponsored by Councilmembers EIrich, Andrews, and Trachtenberg, was introduced on May 27,
2010. A Management and Fiscal Policy (MFP) Committee worksession was held on June 14.
Background
Bill 35-10 would amend the definition of final earnings to extend imputed compensation
beyond FYIO for certain employees who applied for disability retirement benefits under the
employees' retirement system (ERS) by May 18, 2010. The Bill would also modify the
qualifications, selection, and operating procedures for the members of the Disability Review
Panel.
Although the Executive and each of the 3 County employee unions representing police,
fire, and general government workers agreed to "postpone"! the previously negotiated general
wage adjustments for FYIO last year, Expedited Bill 18-09 required that the calculation of
regular earnings used to determine a retirement benefit include the FYIO general wage
adjustment as if the employee had received
it
on July 1, 2009? This imputed compensation was
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. However, Expedited Bill 16-10, enacted on
May 18, amended the retirement laws to limit the effect of the imputed compensation to the
calculation of regular earnings for FYlO only.
During the debate on Bill 16-10, the Council discussed an amendment that would have
created an exception for Group G members (Fire and Rescue) who have a pending application
for disability retirement that is approved after July 1. A disability retirement benefit is calculated
based upon an employee's "final earnings" or the employee's regular earnings as of the last date
Although the collective bargaining agreements use the term "postpone," the Council did not fund these wage
adjustments in the Approved FYll Operating Budget.
2
Employees of the Montgomery County Public Schools also agreed to "postpone" a negotiated general wage
adjustment for FY I 0, but did not receive this imputed compensation.
1
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of active service.
3
Therefore, the final earnings for an employee who applies for disability
retirement in FYI0 and is approved in FYIl would be regular earnings in FYll. Regular
earnings in FYII would be less than regular earnings in FY 10 because Bill 16-10 limited the
imputed compensation to the calculation of regular earnings in FYI0.
4
The Bill would provide that an employee of any retirement Group in the ERS with the
benefit of the FYI0 imputed compensation if the employee applied for disability retirement
before May 19,2010 and is approved after July
1.
During the Council debate on Bill 16-10,
OHR reported that there were 8 applications for disability retirement from Group G members.
However, OHR received an additional 15 applications from Group G members on May 18 after
the Council action on Bill 16-10. The total universe of disability retirement applications pending
on May 18,2010 is:
Group G (Fire and Rescue) 23
Group F (Police) - 4
Group H (MCGEO non-public safety)
Group A (unrepresented) - 2
Group E (Corrections) - 1
4
The fiscal impact statement estimates the additional increase in actuarial accrued liability of
adding the imputed compensation to a disability retirement benefit for all of these employees is
$1.2 million. Based upon the 40-year amortization schedule used for the imputed compensation
last year, the additional annual contribution to the ERS Trust Fund for all 34 employees would
be $93,500 each year for the next 40 years. See ©7-11.
Bill 37-08, Personnel - Disability Retirement -Amendments, enacted on May 12, 2009,
modified the qualifications and selection procedures for members of the Disability Review Panel
(DRP). DRP members are all physicians· who review medical evidence and make a
recommendation as to an applicant's eligibility for a disability retirement benefit. Bill 37-08
required all DRP members to be either certified as a specialist in occupational medicine or
posses 10 or more years of experience practicing occupational medicine. Bill 37-08 also
required the Chief Administrative Officer (CAO) to appoint all 4 members from a list of at least
10 impartial, unbiased medical doctors willing and able to serve provided by one or more
impartial medical organizations.
The Office of Human Resources (OHR) reports that despite issuing an RFP to retain an
impartial organization to provide nominations and conducting several discussions with potential
organizations, OHR has been unable to retain an impartial organization. The two problems cited
by potential proposers were the limited supply of occupational medicine specialists willing to
serve and the requirement that the list include at least 10 names. Consequently, OHR has not
been able to forward any new names to the CAO for possible selection as a DRP member since
Bill 37-08 became law. The DRP currently has 2 members who were appointed prior to the
A service connected disability retirement benefit for Group G is at least 52.5% of final earnings for partial
disability and at least 70% of final earnings for total disability. A service connected disability retirement benefit for
both partial and total disability is at least 66.7% of final earnings for all other groups in the ERS.
4
Regular earnings in FYII will also be less than FYIO due to the temporary reduction in salary from furloughs.
However, Expedited Bill 18-10, enacted on May 18, ensures that retirement benefits are not reduced due to the
furloughs.
3
2
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effective date of Bill 37-08, neither of whom is a specialist in occupational medicine. Bill 35-10
would require only 1 of the 4 members to be a specialist in occupational medicine and reduce the
minimum size of the list provided by an impartial organization from 10 to 5.
This packet contains:
Expedited Bill 35-10
Legislati ve Request Report
Fiscal Impact Statement
Circle
#
1
6
7
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Expedited Bill No.
35-10
Concerning: Personnel
Disability
Retirement - Imputed Compensation
Revised: May 21 , 2010 Draft No.
Introduced:
May 27, 2010
Expires:
November 27.2011
Enacted: _ _ _ _ _ _ _ _ __
Executive: _ _ _ _ _ _ _ _ __
Effective: ____- - - - - - ­
Sunset Date: No Expiration
Ch,
~,
Laws of Mont. Co.
[year]
COUNTY COUNCIL
FOR MONTGOMERY COUNTY, MARYLAND
By: Councilmembers EIrich, Andrews, and Trachtenberg
AN EXPEDITED ACT
to:
(1)
amend the deflnition of flnal earnlngs to extend imputed compensation beyond
FYlO for certain members who apply for disability retirement beneflts under the
employees' retirement system by a certain date;
modifY the qualiflcations, selection, and operating procedures for disability review
panel members; and
generally amend the law regarding disability retirement.
(2)
(2)
By amending
Montgomery County Code
Chapter 33, Personnel and Human Resources
Sections 33-35 and 33-43
Boldface
Underlining
[Single boldface brackets]
Qouble underlining
[[Double boldface brackets]]
* * *
Heading or defined term.
Added to existing law by original bill.
Deletedfrom existing law by original bill.
Added by amendment
Deletedfrom existing law or the bill by amendment.
Existing law unaffected by bill.
The County Council for Montgomery County, Maryland approves the following Act:
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ExPEDITED BILL
No. 35-10
1
Sec.
1.
. Section 33-35 is amended as follows:
2
3
33-35. Definitions.
In this Article, the following words and phrases have the following meanings:
4
*
*
*
5
6
7
Final earnings:
Except as otherwise provided, the regular earnmgs of a
member as of the last date of active service. Final earnings for
~
member who
filed an application for disability benefits under Section 33-43 before May 19,
2010 that is approved after June 30, 2010 must be the member's regular
earnings on the date of the member's application.
8
9
10
11
12
13
14
15
16
17
*
33-43. Disability Retirement
*
*
*
*
*
(c)
Selection ofthe Disability Review Panel.
(1) The Chief Administrative Officer must appoint 4 members of the
Disability Review Panel from a list of at [lease 10] least
~
impartial, unbiased medical doctors willing and able to serve
provided by one or more impartial medical organizations retained
by the Chief Administrative Officer.
If the list of doctors
18
19
20
provided by the impartial medical organization is not agreed to
by the certified representatives and the County, the certified
representatives must strike [3 names]
1
name from the list and the
County must strike [3 names]
strikes.
21
22
23
24
25
1
name from the list by alternating
The Chief Administrative Officer must appoint a
member from the remaining [4]
J.
names on the list.
(2)
The Chief Administrative Officer must appoint members who are
licensed to practice medicine and certified in
~
medical specialty
under standards established
!2y
the American Board of Medical
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EXPEDITED BILL
No. 35-10
1
Specialties (or
~
successor organization). At least
1
member [who
are] must be either:
(A) certified by the American Board of Preventive Medicine
(or a successor organization) as a specialist in occupational
medicine; or
(B) certified in a different medical specialty and have at least
10 years of experience practicing occupational medicine.
(3)
(A)
The Chief Administrative Officer must appoint members
under subsection (c)(1) for staggered 3-year terms. To
implement the staggered terms, the Chief Administrative
Officer must appoint the first member to a 3-year term, the
second member to a one-year term, and the third and
fourth members to a 2-year term. After these initial
appointments, the Chief Administrative Officer must
appoint all members to 3-year terms, except for any
member appointed under subsection (c)(6) to fill a
vacancy.
(B) After the Chief Administrative Officer appoints or
reappoints a Panel member, the Chief Administrative
Officer must promptly send each certified representative a
copy ofthe document confirming the appointment.
(4)
When a Panel member's term expires, the Panel member my be
reappointed to a new 3-year term unless, at any time within 30
days to 60 days prior to the expiration of the term, a certified
representative notifies the County and the other certified
representatives or the County notifies the certified representatives
that it objects to the reappointment of the Panel member. If there
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14
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20
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EXPEDITED BILL
No. 35-10
1
2
3
4
IS
no objection, the Panel member
IS
eligible to serve an
additional term or terms.
(5)
If
a Panel member declines to be reappointed to the Panel, the
Chief Administrative Officer must appoint a new Panel member
from a list of at least
[10]
subsection (c)( 1).
(6)
~
5
medical doctors as provided for in
6
7
8
If
a vacancy on the Panel is created by a Panel member's death,
disability, resignation, non-performance of duty, or other cause,
the Chief Administrative Officer must appoint a medical doctor
to complete the Panel member's term from a list of at least
[1 0]
medical doctors as provided for in subsection (c)(l).
~
9
10
11
12
13
(7) The County must pay the impartial medical organization retained
by the County and each Panel member reasonable compensation,
as determined by the Chief Administrative Officer, for services
rendered.
(d)
Disability retirement procedures.
14
15
16
17
18
19
*
*
*
(6) The Panel must meet in person"
Qy
telephone conference, or
Qy
video conference, and review and consider all evidence submitted
to it no later than 60 days after the application is filed. A Panel
must include either
~
20
21
22
23
24
25
26
or
J.
members. [majority] At least
~
members must vote [of
3]
[members} in favor of
f!
decision [is
required} to take any action under this Section.
*
Sec. 2.
*
*
Expedited Effective Date.
The Council declares that this legislation is· necessary for the immediate
protection of the public interest. This Act takes effect on the date on which it
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ExPEDITED BILL
No. 35-10
1
becomes
law.
2
*
Approved:
*
*
3
4
5
Nancy Floreen, President, County Council
6
Date
Approved:
7
Isiah Leggett, County Executive
Date
8
This is a correct copy o/Council action.
9
Linda M. Lauer, Clerk of the Council
Date
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LEGISLATIVE REQUEST REPORT
Personnel
Expedited Bill 35-10
Disability Retirement -Imputed Compensation
DESCRIPTION:
This Bill would amend the definition of final earnings to extend
imputed compensation beyond
FYIO
for certain members who apply
for disability retirement benefits under the employees' retirement
system. The Bill would also modify the qualifications, selection, and
operating procedures for the members of the Disability Review
Panel.
The enactment of Expedited Bill 16-10 limited the use of the FYI0
general wage adjustment that was not paid to the calculation of
regular earnings for retirement purposes to
FYlO.
A limited number
of employees have pending applications for disability retirement that
will be approved in
FYIl.
In addition, the County has had difficulty
recruiting new members for the Disability Review Panel due to the
mandatory qualifications and selection procedures.
The Bill is intended to permit an employee with a pending disability
retirement application that is not approved until FYl1 to enjoy the
benefits of the imputed compensation for
FYlO.
The Bill is also
intended to enhance the recruitment of new members for the
Disability Review Panel.
Office of Human Resources, County Attorney's Office
To be requested.
To be requested.
To be requested.
To be researched.
Robert H. Drummer, Senior Legislative Attorney, 240-777-7895
Not applicable.
PROBLEM:
GOALS AND
OBJECTIVES:
COORDINATION:
FISCAL IMPACT:
ECONOMIC
IMPACT:
EVALUATION:
EXPERIENCE
ELSEWHERE:
SOURCE OF
INFORMATION:
APPLICATION
WITHIN
MUNI CIPALITIES:
PENALTIES:
Not applicable.
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OFFICE OF
MA~AGEMENT
AND BUDGET
Isiah Leggett
County Executive
Joseph F. Beach
Director
MEMORANDUM
June 10,2010
TO:
FROM:
SUBJECT:
Nancy Floreen, President, County Council
t)~£.-.!(~
4,l.1'­
Joseph F. Beadi, Director, Office of Management and Budget
Expedited Bill 35-10, Personnel- Disability Retirement
Imputed Compensation
The purpose of this memorandum is to transmit a fiscal and economic impact statement to
the Council on the subject legislation.
LEGISLATION SUMMARY
This bill amends the defmition of final earnings to extend imputed compensation beyond
FYI0 to those employees who, as of May 19, 2010, have pending disability retirement applications that
are not approved until after June 30, 2010.
In
response to the difficulty experienced recruiting new
Disability Review Panel members, the bill also modifies the qualifications, selection procedure, and
operating procedure for members of the Disability Review PaneL
FISCAL AND ECONOMIC SUMMARY
There are 34 employees who have applied for disability retirement as ofMay 19,2010, and
whose applications are not anticipated to be approved before June 30, 2010. The estimated annual
maximum incremental cost to provide these employees with a disability retirement benefit that includes
an imputed general wage adjustment in FYI1
1
is $93,500 annually assuming a 40-year amortization
period. The actual cost of the proposed legislation will be lower if:
• employees retire before July 1,2010;
• employees' benefits are based on average fmal earnings (over the final three years of
servicei; or
• some employees have their disability applications denied.
general wage adjustments originally negotiated or assumed for Montgomery County employees were
4.0%
for IAFF and Fire Management, 4.25% for FOP and Police Management, and 4.5% for MCGEO and non­
represented employees,
including
Management Leadership Service employees.
2
The estimate is based on the assumption that most employees' benefits will be based on
final
earnings.
1
FY10
Office of the Director
101 Monroe Street, 14th Floor· Rockville, Maryland 20850 • 240-777-2800
www.montgomerycountymd.gov
7
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Nancy Floreen, President, County Council
Page 2
June 10,2010
The proposed changes to the qualifications, selection procedure, and operating procedure
are not expected to have a fiscal impact. Although indeterminate, the change will likely result in an
administrative cost savings because the required number of physicians on the panel has been reduced
from 10 to 5 and the qualifications of potential panel members has broadened to include those licensed to
practice medicine in specialties other than occupational medicine, making
it
easier to identify potential
and willing panel members.
There is no economic impact due to the proposed legislation.
The following contributed to and concurred with this analysis: Wesley Girling, Office of
Human Resources, Michael Coveyou, Department of Finance, and Lori O'Brien, Office ofManagement
and Budget.
JFB: lob
Attachment
c:
Kathleen Boucher, Assistant Chief Administrative Officer
Dee Gonzalez, Offices ofthe County Executive
Joseph Adler, Director, Office of Human Resources
Wesley Girling, Office of Human Resources
Stuart Weisberg, Office of Human Resources
Michael Coveyou, Department of Finance
Alex Espinosa, Office of Management and Budget
Lori O'Brien, Office of Management and Budget
John Cuff, Office of Management and Budget
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Douglas L. Rowe, FSA, MAAA,
EA
Principal
MERCER
l_1ltIIf
n_
MARSH MERCER KROLL
GUY CARPENTER' OLIVER WYMAN
120 East Baltimore Street, 20th Floor
Baltimore. MD 21202-1674
+14103472806
Fax +14107273347
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
June 9, 2010
Subject:
Fiscal Impact of Imputed Compensation for Disability Benefits
DearWes:
This letter summarizes the fiscal impact of imputed compensation on the pay used to
determine the disability benefit for 34 individuals. The calculations are based on the
compensation and employee group data in your May 26,2010 email. We have also used
data from the July 1, 2009 actuarial valuation. 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, we mean the amortization of the increase in unfunded liability unless otherwise
indicated. We have based the cost on a disability retirement date of July 1, 2010 and
assumed that the County would recognize the cost in FY2011 if it would recognize the
savings for ending broadly-applied imputed compensation in FY2011.
Other Considerations
If the savings for ending broadly-applied imputed compensation will be amortized over 40
years, the cost for disability-only imputed compensation might best be amortized over 40
years. Otherwise, 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 1O-year amortization period. We show detailed
results below for the County's traditional 40-year amortization period and for a 10-year
amortization period. The amortization payment will remain level for the chosen period - 40
years or 10 years.
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 have been in effect during FY2010 would continue to apply to
disability retirees who apply prior to July 2, 2010 regardless of the date of approval.
Consulting. Outsourcing. Investments.
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MERCER
[~ ~~~~~RP~~~~EROL~RE~~YMAN
Page 2
June
9,2010
Mr. Wes Girling
Montgomery County Government
Estimated Cost for Proposed Change
• Annual contribution using 40-year amortization for the 34 members identified: $93,500
• Annual contribution using 1O-year amortization for the 34 members identified: $166,200
• Increase in Actuarial Accrued liability for represented and non-represented members:
$1.2 million (or around $35,000 per individual) at July 1, 2010.
The cost is not the same for each member. Iffewer (or more) than 34 participants receive
this benefit, the cost will be only roughly proportional.
Assumptions
All 34 individuals would retire with a disability retirement on July 1, 2010 regardless of
whether imputed compensation would affect their Final Earnings. Group G members are
assumed to receive a 70% disability benefit. Group
A.
E, F, and H members are assumed to
receive a 66%% disability benefit. All other assumptions are the same as the assumptions in
the July 1, 2009 actuarial valuation.
Mercer has prepared this letter exclusively for the Montgomery County Government for the
purpose of illustrating the contribution increase of these 34 individuals receiving their
disability benefit with the imputed compensation in their Final Earnings. 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 one scenario from a range of
possibilities. However, the future is uncertain, and the system's actual experience will likely
differ from the assumptions utilized and the scenario 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.
The Governmental Accounting Standards Board (GASB) is working on a project on
Postemployment Benefit Accounting and Financial Reporting. While the final requirements
and effective date are uncertain, we believe changes in the current GASB 27 requirements
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MERCER
t.:=L
MARSH
MERCER
L_~
GUY CARPENTER
KROLL
OLIVER WYMAN
Page 3
June 9,2010
Mr. Wes Girling
Montgomery County Government
are likely. Based on the tentative decisions to date, those changes are likely to increase
(perhaps substantially) the amount the County will have to report as its Annual Required
Contribution (ARC). While GASB has no authority to actually require higher contributions,
only to make jurisdictions report what GASB believes is a fair representation of the annual
cost of the plan, bond rating agencies could well pay attention to any gap between the ARC
and the actual contribution. We will be happy to provide further information about the GASB
tentative decisions and their possible impact on the County's ARC.
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 altemative 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 this 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 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,
~.?{
k
Douglas
L.
Rowe, FSA, MAAA, EA
Principal
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