Month: December 2016

The Dallas Police and Fire Pension System (DPFP) has received a lot of press attention recently.  As a result of poor investment performance and consistent underfunding, the Dallas Police and Fire fund went from having enough assets to cover 82% of its liabilities in January 2010 to having only 45% in January 2016 (which means that DPFP’s pension assets are sufficient to pay less than half of future anticipated benefits). Obviously concerned that retirement benefits could be impacted and/or modified due to the steep decline in asset values, many participants in Dallas’ Deferred Retirement Option Plan (DROP) started withdrawing their money, exacerbating the problem. Between August and December, DPFP’s participants withdrew approximately $500 million in DROP funds, representing 23% of the plan’s total net assets of approximately $2.2 billion.

On December 5, 2016, Dallas Mayor Mike Rawlings sued to have DROP account withdrawals frozen and the Dallas Police and Fire Pension Board of Trustees took their own action on December 8, 2016 to temporarily cease all DROP distributions. These measures were taken to prevent further insolvency of the DPFP fund.

As the financial situation unfolded in Dallas over the last several months, LAFPP has received many inquiries by our membership about the status of the City of Los Angeles Fire and Police Pension Plan’s (LAFPP) DROP program. Given the status of Dallas Police and Fire Pension System, many negative news articles have been written in general about DROP programs.

LAFPP’s DROP Program was established in 2002 and was designed to be cost neutral, improve employee morale and retention, and lengthen the careers of public safety personnel. The Program has been reviewed twice since its inception and was determined to be actuarially cost neutral. The following are just some of the key factors that differentiate LAFPP’s DROP Program from other DROP programs:

LAFPP’s DROP program is designed to be cost-neutral. The City of Los Angeles must complete an actuarial study of DROP every 5 years to determine if it continues to be cost neutral and is meeting the City’s goal of lengthening the careers of police and fire sworn personnel.

LAFPP does not allow members to enter DROP retroactively – you cannot backdate your entry effective date. Only active members with at least 25 years of service (and age 50, depending on the tier) are eligible to enter DROP.

Participants continue to pay mandatory member contributions until they reach the maximum years of service for their tier. This contribution goes into the fund and is not part of the member’s DROP account.

The DROP account interest rate of 5% is lower than the LAFPP fund’s assumed investment earnings rate of 7.5%. Other pension systems may pay interest on DROP accounts at rates ranging from 6% to as high as 8%.

Participants can remain in DROP for a maximum of 5 years. At the end of the 5-year period, participants must retire and take distribution (total withdrawal from LAFPP) of their entire DROP account. Interest does not accrue after a member exits DROP.

As of March 1, 2017, total DROP account balances make up less than 2% of LAFPP’s total assets of approximately $20.0 billion.

In terms of the overall health of our Plan, the most recent actuarial study determined that, as of June 30, 2016, our pension plan is 93.9% funded, a 2.4% increase over last fiscal year. In addition, the City consistently makes its Annual Required Contribution (as determined by the Plan’s actuary) to LAFPP. An asset/liability study is conducted periodically which carefully monitors the cohesion between the benefits the Plan is obligated to pay to our pensioners and the long-term investment strategies in place. The most recent study of the Plan concluded that LAFPP’s funding level was “unquestionably strong” relative to most other public pension plans.

For more information on LAFPP’s DROP program, please visit the Member’s page for Active/DROP Members, under Plan Details.

UPDATE (3/15/17)

The Dallas Police and Fire Pension Board of Trustees (DPFP) released a statement that a revised DROP policy was adopted on January 17, 2017 to provide Dallas’ retired DROP members with equitable and impartial monthly access to some funds. The DPFP Board’s approval was conditioned upon a receipt from DPFP’s actuary that the revised policy, together with approximately $11 million in additional DROP distributions authorized, does not accelerate the insolvency of DPFP based upon current assumptions.  Monthly minimum distributions are expected to begin on March 31, 2017.  Additional pro-rata monthly distributions to members with outstanding DROP lump sum requests will only be permitted if the total liquid assets exceed the reserve amount for a given month.

On March 9, 2017, the DPFP Board adopted a resolution certifying the reserve amount resulted in no excess liquidity for the month of March.  Pro-Rata DROP distributions would not be permitted for March.  However, monthly minimum distributions will proceed uninterrupted as installments with the March 31, benefit payments.

The DPFP Board and staff continue to work with City of Dallas officials on proposed legislation to provide a long-term solution to secure retirement funds for Dallas’ first responders.

For more information on the Dallas DROP program, visit their website at https://www.dpfp.org/.

Based on the actuarial report for the period ending June 30, 2016, the pension benefit funded ratio has increased from 91.5% to 93.9%. The combined funded ratio for pension and health benefits is 87.4%, up from 85% the previous year. This marks the third consecutive year that the combined funded ratio has increased for the System.

Every year a valuation of the LAFPP fund is performed by an actuary. The valuation reports the System’s assets and liabilities and establishes the City’s contribution to the fund for each fiscal year. The positive outcome for the year ending June 30, 2016 was the result of approximately $337 million in net actuarial gains for the year. The City’s combined contribution rate for July 15, 2017 will decrease by 0.28% of sworn payroll, from 44.54% to 44.26%. This contribution rate decrease is due to lower than expected COLA increases for retirees, beneficiaries and DROP members, lower than expected salary increases for active members, and a slightly higher than expected rate of return on the valuation value of assets (after smoothing). The overall unfunded liabilities have decreased from $3.2 billion to $2.8 billion.

On a market value basis, the combined funded ratio is 84.7%, with retirement benefits funded at 91% and health subsidy benefits at 46.6%.

The new maximum standard Medicare Part B premium will increase from $121.80 in 2016 to $134.00, effective January 1, 2017. The Centers for Medicare and Medicaid Services (CMS) estimates that about 30% of Medicare beneficiaries will pay this higher rate. The remaining 70% of Medicare beneficiaries will see their Medicare Part B premium increase from $104.90 in 2016 to an average of about $109.00 per month in 2017, due to the statutory “hold harmless” provision designed to protect seniors and the 0.3% cost-of-living-adjustment (COLA) for Social Security benefits in 2017.

Medicare beneficiaries subject to the “hold harmless” provision currently have their Medicare Part B premiums deducted from their Social Security checks and have incomes of $85,000 or less ($170,000 or less for joint tax filers). However, those who are: 1) new Medicare Part B beneficiaries in 2017, 2) beneficiaries who do not currently have the Medicare Part B premium withheld from their Social Security benefit, or 3) higher-income beneficiaries, will pay the standard monthly premium amount of $134.00. The Social Security Administration will inform Medicare beneficiaries who are subject to the “hold harmless” provision the exact amount they will pay for Medicare Part B in 2017.

If you are currently eligible to receive a reimbursement for your Medicare Part B premium, you will need to provide LAFPP with documentation indicating how much you will pay for your Part B premium in 2017 in order for us to apply the correct reimbursement amount in your pension check. We expect to apply the new Part B premium reimbursements to the February 2017 pension check. You will continue to be reimbursed at your current 2016 reimbursement rate until we receive adequate proof of your 2017 premium paid. You will have up to a year to submit your documentation and you will receive reimbursement retroactively to January 1, 2017.

Retired Members and Qualified Survivors can receive a Part B reimbursement if they are eligible for a health subsidy and are enrolled in both Medicare Parts A and B. Please refer to the “Frequently Asked Questions” below on how to submit proof of your 2017 Part B premium. You may also contact the Medical and Dental Benefits Section by calling (213) 279-3115 or toll free at (844) 88-LAFPP ext. 93115 if you have any questions.

Frequently Asked Questions (FAQs)

1) My Medicare Part B premium is deducted from my monthly Social Security payment. What document do I need to submit to receive my correct Part B reimbursement amount?

The Social Security Administration (SSA) is in the process of mailing the Form SSA-4926 SM Statement (“Your New Benefit Amount” Statement) to all Social Security beneficiaries who are enrolled in Medicare. A sample copy of this statement is provided in the link below on page 1 of the attachment with the Medicare Part B premium amount located as highlighted in yellow.

Please make a copy of the statement and either: (1) Scan or take a picture of the statement and email it to: mdbsection@lafpp.com; (2) Fax a copy of the statement to (213) 628-7782 “Attn. MDB Section”; or (3) Mail it to LAFPP, Attn: Medical & Dental Benefits, 701 E. 3rd Street, Suite 200, Los Angeles, CA 90013. Remember, you may submit your documentation at any time during 2017 and retroactively receive your full 2017 Part B basic premium reimbursement.

2) I receive a monthly Social Security payment, but I received a letter that informed me that I pay a higher Part B premium based on my income level (Income-Related Monthly Adjustment Amount, i.e. IRMAA). May I send in the letter as proof of my Part B premium?

Yes, you may submit a copy of the first page of the letter that contains your name, address and 2017 monthly Medicare Part B premium deduction to LAFPP as proof in the manner described in the answer to FAQ #1 above and will be reimbursed at the maximum $134.00 / month.

3) I receive a monthly Social Security payment, but I did not receive / cannot locate my “New Benefit Amount” Statement. What can I do?

The easiest way to acquire proof of your 2017 Medicare Part B basic premium is to create a “My Social Security” account on the SSA website: https://www.ssa.gov/myaccount/. After creating your SSA account, you can request that a Benefit Verification Letter that serves as proof of your current Medicare coverage be generated and mailed to you (it may take up to 10 days for delivery). You may then submit it to LAFPP in the manner described in FAQ #1.

4) I am billed for my Medicare Part B premiums by the Centers for Medicare & Medicaid Services (CMS). What document do I need to submit to receive my correct 2017 Part B reimbursement amount?

If you do not qualify for Social Security income, but qualify for Medicare and pay your premiums directly, you need to submit the following:

A copy of your 2017 quarterly invoice statement (CMS 500 – Notice of Medicare Premium Payment Due) that has a 2017 monthly coverage date to the right of “Current amount due for Part A and/or Part B”. A sample copy of Form CMS 500 is provided in the link below on page 2 of the attachment with the coverage date period location highlighted in yellow. If your most recent statement shows 2016 coverage dates, wait until you receive your next statement showing 2017 coverage dates before submitting a copy to LAFPP in the same manner described in the answer to FAQ #1.

5) My spouse (non-LAFPP member) is currently enrolled in Medicare Parts A and B. Does he/she need to submit Medicare Part B premium documentation?

No, only the pensioner who is currently receiving a Medicare Part B premium reimbursement needs to submit documentation to LAFPP.