Former City Manager Stephen Johnson may have been the architect of the Early Retirement Incentive Program (ERIP), but unfortunately he didn’t stick around to see his project through to the end.  What could have been his signature achievement in an otherwise lackluster career as a city manager ended up at the top of North Miami’s long list of good intentions gone horribly wrong.

In a nutshell, when implemented correctly, retirement incentive programs are win-win cost saving propositions for both the organizations which implement these plans and the employees who stand to benefit by participating.

In North Miami, however, where there is no shortage of greed, incompetence and corruption, the potential for disaster is always just around the corner.

Early retirement programs are designed to enable an organization to reduce payroll costs by downsizing its workforce and replacing its top earning employees with cheaper labor, while at the same time providing eligible employees a financial incentive to retire early.  Once the employees retire, employers will immediately realize a huge savings in payroll expenses.  Due to a newly expanded retirement roster, there will be a sizable, but temporary, increase in pension payouts.  In the long run, however, those increases will level off as the early retirees’ positions are filled by lower paid replacement employees.

ERIP plans are complicated ventures.  The organizer of such a plan must must take into account predicted outcomes based on the number of employees expected to accept the incentive, their salary and pension costs, as well as the cost of future replacement employees.  There are a host of variables that employers must consider before implementing an early retirement program in order to determine whether or not the future savings will be greater than the present costs.

Labor lawyers, actuaries, and competent financial planners must be consulted to determine if the plan is viable before it’s offered to the workforce.  A truly successful Early Retirement Incentive Plan then becomes the sole responsibility of the management team’s ability to stick to the plan once it’s a done deal.

Unfortunately, in the case of North Miami’s ERIP, management not only dropped the ball, but they ignored the game plan in its entirety.

Stephen Johnson might be everyone’s favorite whipping boy for lots of reasons.  The most glaring of which was his law enforcement career-ending “very bad decision.”

The abysmal failure of North Miami’s Early Retirement Incentive Program, however, was not one of them.

That blame falls squarely on Johnson’s successor, former City Manager Aleem Ghany and his go-to man, Budget Director-turned-Assistant City Manager Arthur Sorey.

What I uncovered is not pretty.  It will simply reinforce the unspoken, but well known, belief that the culture of corruption is alive and well in North Miami.  So, sit back, relax, and prepare yourselves for the unvarnished truth.

In early 2013, the North Miami Mayor and Council directed Stephen Johnson to commence researching an early retirement plan for the purposes of reducing payroll costs and saving money.  They also requested from the actuarial firm of Gabriel Roeder Smith & Company a detailed statement explaining how an Early Retirement Incentive Program would impact the city’s finances.

On October 17, 2013, the firm delivered a letter and an Actuarial Impact Statement to the North Miami Mayor and Council.  It presented a proposal outlining various scenarios based on several variables, including which employees were eligible to participate, and what conditions they must meet in order to do so, as well as the estimated cost savings for the city.  The Impact Statement also listed estimated costs based on what percentage of the 112 eligible employees (25%, 50%, 75% or 100%) opted to retire early.

Both the cover letter from the actuarial firm and the attached Supplemental Actuarial Valuation Reported clearly stated that firm’s calculations were based on certain assumptions “as directed by the City,” the first of which is that “60% of the members who retire under the ERIP are assumed to be replaced with employees who are hired at age 33 with salaries equal to 30% less than the members they are replacing.”  This is one of the most important assumptions to keep in mind.

An attached table entitled, “Annual Required Contribution (ARC) – General Employees,” described in detail the “change in covered payroll” annual savings between $821,483.00 to $3,285,930.00, depending on the percentage of total employees who chose to participate.

Another table, “Actuarial Value of Benefits and Assets – General Employees,” was also attached to the Impact Statement.  This table described the values for all of the then-present and projected costs relating to pension benefits, based on the employee participation rate of the Early Retirement Incentive Program.

On yet another attachment entitled, “Calculation of Employer Normal Cost – General Employees,” the actuaries then detailed the pension contribution cost of implementing the ERIP.  Again, based on the percentage of participation, they estimated that it would cost the city between $1,836,766.00 and $1,523,728.00, noting that the the higher the employee participation rate, the greater the potential savings.

A fourth table attached to the Impact Statement, entitled “Participant Data – General Employees,” further breaks down the costs involved in implementing the ERIP, also based on the various participation rates.

In a report to Mayor and Council dated November 12, 2013, then-City Manager Stephen Johnson wrote that under the proposed plan, if all 49 of the eligible employees who indicated they would retire early accepted the plan, it would result in a total payout to those employees of approximately “$2,400,000.00.”  Johnson also stated that the “estimated impact on the current year’s budget is a savings of $1,001,804.00,” excluding “the reduced annual contributions to the pension fund in the future.”

Attached to his council report was a breakdown of the total number of employees who were expected to opt in, the amounts budgeted for their salaries, and anticipated retirement compensation.  Johnson also listed the expected payouts for those employees, and arrived at a net “Savings and Available Funding for Replacement Staff.”

The First Reading of the proposed ordinance took place during the October 8, 2013 council meeting, per Tab K of the Agenda.  The Second Reading was held on November 12, 2013, per Tab T of the Agenda.  The final Ordinance No. 1361 was then signed into law by then-Mayor Lucie Tondreau, attested to by City Clerk Michael A. Etienne, and approved by then-City Attorney Regine M. Monestime.

Once the plan was implemented, 48 (of the original projected 49) elected to accept the Early Retirement Incentive Program and they retired on December 31, 2013.

In a perfect world, Stephen Johnson’s brainchild would have been a boon to the City of North Miami.  His report to the Mayor and Council assured that the high level, and highest paid, employees who opted for retirement would have resulted in an immediate savings of over $1 million dollars.  In turn, this savings was to “be used to fund the rehiring of replacement staff” and to “reorganize the human resources for maximum efficiency without affecting the services that we provide to our citizens.”

As it eventually turned out, as soon as Stephen Johnson resigned a few months later, all those good intentions indeed paved the road to the fiscal hell that inevitably broke loose.

Never mind Denmark, the first clue that something was very rotten in North Miami appeared on the City of North Miami Clair T. Singerman Employees Retirement System Actuarial Valuation Report as of October 1, 2014.  This public document may also be viewed on the North Miami website by clicking here.

Displayed on page 6 of the report is a table entitled “Participant Data – All Groups Combined.”  You will note that the table compares the financials at the start of the fiscal year beginning October 1, 2014 to the previous fiscal year beginning October 1, 2013 (the first year the ERIP was implemented).

The second line item (Covered Annual Payroll) in the first box (Active Members) reflects the actual cost of the annual payroll for all employees of the City of North Miami at the beginning of both fiscal years.

Curiously, instead of a reduction in payroll costs from 2013 to 2014, as estimated by the actuaries when the plan was first proposed, there was an increase of $931,324.00.

Taking into account the assurances in Stephen Johnson’s report to the Mayor and Council that the first year’s savings of $1,001,804.00 would “be used to fund the rehiring of replacement staff,” the payroll costs from 2013 to 2014 should have remained stagnant at the very least.

Obviously, someone screwed up.  Big time.  There is absolutely no rational explanation for the city’s payroll costs to increase nearly one million dollars!

Then again, there is no rational explanation for a lot of things that happen in North Miami.

For some inexplicable reason, the Mayor and Council approved the October 1, 2014 budget despite this glaring discrepancy.  They spent well over a year planning the Early Retirement Incentive Program for the sole purpose of reducing the payroll costs.  When they saw the costs had increased, why didn’t any one of them demand answers from the city manager?  Heads should have been rolling!

In the meantime, North Miami taxpayers are on the hook yet again for the wasteful corruption in the upper echelon of management that continues unabated.

As soon as I started reviewing the data, it slowly began to dawn on me that something was wrong.  Very, very wrong.

Unfortunately, the details I have discovered so far is only the tip of the iceberg.

But, remember.  It was only the tip of the iceberg that sunk the Titanic.

If city officials had followed the plan set forth by the actuaries, this Early Retirement Incentive Program would have resulted in a huge windfall to the city’s bottom line.  Unfortunately, once the baton was handed off to city officials, it was never implemented properly.  The poor staffing decisions made by upper management caused a wide variance from the conditions stipulated in the ERIP by the actuaries, conditions which the Johnson administration agreed to adhere.

Johnson’s successor, Aleem Ghany, and his then-Budget Director (and future-Deputy Manager) Arthur Sorey, essentially invalidated the potential ERIP savings by mismanaging their hiring decisions, and never once considered how those poor decisions might affect the city’s pension liabilities.

Instead of consulting with the actuaries about the consequences of their actions, Ghany and Sorey completely ignored the hiring restrictions contained in the Impact Statement.  Instead, they took advantage of those cash savings by seizing the opportunity to enrich themselves and their cronies at the expense of unwitting North Miami residents.

To be continued.

Stephanie Kienzle
“Spreading the Wealth”