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Miami

Cypen & Cypen
SPECIAL SUPPLEMENT

for
AUGUST 20, 2012

Stephen H. Cypen, Esq., Editor

FLORIDA DIVISION OF RETIREMENT MAKES 180° TURN ON PREMIUM TAX INTERPRETATION

Keith Brinkman, Chief of Bureau of Local Retirement Systems, Division of Retirement, Florida Department of Management Services, wrote a letter August 14, 2012 to the Mayor of Naples, John F. Sorey, III. 
 
The letter is important because it represents a sea-change in interpretation of statutory provisions regarding use of premium tax revenues under Chapter 185 (and presumably Chapter 175), Florida Statutes.  After quoting Section 185.35(2), Florida Statutes, Mr. Brinkman said that previously the department had interpreted this law to mean that in order for Naples to receive any state premium tax revenues it must provide chapter minimum benefits and must preserve benefits in place on March 12, 1999. 
 
However, upon receiving the Mayor’s letter and reviewing the law again, this interpretation appears inaccurate.  The law actually states that local law plans in effect on October 1, 1998, like the City of Naples Police Officers’ Retirement Plan, must comply with minimum benefit provisions of this chapter only to the extent that additional premium tax revenues become available to incrementally fund the cost of such compliance.  The phrase “only to the extent that” qualifies the law’s requirement that local plans comply with minimum benefit provisions of Chapter 185.  This qualification means that, for local law plans in effect on October 1, 1998, the law compels them to provide chapter minimum benefits only to the extent that such benefits can be funded with additional premium tax revenues.  
 
Additional premium tax revenues are defined as revenues which exceed the amount received for calendar year 1997.  Thus, for local law plans in effect on October 1, 1998, the law states that chapter minimum benefits must be provided only to the extent that they can be funded with premium tax revenues received in excess of the amount received for calendar year 1997.  Once there are sufficient additional premium tax revenues to fund the chapter minimum benefits, the law states that any “subsequent additional tax revenues” (new term) must be used to fund extra benefits.  This subsequent additional tax revenue is the only amount earmarked for extra benefits for local law plans in effect on October 1, 1998. 
 
Because the City of Naples Police Officers’ Retirement Plan was in effect on that date, the law allows Naples to provide benefits below the chapter minimums and below those in effect on March 12, 1999, if there is insufficient additional premium tax revenues to fund chapter minimum benefits and insufficient subsequent additional tax revenue to fund extra benefits.  If the City of Naples received enough additional premium tax revenues to provide chapter minimum benefits or an incremental portion thereof, the law requires Naples to use the revenues for such benefits.  Once Naples has sufficient additional premium tax revenues to provide all chapter minimum benefits, any subsequent additional premium tax revenues must be used for extra benefits. 
 
Based upon proposed ordinance submitted by Naples, it appears there are three changes being proposed that require additional information.  These changes include raising the normal retirement date to age 60 with eight or more years of service; raising the average final compensation to the highest eight years of service; and reducing benefits by 5% for each year the police officer retires prior to age 60 or 30 years of service.  
 
In order to determine if these proposed changes can be approved, the plan actuary must demonstrate that there are not enough additional premium tax revenues to fund minimum chapter benefits. 
 
We just received notice of this important communication late last week, and have not had a reasonable opportunity to study the letter and its consequences.  Surely there will be multiple opinions and reactions.  When we are ready to comment, we will do so in the appropriate fashion.  Meanwhile, it looks like another “actuaries’ relief act.” 

 

 

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.


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