HomeMy WebLinkAboutIR 10252
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10252
March26, 2019
To the Mayor and Members of the City Council
Page 1 of 1
SUBJECT: SUBMISSION OF PENSION FUNDING RESTORATION
PLAN TO STATE
State Governmental Code 802.2015 requires that a Funding Soundness Restoration Plan be
The funding soundness
restoration plan formulated must be developed in accordance with the system's governing statute
and be designed to achieve a contribution rate that will be sufficient to amortize the unfunded
actuarial accrued liability within 40 years.
We are required to report any updates toward improved actuarial soundness to the board every
two years. Given the significant work over the past few months on the pension benefit, including
the employee vote to increase contributions, the attached Funding Soundness Restoration Plan is
being submitted to the State from the City of Fort Worth to meet the State requirement and
memorialize the effort.
If you have any questions, please contact Susan Alanis at 817.392.8180.
David Cooke
City Manager
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
City of Fort Worth Pension Reform
March 15, 2019
Page 1
City of Fort Worth
Funding Soundness Restoration Plan
Overview
The City’s Pension Review Committee was formed in 2015(Appendix A)to wrestle with the
challenge of the funding statusof the Employee Retirement Fund. Members of the committee
included: Michael Glynn (Fire), Rick VanHouten (Police), Manny Ramirez (Police), Joelle Mevi
(Fort Worth Employees’ Retirement Fund), Todd Cox (Fort Worth Employees’ Retirement Fund),
Glenn Balog (General Employees), Marsha Anderson (Retirees), Laura Alexander (the City of Fort
Worth financial advisor), and Mike Ward (citizen representative).
The City’s Pension Review Committee examinedoptions to keep the pension more sustainable
over the long term.Failure to solve this problem jeopardizes the City’s commitment to:
Meet financial obligations to taxpayers;
Ensure employees’ and retirees’ ability to rely on their pensions; and
Recruit and retain top talent for the organization.
Outline ofPlan Contents
1.Defining the Problem
2.What has happened since 2007?
3.Pension Review Committee
4.Recruitment and Retention and Benchmark Data
5.Strawman Proposal
6.Final AlternativesConsideredby the Committee
7.City Manager Recommendation to Council
8.Public Safety Recommendations
9.Revised City Manager Recommendation
10.Final Negotiated Plan
11.Election Results
12.Actuarial Analysis of Adopted Plan
1. Defining the Problem
The City’s pension plan is a very complex problem, and it took decades to get to where it is today.
The status of thepension plan, in simple terms, is this: if the plan continues on its current
trajectory, and based on the plan’s current assumptions for the future(i.e., 7.75% investment rate
of return), the plan will run out of money by 2050. Ifthe Fundusesmore conservative assumptions
about the future, the Fundwill run out of money before 2050.
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Chart 1
Projected Funded Ratios: No Additional Changes
60%
55.6%
50.9%
50%
49.3%
40%
35.5%
35.4%
30%
31.0%
20%
10%
5.3%
0%
201620182020202220242026202820302032203420362038204020422044204620482050
“…if the plan continues in its current form, and based on the plan’scurrent assumptions for
the future, the plan will run out of money by2050…”
Whilethat is 30years or moreinto the future, it is a problem the Citymust solve today. Consider
that the City’s credit rating has been downgraded twice in the past two years, both times due to the
unfunded pension liability. The State of Texas Pension Review Board has put Fort Worth on notice,
andit isrequired to submit a plan in 2018 outlining how it isgoing to correct this funding shortfall.
In order to identify a target level for proposedreforms, the Committee agreed to use a slightly more
conservative rate of return of 7.5%. This resulted in a funding gap equivalent to 10.5% of payroll
that could be addressed with contribution increases by the employee or employer or benefit
adjustments.
The current state of the City of Fort Worth pension plan is not sustainable becausepresent and
future pension benefitspaid out(i.e., liabilities)exceed themoney in the Fund, projected employee
andCity contributions going into the Fund,andprojected investment returns on the Fund(i.e.,
assets). If the problem could be summarized in a math equation it would look like this:
Money in the Fund+ future employee and
Pension Benefits
>employer contributions + future investment
(current and future)
returns of the Fund
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One role of the Committeewas to understand how the Citygot here. AppendixBprovides a 25-
year history of the decisions that led to the current situation. Knowing thereason why the current
plan is not sustainable is key to identifying options on how to fix this problem.
The problem started in the early1990swhen times weregood, the pension plan was fully funded
and the stock market and pension investments seemed tobe doing pretty well. In a nutshell,
benefits grew, contribution rates were reduced, and the belief was that continued high investment
returns would pay for it all. Compounding the issue,most benefit enhancements were made
retroactivelyfor employees and retirees,meaning employees who had already retired under
a previousagreement/understanding had their benefits increased after
retirement.
While predicting the future often makesone humble, it is done every day. Sometimes predictions
are right andsometimes theyare wrong. And, whenthings are going well, it is always desirous to
think that good times will go onforever. Leaders at the time had no idea that the dot.com bust was
looming or that the great recession would occur less than ten years later in 2009, but the 8.5%
investment rate of returnwas held as an assumption through 2010. The investment rate of
return/discount rate assumptionis not the only reason thepension plan is not sustainable;but it,
along with investment losses orearnings far below the 8.5% target, accounts for most ofthe
unfunded liability.The Fort Worth Employees Retirement Plansystem was not the only pension
system in the country to do some of these same things. During
the same period, many pension systems enhanced benefits and
Three main reasons
raised the investment rateof return/discount rate.
why previous efforts
did not correct the
The City has previously taken significant steps to addressthese
funding issues:
issues tomake the City of Fort Worth’s employee pension plan
more financially sound. In fact, if the collective changes from the
1.Assumed rate of
past had not been made, the City would currently be facing a
investment return
funding gap equivalent to 28.1% of payroll instead of 10.5% of
was not achieved;
payroll.
2.Plan assumptions
were missed or
2. What Has Happened Since 2007?
inaccurate; and
3.Growing cost of the
In 2007, the City increased its contribution to the Fundby 5%of
COLA
pay. Then, again, in 2010, the City increased its contribution by
another 4%of pay. This later increase was coupled with
significant benefit changes to current and future employees that
were highlighted by:
Reducing the benefit multiplier for all future years by nearly 17% from 3% to 2.5%;
Eliminating overtime wages from the future service years of the salary calculation;
Eliminating the automatic survivor benefitafter retirement for all new employees;
Offering a new COLA selection process that included options for a 2% simple COLA to
replace a 0-4% compounded ad hocCOLAfor certain current retirees and employees
Eliminating the COLA for all future new employees; and
Basing the benefit calculation for future service years on employee’s average highest five
years of pay instead of highest three.
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Note: See Appendix Cfor more detailed information regarding changes and when implementation
for the different employee groupsoccurred.
The nature of these changes wasto preserveallbenefitsthat had already been accrued by
employeesor was being paid to retirees. In the case of the benefit multiplier, all years of service
priorto the date of implementation continued to be calculated at 3% with all future years of service
calculated at the new 2.5% levelwith the formula below:
Average Salary x benefit multiplier x years of service= annual pension benefit
To demonstrate how this calculation works, assume an employee’s average salary for their
highest-paid three yearsis calculated to be $50,000. If that time were all under a 3% multiplier,
their pension benefit would be:
$50,000(high 3) x .03 x 25 = $37,500/year
Under the new methodology, if the last five years of those 25 years of service were after the
implementation of the reduced multiplier, then their pension benefit would be:
$50,000(high 3)x .03 x 20 = $30,000
$48,000(high 5)x .025 x 5 = $6,000
or $36,000/year
Again, no retiree was impacted by theformula changealthough they were allowed to participate in
the COLA selection process.The net effect of all of the benefit changeswas a reduction of 8.6%
as a percentage of payrollin the estimated cost of new benefits earned each year, after adjustment
to the current investment return assumption, -nearly matching the contribution increases provided
by the City in 2007 (5%) and 2010 (4%).
In 2010 it was believed that these changeswould put the Fundon a path to sustainabilityifthe
Fundachieved the assumed investment rate of return. Despite the increases in contributions and
the decreases in benefits, in 2015it was reported by the Fund’s actuaries that the retirement Fund
hadfallen into what is known as an “infinite”amortization. What that means is that the Fund’s
current and future liabilities are greater than the current and future assets.Themain factorswhy
this occurredare:
First, the assumed rate of investment return (discount rate) was not achieved. Although,
the Employee Retirement FundBoard reduced thediscount rate in 2012 to 8 percent and,
again, in 2015 to 7.75percent, theaveragenetannual return for the last ten years was just
overfourpercent.
Second, the reductions in the discount rate to more realistically project future investment
earningsactuallyincreased projectedliabilities.
Finally, the transparent accounting and costs of the COLAcontinueto add significantly to
the increase in unfunded liabilities.
The changes to benefits were meant to provide more resources to stem the growing liabilities and
allow more of the contributions to be applied toward the unfunded liabilities. While the changes
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didreduce the cost of future service by over 34 percentfor current employees, since the changes
were done prospectively,past benefits and investment experience continuedto cause growth in
the unfunded liabilityfrom the beginning of 2010 to the end of 2016. The unfunded liability went
from $432 million to $1.571 billion(as of 12/31/2016).(SeeChart 2 for illustration)
Chart 2
12/31/0912/31/2016
Contribution Policy
13%
$1,800.00
$1,571
$1,600.00
Investment Experience
38%
$1,400.00
$1,200.00
Other Experience
-5%
$1,000.00
Assumptions/Actuarial
25%
$800.00
Millions
$600.00
Benefit Changes
7%
$432
$400.00
COLA Funding
22%
$200.00
$0.00
-10%0%10%20%30%40%50%
Unfunded Liability
“…From the beginning of 2010 to the end of 2016, the growth inunfunded liability
more than tripled from $432 million to$1.571billion…”
3. Pension Review Committee
As mentioned previously, in August 2015, the City Manager established a Pension Review
Committee with the expressed intention of “defining and assessing the long-term sustainability of
the Fort Worth Employees’ Retirement Fund(ERF) and evaluating options to improve the current
position of the retirement Fund,without directly or indirectly,requiring additional contributions from
taxpayers/ratepayers.”
The purpose of the Committee was to:
Discuss and agree on how long-term sustainability will be defined;
Evaluate the competitiveness of the City’s pension plan in the context of total compensation
with the goal of maintaining competitive recruitment and retention;
Evaluate the pension marketplace to include other Texas stand-alone plans and the Texas
Municipal Retirement System; and
Submit a report to the Mayor and City Council detailing the results of the evaluation and
identifying options that the City Manager may recommend to the City Council to improve the
condition of the retirement Fund.
The Committee began meeting in November 2015 and adopted the following guiding principles:
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1.Reforms should be sustainable and structured to lessen the need for further interventions
A.The City as plan sponsor and secondary obligor of the pension liability seeks to ensure
that assumptions are set to reduce risk and budgetary volatility, increase sustainability
and resiliency, and provide the best estimate of the future obligations of the plan.
B.Proposed reforms should result in a sustainable system sufficient to:
i.Meet current funding gap as determined by latest actuarial valuation of the Fund
ii.Fundunfunded liabilities over 30 years on a closed basis beginning January 1,
2018
iii.Minimize the likelihood that additional changes will be required in the near future,
in part by including a risk margin and allowing financial flexibility for the Fort
Worth Employees’ Retirement Fund to consider reducing the investment return
assumption and discount rate applied to future benefit payments to 7.5%
2.Costs should be shared equitably among the City and its employees:
A.City taxpayers and the employees should both contribute to a framework that eliminates
the current funding gap.
B.The framework should also address benefit elements that have contributed toward the
current unfunded liability.
C.A funding mechanism should be established to share risk and automatically fund liability
increases that occur after the framework is implemented, either due to future losses due
to negative experience, delayed implementation, or the inability to successfully
implement certain elements of the reform framework
i.The mechanism should allocate contribution increases in the proportion of 60%
employer/ 40% employee, which was the overall historical proportion when the
plan was fully funded
3.Costs should be shared equitably among employees:
A.Employee groups should contribute fairly based on the cost structure of their group
B.Employees should contribute fairly based on the benefit structure of their service
4.Further reductions in benefits for future service shouldbe avoided at this time in order to
maintain competitive compensation and secure retirement, but if recommendations are not
implemented then this may be required.
5.Manage the risk of the plan and improve the overall financial condition on a go-forward
basis
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Guiding Principles: “…Costs should be shared equitably among the City and its
employees…shared equitably among employee …”
The Committee wasled by the City Manager and primarilysupported by Human Resources staff
andPFMGroup Consulting, LLC, and its affiliates and subcontractor Pension Trustee Advisors,
LLC, whowere hired to provide actuarial services and help guide and advisethose discussions.
The Committee spent a considerable amountof timeexploring:1)what happened in the past with
the Fund;2)looking at what other cities, counties and stateshad done who were in similar
situations; 3) separating different groups of employees (i.e., Police, Fire General Employees) into
different plansand considering options that includedmovingall or part of employees toa defined
contributionplan;and 4) considering joining Social
Security ormoving to a different retirement system
Responsibilities:
(TMRS). Over seventy-five (75)specific changes and
The Board makes decisions
multitudes of combinations were considered to the
related to investments, rate
current plan. (Note: For a full review of changes that
of return assumptions and
were considered, see Appendix D)
evaluate disability and
disability claims and collect
At this point it is important to know the statutory roles of
contributions and payout
the three entities that are involved in decisions
benefits
regarding the Employee’s Retirement Fund:
The City controls level of
benefits and employer
contributions
First, there is the Employees’Retirement Fund.
Employees vote on
The Employees’ Retirement Fundis governed
increasing their
by the Board of Trustees, consisting of 13
contributions
members, six of whom are appointed by the Fort
Worth City Council and seven of whom are
elected by the membership.)Trustees have a
fiduciary responsibility tomake decisions related to investmentsand asset allocation,
employ a staff to administer the Fund,andset policies to address disability retirements.
Most importantly for this discussion, however,is the Trustees responsibility to work with an
actuary to setassumptions and recommend the monetary contributions needed from the
city to meet these assumptions and fund benefits to members.
Next is the Citythatcontrolsthe level of benefits that are provided to retirees and thelevel
of employer contributions to the fund.
Finally, employeeshave the right to decide whether their contributions can be increased.
Therefore, any recommendation regarding increasing employee contributions will be
subject of a majority vote of allemployeescoveredby the Employee Retirement Fund.
In the course ofthe initial analysis and discussion some themes began to emerge.
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First, the annual funding gap represents10.5
percent of payroll. In other words, some
Critical issues that need to
combination of benefit cuts or contribution be addressed:
Funding gap is 10.5
increases had to equal around $48,360,000/year.
percent of payroll or
$48.4 million/year
Second, increasing contributions alone is not
Increasing contributions
adequateto make the Fund sustainable.
alone will not make the
Contributions do help, but they only increase the
Fund sustainable
amount of funds going in and do nothing to
Current and growth of
address the growth of liabilities.For example,
liabilities must be
one of the proposals from 2010 was to increase
addressed
employee contributions by 4.8 percent, but it was
contingent upon not reducing the multiplier from 3
to 2.5 percent. If that had been done, unfunded liabilities would actually be higher than
they are today.
Third, not only the growth, but also the extent of the current liabilities had to be addressed.
As previously stated (see Chart 3), the growth in liabilities for the eightyear period ending
December 31, 2017more than tripledthe unfunded liabilities. When looking at the different
categories of options, there is only onethat significantly impactsexisting liabilities, and that
was the annual Cost of Living Adjustment(COLA) as the chart below explains.
Chart 3
Reduce Existing Reduce Future Increases
Strategy
LiabilitiesLiabilitiesAssets
Increase TaxpayerContributionsX
Increase Employee ContributionX
Increase Retirement Age
XX
Eligibility
Eliminate Future Leave AccrualsX
Changes to COLAX
Fourth, in the Committee’s deliberations there were four items that,while their impact is
small,were seen as “low-hanging fruit” –these included:
i.Revising the interest rate for Fund withdrawal–the Fund paid a fixed 5.25 percent
interest, compounded biweekly on withdrawalby employees who were vested but
eligible to retire. This interest rate and compounding was far above the prevailing rate
and Council approved a change in the benefit on 10/24/2017 that pays a rate based on
a 5-year US Treasury Note and is compounded annually.(adopted)
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ii.Suspending the Fund’s DROP Annuity Option–This benefit allowed individuals to use
the funds that they accumulated in their Deferred Retirement Option Plan to be paid out
as an annuity based on the Fund’s assume rate of return –7.75 percent. That rate of
return was seen as not reflective of prevailing rates and management woulddiscuss
withCouncil eliminatingthisDROP payment option. (future consideration)
iii.Eliminate Service Purchaseof all forms(future consideration)
iv.Eliminate Sick Leave/Major Medical Service Credit–Currently employees may use any
excess sick leave (Police and Fire Sworn Personnel) or Major Medical Leave (General
Employees) to be applied as service credit and increase the amount of benefit that paid
as a part of their retirement benefit. No contributions from the City or the employee are
ever paid on this credit and it, therefore, adds to unfunded liabilities. Estimates of how
much this is adding to the amortization period areas high as 13.5 years. The service
credit is being eliminated on a prospective basis (going forward) as a part of the City
Manager’s final recommendation.(adopted)
Fifth, the Fundneeds to move from an open 30-year amortization periodmethodology to a
more conservative and common closed 30-year methodology.Aclosed amortization period
means the Fundhas aspecific number of years tobecome fully funded and, therefore, the
debt or unfunded liabilities declines to zero with the passage of time; much like a mortgage
on a home. In contrast an open amortization period never funds the unfunded liabilities and
ismuch like refinancing your 30-year mortgage each year and starting over.
4. Recruitment and Retention and Benchmark Data
In addition to examining various alternatives,the committee looked atretention and benchmark
data.Retention data suggested (See Chart 4) that the issues with the pension Fundwere not
affecting the City’s ability to attract and retain General Employees or Fire and Police sworn
personnel.
Chart 4
Three
Total 2015Total 2016Total 2017
Job FamilyYear
SeparationsSeparationsSeparations
Average
#%#%#%%
Fire Sworn/Civil Service40.4%20.2%40.5%0.4%
Police Sworn/Civil Service90.6%151.0%80.5%0.7%
General Employees2967.9%2887.42%3638.9%8.1%
Grand Total3095.0%3054.8%3755.7%5.2%
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Otherbenchmark data that was reviewed (See Appendix E)included comparisons with other cities
and city and employee contributions.
5. Strawman Proposal
Consideringallofthe above,the City Manager proposed his initial recommendation to the Pension
Review Committee, on Nov. 21, 2017that he referred to as the Strawman Proposal. The proposal
wasbuilt around the principles described aboveand addressed the 10.5% of pay funding gapto
put the Fund on a path to return to a fully-fundedplan within30-years.The proposalwas fully
discussed and debated by the Committee.
This scenario includedthe following strategies:
Cityand employee contribution increases
Employees who have Blue Service (the service before the most recent benefit changes
were made) have an additional increase in contributions for as many years as they had
Blue Service. (For example, someone with five years of Blue Service would pay an
additional contributionfor five years, or until they separate from the City, whichever occurs
first.)
Future fixed and ad hoc COLAs suspended for active and retired members. The
suspension would stay in place until the pension Fundachieves sustainability metricsand
the COLA structure was replaced, which we are still evaluating.
Future accruals of major medical and excess sick leave are eliminated servicecreditfor
retirement calculation purposes.
Police employees pay a premiumcontribution to reflect the current value/cost of the 25-year
and out provision.
Chart 5
Strawman Proposal
Employees’ Retirement Fundof the City of Fort Worth Proposed Plans
Employee +/-10.5% of
InitiativeCategoryInitiative
GroupPay Deficit
Employee
1AllIncrease of 1% of Pay-0.8%
Contributions
Employee Increase of 0.5% Blue
2General-0.2%
ContributionsService Employees
Police Employee Increase of 2% Blue
3-0.9%
and FireContributionsService Employees
City
4AllIncrease of 2.0%-2.0%
Contributions
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Suspend future COLAs for
5AllCOLAall active and retired -6.1%
employees
Leave Eliminate future accruals of
6All-0.3%
Accrualleave toward service/FAC
Increase employee
Retirement contributions to reflect
7Police-0.2%
Eligibilitycurrent value of 25 and out
provision
Total----10.5%
6. Final AlternativesConsideredby the Committee
The Strawman proposal was communicated to Council and employees and was intended to
generate discussion among andbetween employees and their representatives on the Pension
Review Committee and among the Pension Review Committee members.Subsequently, the
Committee generated additional ideas and evaluated manyoptions and combinations of strategies
to see if there was a consensus on the best proposal that most could support.
As a result, the committee and the consultants evaluated multiple variations(depicted in Appendix
D)to include:
Various COLA options, including leaving intacta partial COLA for all retirees and
employees with Blue Servicewho retire after a career with the City—25 years of service or
more.The threshold of benefit was established at 125 percent of the poverty rate or,
currently, $20,300 and would be indexed so that if the poverty rate rose, then more could
receive a COLA.
Blending the contribution increase for blue and orange service for Police and Fire.
Adjusting the City’s contribution increase from 2% to 3% of payroll.
Adding a minimum retirement age change for General and Fire employees and charging
Police Officers appropriately for their 25-and-out retirement eligibility.
Employee contribution increases at a variety of levels.
Suffice it to say, the Committee asked manyquestions and evaluated a vast number of options to
see if there is a combination of strategies that all or most could support.
7. City Manager Recommendation to Council
On August 7, 2018 after years of analysis and deliberations with representatives of the Pension
Review Committee, the City Manager shared what was hoped to be the final three scenarios under
consideration to the Mayor and Council as outlined below.
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Chart 6
O
P
Increase
T
City Increase
IChanges to Benefits/Eligibility
ContributionEmployee Contributions
O
s
N
S
13.0%5.2%2.3%
•4.0% -2% COLA on $20,300 •General: 1.0% +
for employees with 25 years of .5% (Blue Service)
service•Police/Fire: 2.8%
•.2% -one-year delay in COLA •Police 25 & out: 1.5%
for active employees
•.3% –eliminate future
accruals
•.7% -minimum retirement age
(55) for Fire and Generals
23.0%4.0%3.5%
•3.0% -2% COLA for retirees •General: 1.2% +
only.7% (Blue Service)
•.3% -eliminate future accruals•Police & Fire: 4.8%
•.7% -minimum retirement age •Police 25 & out: 1.5%
(55) for Fire & General
33.0%7.1%0.4%
•6.1% -Eliminate COLA•General: 0.0%
•.3% -eliminate future accruals•Fire: 0.0%
•.7% -minimum retirement age •Police 25 & out: 1.5%
(55) for Fire & General
The first scenario shown above (Option 1) was recommended by the City Manager since it is most
consistent with the underlying guiding principles. It maintained a COLA on the first $20,300 to
provide some inflation protection, particularly for those with a relatively small pension. In addition, it
representedthe most reasonable employee contribution increases as outlined below.
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Chart 7
CurrentRecommendation
General/
PoliceGeneralFirePolice
Fire
City Contributions19.74%20.46%22.74%22.74%23.46%
Employee Contributions
8.25%8.73%9.25 –9.75%11.05%13.03%
Total27.99%29.19%31.99 –32.74%33.79%36.49%
Increase in Contributions
4.00 –4.5%5.80%7.30%
In addition to the above, the City Manager recommendedthat certain automatic funding
adjustments be placedon the plan if the above measures do not meet the funding requirementsin
the future. Those include:
If the combined level of the City and employee contributions, following a successful employee
vote and City Council adoption of other required reforms, is less than theActuarially
Determined Contributions (contribution amounts determined by the Fund’s actuarythat meet
the closed 30-year funding objective)for two consecutive years according to the actuarial
valuation, the total contribution can be increased by City Council as needed up to 2% of pay in
one year,or 4% of pay over multiple years–in a 60%/40% proportion (City/employee).
Depending upon the final COLA changes, an automatic COLA adjustment could also be
included in this initial stage of automatic adjustment.
If the maximum contribution has been applied, and the following actuarialvaluation report
indicates the actual contribution is still insufficient, the City Council must consider additional
benefit reductions(including elimination of all COLAs), as advised by the FWERF Board and
the plan actuary.Following the current deliberations of the COLA structure, if it remains intact
for certain members of the Fund, it may be the first consideration for reduction prior to
additional contribution increases from the City or the members.
8.Public Safety Recommendations
The sticking point continued to be the concern about eliminating a significant portion of the COLA,
particularly for existing employees who would not have the choice to work longer as a trade-off.
The public safety associations, therefore, presented recommendationsin October (Chart 8) and
November2018(Chart 9) that increased the City contribution and attempted to preserve the COLA
for certain groups.
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Chart 8
FWPOA October Proposal (10.1% Solution)
Increased City 4.5%
Contribution
Changes to 2.5%
Benefits/
Eliminate COLA for future service
Eligibility
Eliminate service credit for future accruals of major medical and
sick leave
Establish minimum retirement age (55) for future service of Fire
Establish minimum retirement age (62) for future service of
General
Increase DROP maximum period to 8 years
Increased 3.1%
Employee
General: 1% + 2%(Blue Service)
Contributions
Fire: 4.5%
Police: 4.1% + .9% (25 and out)
Chart 9
FWPOA November 26 Proposal (10.1%)
Increased City 4.5%
Contribution
Changes to 3.1%
Benefits/Eligibility
Preserve 2% COLA for members who retire or enter DROP within
one year
Modify current 2% simple COLA for active members not yet retired
or in DROP (within one year) to a variable benefit based on Fund
performance
Eliminate COLA for future service
Eliminate service credit for future accruals of major medical and
sick leave
Increased 2.5%
Employee
General: 1.1% + .07% (Blue Service)
Contributions
Fire: 3.8%
Police: 3.8% + .6%(25 and out)
9.Revised City Manager Recommendation
After additional deliberation with the elected officials as well as the public safety associations, the
City Manager presented a revised proposal that increased the City’s contribution increase from 3%
to 4.5%in exchange for support of a 1% COLA for existing retirees and past service of active
employees who were eligible. In addition, the revision required acceptance that the solution was
less than the 10.5% target solution.
14 2019 Fort Worth Funding Soundness Restoration Plan v. 3 SA 3-11-2019
City of Fort Worth Pension Reform
March 15, 2019
Page 15
Chart 10
City Manager’s Compromise Proposal (10.2%)
Increased City 4.5%
Contribution
Changes to 3.1%
Benefits/ Eligibility•Replace 2% simple and Ad Hoc COLAs with 1% simple COLA
•Current retirees onlywith at least 25 YOS retain 2% COLA on first $30,000 of
benefit
•Eliminate COLA for future service
•Eliminate service credit for future accruals of major medical and sick leave
•Establish minimum retirement age (55) for future service of Fire and General
employees
Increased Employee 2.6%
Contributions
•General:1.1% + 0.7% (Blue Service)
•Fire: 3.8%
•Police: 3.8% + 0.9% (25 and out)
•Commence employee contribution increases May 1, 2019 and phase in over
two years for Fire and three years for Police
10.Final Negotiated PlanOn December 4,2018,the proposal was tabled for additional
conversations with the public safety associations. A compromise was reached to:
Eliminate COLA for all future service (for those currently eligible) for service on or after July
20, 2019.
Maintain the existing COLA for all retirees who were eligible and all eligible active
employees who retire or enter the DROP by January 1, 2021.
Adoption of a variable COLA for eligible employees who continue to work for the City and
have notentered DROP by January 1, 2021, for those who are eligiblewith the following
criteria.
o No COLA unless actuarial valuation results more favorable than target to meet the
annually required contribution based on specific criteria
th
o Council may select lifetime COLA or13check if:
o Actuarially Determined Contribution (ADC) equal to or less than fixed contributions
for last 3 years
o Same based on market value of assets
o Full cost of benefit is funded
15 2019 Fort Worth Funding Soundness Restoration Plan v. 3 SA 3-11-2019
City of Fort Worth Pension Reform
March 15, 2019
Page 16
o No COLA if auto risk-sharing contribution increases have been triggered and are
still in effect or if discount rate is outside of average reported by similar funds.
o Increase in any single year may not exceed 4% increase of base pension
Current projections indicate that this will never be triggered since theFund returns would
need to consistently be 9-10% fora COLA to be triggered.
Eliminate service credit for unused major medical or sick leave accrued after July 20, 2019.
The final contribution increases that were approved is outlined below. The table also depicts the
inclusion of the Risk Sharing Mechanism that was originally proposed by the City Manager and is
expected to be triggered in 2022 and 2023.
In addition, all employees would begin paying contributions on all overtime, regardless of the
employees’eligibility for inclusion of overtime in Blue Service calculation.
Chart 11
Current7/20/201920202021Risk Risk
Trigger Trigger
20222023
(probable)(probable)
General
8.25%9.35% 10.15%
(increase (.8% -max
by 1.1% for for Group II
10.95%
Group II General
(.8% -max
General Members)
for
10.85%
Members)
Group II
10.05%
(.8% -max
General
(increase
for Group I
Members)
by 1.1% + 11.65%
General
.7% for (.8% -max
Members)
years of for
blue Group I
service General
Group I Members)
General
Members)
Police8.73%10.53% 12.53% 13.13% 13.93% 14.73%
(+1.8%)(+2%)(+.6%)max (.8%)max (.8%)
Fire8.25%10.05% 12.05% 12.85% 13.65%
(+1.8%)(+2%)max (.8%)max (.8%)
Tax 19.74% 26.64%
24.24% 25.44%
Payers (General (Gen. &
(General & (Gen. &
Fire) Fire)
(City)and Fire) Fire)
24.96% 26.16%
20.46% 27.36%
(Police)(Police)
(Police)(Police)
16 2019 Fort Worth Funding Soundness Restoration Plan v. 3 SA 3-11-2019
City of Fort Worth Pension Reform
March 15, 2019
Page 17
11.
Election Results (Appendix F Educational Material)
thnd
The employee vote took place from February 4-22, 2019. The employees voted in favor of the
proposed solution. A total of 74.47% of the city’s 6,589 employees voted, thereby achieving the
“50-percent-plus-one” requirement for the vote to pass. Of those, 59.49%, or 3,920 employees,
voted for the final negotiatedplan.
Actuarial Analysis of Adopted Plan
12.
The consulting actuary, GRS Retirement Consulting, analyzed the results(Appendix G)and
multiple discount rates as outlined below. Following the implementation of the risk sharing
contribution in creates in 2022 and 2023, the trend is expected to move downward, even at a
discount rate of 7%. As stated in the Summary section of the letter, the unfunded liability “is
projected to be eliminated in 2050 based on an investment return assumption of 7.50%”.
Chart 12
17 2019 Fort Worth Funding Soundness Restoration Plan v. 3 SA 3-11-2019
City of Fort Worth Pension Reform Pension Review Taskforce
August 7, 2018
APPENDIX A
City of Fort Worth Pension Reform Pension Review Taskforce
August 7, 2018
APPENDIX A
APPENDIX B
Fort Worth Employees' Retirement Fund
Historical Data Timeline
Updated 6-14-2016
19901991199219931994199519961997199819992000
Contributions (General & Fire)
City Contribution8.50%60%9.06%57%9.62%58%10.18%59%10.74%57%
Employee Contribution5.67%40%6.95%43%6.95%42%6.95%41%8.25%43%
Total Contribution14.17%16.01%16.57%17.13%18.99%
Contributions (Police)
City Contribution9.22%60%9.78%57%10.34%58%10.90%59%11.46%57%
Employee Contribution6.15%40%7.43%43%7.43%42%7.43%41%8.73%43%
Total Contribution15.37%17.21%17.77%18.33%20.19%
(25 and out)
2.5%
2.7%3.0%
Multiplier
(from 2.0%)
2% Guaranteed
COLA
Ad Hoc COLA's in AAL?
High 3 (from 5)
Other Changes
Investment Returns
Projected (Discount Rate)8.25%8.25%8.25%8.25%8.25%8.25%8.25%8.50%8.50%8.50%8.50%8.50%
Inflation Assumption in Valuation2.00%2.00%2.00%2.00%2.00%2.00%2.00%2.00%4.00%4.00%4.00%4.00%
Actuarial ROR - Prior Year0.00%0.00%10.51%9.34%8.90%7.20%10.41%14.09%16.41%13.36%14.32%13.83%
Market ROR - Prior Year21.47%-1.19%22.87%1.01%0.63%-0.96%2.00%4.01%6.92%4.36%5.16%19.34%
Tax Rate 0.89890.92710.950.97350.96350.950.920.89750.885
Actuarial Valuation, As of Date1/1/19901/1/19911/1/19921/1/19931/1/19941/1/19951/1/199610/1/199610/1/199710/1/199810/1/199910/1/2000
1
Actuarial Value of Assets$481,429,000$520,857,014$564,918,131$605,750,127$668,309,792$696,851,932$749,650,005$814,705,054$928,907,772$1,032,917,492$1,159,782,877$1,299,806,370$1,356,334,391
4
AAL$516,121,000$536,525,000$ 566,911,000 $ 596,310,083 $ 710,065,860 $ 729,026,482 $ 789,026,942 $ 900,960,314 $1,008,666,943$1,115,403,141$1,217,448,830$ 1,351,526,847
$
1
UAAL $34,693,000$15,668,000$1,992,869-$9,440,044$41,756,068$32,174,550$39,376,937$86,255,260$79,759,171$82,485,649$57,665,953$51,720,477
1
% Funded 93.28%97.08%99.65%101.58%94.12%95.59%95.01%90.43%92.09%92.60%95.26%96.17%
Amortization Period 116103337392735282017
2
City ARC - $ $15,584,809$11,300,444$12,108,670$11,585,964$12,134,932$13,160,033$14,775,058$14,775,058$16,665,890$18,758,244$21,387,714$24,605,002
2
Actual Employer Contribution - $ $15,486,000$11,275,000$11,771,000$11,874,000$12,073,000$12,770,000$13,160,033$15,067,000$16,670,000$18,758,000$21,385,000$24,605,000
% of ARC Paid 99.4%99.8%97.2%102.5%99.5%97.0%89.1%102.0%100.0%100.0%100.0%100.0%
1
Covered Payroll $132,755,000$124,015,000$127,711,474$126,003,810$130,054,676$134,981,922$151,973,233$163,812,604$182,525,341$192,692,957$205,301,000$227,938,193
City Contribution as % of Covered
Payroll 11.67%9.09%9.22%9.42%9.28%9.46%8.66%9.20%9.13%9.73%10.42%10.79%
City Contribution as % of Operating
4.08%2.95%0.00%3.24%3.43%3.57%3.89%
2.99%3.08%2.86%2.90%4.23%
Revenue
UAAL as % of Operating Revenue (like
9%-2%0%19%16%16%10%
4%1%10%7%9%
Moodys)
All Fund (Operating Revenue)$379,366,000$377,188,000$382,035,000$402,956,000$422,437,000$440,929,000$465,523,000$486,323,000$524,873,000$549,633,000$581,099,000
1
Obtained from Exhibit III, Schedule of Funding Progress, Actuarial Valuation as of Dec. 31, 2014, for years 2007-2015
2
Obtained from Exhibit II, History of Employer Contributions, Actuarial Valuation as of Dec. 31, 2014, for years 2007-2014
3
Obtained from CAFR, figures are based on Fiscal Year End dates of 09/30
4
For years 1990-1991, obtained from Table 1 of respective actuarial; For years 1992-2014, otained from Executive Summary page
City of Fort Worth Funding Soundness Restoration Plan - APPENDIX B
City of Fort Worth Pension Review Taskforce
August 7, 2018
APPENDIX C
(2011 2015 Changes by Employee Group)
Police
General
hired on or
Employees Police hired prior to Jan. 1,
General Employees hired
after Jan.
hired on or 2013 / Fire hired prior to
prior to Sep. 1, 2011
1, 2013 Fire
after Sep. 1, Jan. 10, 2015
hired on or
2011
after Jan.
Prior Subsequent Prior Subsequent
Service Service Service Service
Salary
High 3 High 5 High 5 High 3 High 5 High 5
Multiplier
3% 2.50% 2.50% 3% 2.50% 2.50%
Overtime
Included Excluded Excluded Included Excluded Excluded
Survivor Actuarially- Actuarially-
75% 75%
Minimum
N/A 55 N/A N/A
Retirement
2% 2%
guaranteed 2% guaranteed 2%
COLA
simple, or ad guaranteed 0% simple, or ad guaranteed 0%
hoc (0-4%) simple hoc (0-4%) simple
compounded compounded
City of Fort Worth Pension Review Taskforce
August 7, 2018
APPENDIX D
Employees’RetirementFundoftheCityofFortWorth
Proposed Plans toEliminateFundingGapof 10.5%of Pay
AllProposals:August2018
Employee +/-10.5% of
InitiativeCategoryInitiative
GroupPay Deficit
Funding
1GeneralEmployee Contributions Increase of 1% of Pay-0.4%
2PoliceEmployee ContributionsIncrease of 4% of Pay-1.2%
3FireEmployee ContributionsIncrease of 1% of Pay-0.8%
4AllEmployee ContributionsIncrease of 1.2% of Pay-1.0%
Increase of 1% of pay for period
5GeneralEmployee Contributions-0.3%
equal to Blue Service
6AllEmployee ContributionsIncrease of 1.2% of Pay-1.0%
7AllEmployee ContributionsIncrease of 4% of Pay-3.2%
Increase of 0.7% for General
8AllEmployee Contributionsand2.5% for Police and Fire -1.1%
Blue Service Employees
Increase of 0.5% for General
9GeneralEmployee Contributions-0.1%
Blue Service Employees
Increase of 1% for General Blue
10GeneralEmployee Contributions-0.2%
Service Employees
Increase employee contribution
11PoliceEmployeeContributionsof 0.6% of pay to reflect value of -0.2%
25 years and out provision
5% of Pay Additional Police and
12Police and FireEmployee Contributions-2.3%
Fire Contribution
1.2% of Pay Additional General
13GeneralEmployee Contributions-0.5%
Contribution
Additional Police contribution of
14PoliceEmployee Contributions0.9% of pay in lieu of retirement -0.3%
age change
15GeneralCity ContributionsIncrease of 1% of Pay-0.5%
16PoliceCity ContributionsIncrease of 1% of Pay-0.3%
17FireCity ContributionsIncrease of 1% of Pay-0.2%
18AllCity ContributionsIncrease of 1% of Pay-1.0%
19AllCity ContributionsIncrease of 2.7%-2.7%
20AllCity ContributionsIncrease of 4.0%-4.0%
21AllCity ContributionsIncrease of 0.3% of Pay-0.3%
Additional 2% of pay Police and
22CityCity Contributions-0.9%
Fire Contributions
Annual funding source in
addition to City and employee
23AllAlternate Funding Source-8.2%
contributions equal to $36M in
2017
City of Fort Worth Pension Review Taskforce
August 7, 2018
Employee +/-10.5% of
InitiativeCategoryInitiative
GroupPay Deficit
Benefits
Suspend future Fixed and Ad
24AllCOLAHoc COLAs for all active and -6.1%
retired members
Reduce future Fixed COLAs for
25AllCOLAall active and retired members -2.7%
by 50%
Suspend Fixed COLA for Five
26AllCOLA-1.5%
Years
Eliminate Fixed COLA for future
27AllCOLAOrange Service for Tier I -1.0%
Members
Suspend COLA for any Retiree
who received a formula increase
28AllCOLAafter retirement until COLA plus Minimal
original benefit exceeds current
benefit
Replace Fixed and Ad Hoc
COLAs with a new variable
29AllCOLACOLA equal to amount that can -6.1%
be funded in full while meeting
ARC
30AllCOLALimit COLA to CPI-0.5%
Eliminate 1.0% future service
31AllCOLA-0.5%
COLAs
No COLA paid for 1 year for
current retirees; COLA begins
32AllCOLA-0.3%
one year later for active
employees
Suspend future COLAs except
for retirees with a benefit less
than 185% of Federal Poverty
33AllCOLA-5.7%
Level (FPL) for a family of 2
($30,044 in 2017) and with 25
YOS, plus all disability retirees
Provide future COLAs up to the
amount of the FPL for 2
34AllCOLA($16,240 for 2017) for retirees -4.6%
with 25 YOS, plus all disability
retirees
Suspend COLAs for 5 years for
all retirees and for first 5 years
35AllCOLA-2.4%
after retirement for active
employees
Suspend COLAs for 10 years for
all retirees and for first 10 years
36AllCOLA-4.0%
after retirement for active
employees
Suspend COLAs for 15 years for
all retirees and for first 15 years
37AllCOLA-4.7%
after retirement for active
employees
Suspend COLAs for 20 years for
all retirees and for first 20 years
38AllCOLA-5.3%
after retirement for active
employees
Capped COLA on up to $20,300
39AllCOLA-4.0%
of benefit (125% of FPL)
Suspend future COLAs for
40AllCOLA-3.2%
members not yet retired
No COLA paid for 3 years for
41AllCOLAcurrent retirees; COLA begins 3 1.0%
years later for active employees
City of Fort Worth Pension Review Taskforce
August 7, 2018
Employee +/-10.5% of
InitiativeCategoryInitiative
GroupPay Deficit
(assumes COLA reduced by
50%)
With 25 years of service
requirement: Capped COLA on
42AllCOLA-4.00%
up to $20,400 of benefit
(incorporating ad hoc COLA)*
With 20 years of service
requirement: Capped COLA on
43AllCOLA-2.5%
up to $45,800 of benefit
(incorporating ad hoc COLA)*
With 20 years of service
requirement: Capped COLA on
upto $20,400 of benefit
44AllCOLA-3.4%
(prorated based on service less
than 25) (incorporating ad hoc
COLA)*
With 20 years of service
requirement: Capped COLA on
up to $45,800 of benefit
45AllCOLA-1.9%
(prorated based on service less
than 25) (incorporating ad hoc
COLA)*
2% COLA for retirees; 1% COLA
for active employees, and
46AllCOLA-1.8%
eliminate of future service COLA
(incorporating ad hoc COLA)*
Reduce future Fixed COLAs for
all active and retired members
47AllCOLA-2.8%
by 50% (incorporating ad hoc
COLA)*
Reduce future Fixed COLAs for
48AllCOLAall active employees -3.0%
(incorporating ad hoc COLA)*
Suspend COLAs for 5 years for
all retirees and for first 5 years
49AllCOLAafter retirement for active -2.2%
employees (incorporating ad hoc
COLA)*
Suspend COLAs for 5 years for
all retirees and for first 5 years
50AllCOLAafter retirement for active -3.6%
employees (incorporating ad hoc
COLA)*
Reduce COLAs to 1.5%,
eliminate future service COLAs,
51AllCOLAand capped COLA on up to -2.3%
$45,800 of benefit (incorporating
ad hoc COLA)*
Freeze Tier I benefits based on
current pay and provide a
52AllBenefit Formula-6.2%
minimum benefit of the Tier II
benefit on all service
Freeze all accrued defined
benefits and provide a future
53AllBenefit Formulabenefit that does not cost more -8.2%
than the current City Normal
Cost of 4.3% of pay
Reduce future benefit formula by
54AllBenefit Formula-1.0%
10%
Base future benefits on career
55AllBenefit Formula-2.0%
average pay
City of Fort Worth Pension Review Taskforce
August 7, 2018
Employee +/-10.5% of
InitiativeCategoryInitiative
GroupPay Deficit
Eliminate overtime, wellness
pay, vacation sell back from
FAC for Tier I Blue Service,
Eligible Compensation-Credited
wellness pay and vacation sell
56All-3.1%
Service
back from Tier I Orange Service,
and sick leave conversions from
service
Eliminate future accruals of
Eligible Compensation-Credited
57Allmajor medical and excess sick -0.3%
Service
toward service/FAC
Increase minimum retirement
age for unreduced benefit to 60
58AllRetirement Age-4.0%
for General and 55 for
Police/Fire
Increase retirement age to 60 for
General and 55 for Fire Only
59General and FireRetirement Age-3.6%
with higher Police contributions
(1.8% of pay full value)
Add Minimum Retirement Age
55-Fire (figure assumes < 15
60FireRetirement Eligibility-0.5%
YOS; age and grandfathering
may vary)
Add Minimum Retirement Age
61GeneralRetirement Eligibility-0.9%
60-General
Add Minimum Retirement Age
55-General (figure assumes <
62GeneralRetirement Eligibility-0.2%
15 YOS; age and grandfathering
may vary)
Increase retirement age to 55 for
63AllRetirement EligibilityPolice/Fire and 60 for General -4.0%
for all
Increase retirement age to 55 for
Police/Fire and 60 for General
64AllRetirement Eligibility-0.6%
except for: currently vested
grandfathered
Increase retirement age to 55 for
Police/Fire and 60 for General
65AllRetirement Eligibility-2.0%
except for: > 15 YOS
grandfathered
Increase retirement age to 55 for
Police/Fire and 60 for General
except for: within one year of
66AllRetirement Eligibility-2.8%
retirement eligibility
grandfathered
Increase retirement age to 55 for
Police/Fire and 60 for General
67AllRetirement Eligibilityexcept for: accrued benefit at -3.2%
time of change is maintained as
minimum
Increase retirement age to 55 for
68AllRetirement Eligibility-2.2%
all retirees
Increase retirement age to 55 for
Police/Fire and 60 for General +
69AllRetirement Eligibility-3.6%
1.8% of pay additional Police
contribution
Change Rule of 80 (25 and out
70AllRetirement Eligibilityfor Police) to Rule of 82 (26 and -2.1%
out for Police)
Change Rule of 80 (25 and out
for Police) to Rule of 82 (26 and
71AllRetirement Eligibility-1.1%
out for Police) > 15 YOS
grandfathered
City of Fort Worth Pension Review Taskforce
August 7, 2018
Employee +/-10.5% of
InitiativeCategoryInitiative
GroupPay Deficit
Change Rule of 80 (25 and out
72AllRetirement EligibilityforPolice) to Rule of 84 (27 and -4.1%
out for Police)
Increase retirement age to 57 for
those with less than 15 years of
73AllRetirement Eligibility-0.3%
service, assuming no bi-
furcation
Increase retirement age to 55 for
those with less than 15 years of
74General and FireRetirement Eligibility-1.0%
service, assuming no bi-
furcation
Increase retirement age to 55 for
75General and FireRetirement Eligibilitythose with less than 15 years of -0.6%
service, with bi-furcation
Increase retirement age to 55 for
76General and FireRetirement Eligibility-0.3%
non-vested and new employees
Increase vesting eligibility to 10
77AllVesting--
YOS for new employees
Assumptions
78AllInvestment AssumptionReduce from 7.75% to 7.5%+2.3%
79AllInvestment AssumptionReduce from 7.75% to 7.0%+6.7%
Extend from 30 years to 40
80All Amortization Period-2.5%
years
Reduce from 30 years to 25
81AllAmortization Period+2.1%
years
Change from level % of pay to
82AllAmortization Method+7.4%
level $ amount
Total-10.6%
\[1\]ThiswilldeclinewithfutureemploymentofTierIIemployees
\[2\]ThecombinationofyearssinceincreasegrantedandeffectofCOLAsinceretirementmakesitunlikelythiswouldproduceanysignificantreductionincosts
* These COLA alternatives assume those employees who elected the ad hoc COLA will receive the same COLA as all other employees in the future
CITY OF FORT WORTH
Comparative Data
MetroplexCities
Employee Contributions to Retirement Plan
None pay into Social Security (except general employees at Garland)
14%
12%
*2017 Texas Municipal Retirement System (TMRS) Contribution Rate
10%
8.25%
8%
7%7%
7%
7%
6%
4%
2%
0%
ArlingtonGarlandGrand PrairieIrving - Gen & PoliceFort Worth - Gen &
*
Fire
Metroplex Cities
Employer Contributions to Retirement Plan
None pay into Social Security (except general employees at
25.00%
20.00%
*2017 Texas Municipal Retirement System (TMRS) Contribution Rate
16.75%
16.33%
15.73%
14.61%
15.00%
11.11%
10.00%
5.00%
0.00%
GarlandIrving - Gen & PoliceArlingtonGrand PrairieIrving - Fire
General Employee
Contributions
16.00%
14.00%
13.20%
12.20%
12.00%
10.00%
10.00%
9.20%
8.25%
8.00%
6.20%
6.04%
6.00%
4.00%
2.00%
0.00%
San JoseIndianapolisFort WorthHoustonColumbusCharlotteSeattle
Columbus, Dallas, Fort Worth, and San Jose do not participate in Social Security
Employee contributions shown for new hires.
Fire Employee
Contributions
20.00%
18.00%
16.00%
14.00%
12.65%
12.25%
12.00%
10.97%
10.50%
10.00%
8.75%
9.00%
8.25%
8.00%
6.00%
4.00%
3.00%
2.00%
0.00%
Only San Antonio participates in Social Security
Employee contributions shown for new hires.
Police Employee
Contributions
25.00%
20.00%
15.00%
12.25%
12.20%
10.61%
10.50%
8.75%
8.73%
10.00%
9.00%
5.00%
3.00%
0.00%
IndianapolisFort WorthSeattleDenverHoustonSan JoseCharlotteColumbus
Austin, Charlotte and San Antonio do participate
Employee contributions shown for new hires.
General Employer
Contributions
70.00%
60.00%
50.00%
40.00%
30.00%
21.15%
20.40%
19.74%
17.70%
20.00%
13.71%
12.87%
12.00%
10.00%
0.00%
ColumbusCharlotteDallasDenverFort WorthIndianapolisEl Paso
Columbus, Dallas, Fort Worth, and San Jose do not participate in Social Security
Note: Data as of FY 2016 Valuations
Fire Employer
Contributions
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
23.50%
22.70%
19.74%
18.50%
18.33%
20.00%
12.65%
10.00%
8.00%
5.23%
0.00%
SeattleDenverCharlotteAustinEl PasoFort WorthIndianapolisColumbus
Only San Antonio participates in Social Security
Police Employer
Contributions
80.00%
70.00%
60.00%
50.00%
40.00%
27.51%
30.00%
22.70%
19.00%
18.50%
20.46%
20.00%
13.35%
8.00%
10.00%
5.23%
0.00%
SeattleDenverCharlotteEl PasoColumbusFort WorthIndianapolisAustin
Austin, Charlotte and San Antonio participate
Post Reform Contribution Changes –
Texas Cities
The City of Dallas enacted pension reforms for both the general employees pension plan and police and fire plan
•The City created a new pension tier for general employees hired after December 2016. Employee contribution rates for
both tiers remained unchanged (13.32%) between FY2016 and FY2017. The City also contributes at the same rate for
both tiers but contributions increased from 13.71% (FY2016) to 22.68% (FY2017)
•Dallas enacted pension reforms for police and fire employees. Employee contribution rates increased from 7.08%
(FY2016) to 13.5% (FY2017) and employer contribution rates increased from 32.68% (FY2016) to 34.5% (FY2017)
The City of Houston also enacted pension reforms affecting general, police, and fire employees
•Contributions for general employees increased for each pension tier: Tier A (5.0% to 7.0%
Tier C (0% to 3%). Additionally, the employer contribution rate decreases from 24.97% (FY2016) to 8.17% (FY2017),
which results from the City’s decision to pay down the legacy liability through pension obligations bonds
•Contributions for fire (regardless of hire date) increased from 9.0% to 10.5% as part of the new reforms. Additionally, the
employer contribution rate decreases from 33.62% (FY2016) to 31.89% (FY2017)
•Contributions for police officers (regardless of hire date) increased from 9.37% to 10.5% as part of the new reforms.
Additionally, the employer contribution rate decreases from 33.75% (FY2016) to 31.77% (FY2017) and 31.85% (FY2018).
The City also used pension obligation bonds to fund the police legacy liability. The decrease is less severe in comparison
to general employees because the City revised its police pension assumptions which resulted in a larger liability
Charlotte: Employees can voluntarily enroll in the City's 401K plan: City contributes up to 3.0% for general and fire
employees, 5.0% for police employees
Columbus: Employer makes an additional contribution toward retiree health benefits: 0.5% (police), 0.5% (fire), 2.0%
(general) which brings contribution up to the statutory maximums of: 19.5% (police), 24.0% (fire), 14.0% (general) for
new hires. Contributionrates are shown for new hires. There is an employer pick which varies on hire date and
employee group for older tiers.
Denver: Fire and police employee contributions increase 0.5% each year through 2022 (maximum of 12%); rates
shown for 2016
Indianapolis: Employer picks up 3.0% of the required 6.0% member contribution for police and fire employees and
3.0% of the required 3.0% member contribution for general employees; Employer rates include pick
applicable
San Jose: Employees make an additional contribution toward retiree health benefits: 9.51% (police), 9.74% (fire), and
0.39% (general); Employer makes an additional contribution toward retiree health benefits for new hires: 10.31%
(police), 10.62% (fire), and 12.86% (general). Employee contribution rates shown for new hire due to data availability.
Employer contributions based on a calculated blendedrate all tiers.
Seattle: Contribution rates shown for most recent pension tier: hire hired on or after Sept. 1977
Austin:
•General and Fire EE/ER: Texas Review Board Actuarial Valuation Report (2016)
•Police EE/ER: Police Pension Benefit Guide (2016)
Dallas:
•General EE/ER: Texas Review Board Actuarial Valuation Report (2016)
•Fire and Police EE: Actuarial Impact Statement (April 2, 2017), ER: Texas Review Board Actuarial Valuation Report (2016)
El Paso:
•General, Fire, and Police EE/ER: Texas Review Board Actuarial Valuation Report (2016)
Houston:
•General and Police EE: Pension AVRs (2016), ER: Texas Review Board Actuarial Valuation Report (2016)
•Fire EE: Actuarial Impact Statement (March 18, 2017), ER: Texas Review Board Actuarial Valuation Report (2016)
San Antonio:
•Police and Fire EE/ER: Texas Review Board Actuarial Valuation Report (2016)
Other Metroplex:
•Texas Municipal Retirement System Actuarial Valuation Report (2016)
Charlotte:
•General, Fire, and Police EE/ER: 2016 City-wide CAFR
Columbus:
•General, Fire, and Police EE/ER: 2016 City-wide CAFR
Denver:
•General, Fire, and Police EE/ER: 2016 City-wide CAFR
Indianapolis:
•General EE: 2016 City-wide CAFR, ER: Indiana Public Retirement System Rate Changes (from web)
•Police and Fire EE: Public Employees Retirement Fund, At a Glance Handout; ER: Indiana Public Retirement
System Rate Changes (from web)
Seattle:
•General EE: Seattle City Employees’ Retirement System II FAQ Handout (from web)
•Police and Fire EE/ER: Washington State Contribution Rate Tables (from web)
San Jose:
•General, Fire, and Police EE/ER: 2016 City-wide CAFR;
•Note: ER is a blended rate based on employer contributions to Tiers 1 & 2 divided by covered payroll for Tiers 1 & 2
F
Pension Refo
EducationMee
LOCALPROBLEM=LOCA
Meeting Presenters:
David Cooke, City Manager
Susan Alanis, Assistant City Manager
Jay Chapa, Assistant City Manager
Brian Dickerson, Director Human Resources
Margaret Wise, Assistant Human Resources Director
Meeting Rules of Conduct
Please show the meeting presenter respect at all times
Please write down your questions during the presentation so you can
ask them at the end of each section or during
Please wait until after the meeting to ask very specific or personal
pension questions.
Questions can also be emailed to pension@fortworthtexas.gov
do not wish to ask it out loud or cannot wait until the end of the
presentation
Thank you for taking the time to attend these meetings to learn more
about the changes to the Pension Plan and upcoming vote in February
PENSION 101
Understanding the Pension Plan and
Problem
City has a defined benefit plan, consistent with large
cities in Texas, allowing Fort Worth to be competitive.
You can retire when your age + years of service = 80 or
at age 65 with 5 years of service. Police Officers can
retire after 25 years of service.
What Gro
GENERAL POLICE
EMPLOYEE OFFICER
Group IGroup III
Hired before Hired before
July 1, 2011January 1, 2013
Group IIGroup IV
Hired on or after Hired on or after
July 1, 2011January 1, 2013
BLUE SERVICE
ORANGE SERVICE
3% x years of service x high three
2.5% x years of service x high
and applies to all service credit
overtime).
earned prior to pension reform for
each employee group below:
Group I General
Every group has orange
service.
Group III Police
Group V Fire
Employees with Blue Service also have a survivor
benefit included at no cost
How is pension calculated for employees wit
October 1, 2013 for Generals &
Police January 10, 2015 for Fire
2.5% x years
3% x years x high 3 salary (w/ OT)
salary (w/o OT)
10 years5.8 years
27 Total Years of Service
EXAMPLE
10 years x 3.0% x $67,923 (high 3 w/ OT)= $20,377
17 years x 2.5% x $63,437 (high 5 w/o OT)=$26,961
Total annual pension$47,338
How does the City fund pensions?
$50,000 General Employee Hire
$1,400,000
$1,200,000
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
234567890123456789012
111111112222222222333
000000000000000000000
222222222222222222222
How Much of the Plan is Funded?
City of Fort Worth Pension Investment Returns
The City and member contributions, combined with the investment returns, result in the
funds available to pay benefits. The Fund uses a 7.75% rate of return, which is down
from 8.5% in the past.
Market
MTDQTDCYTD1 Year3 Years5 Years
Value
$2.2B1.02%1.93-0.19%0.68%6.87%5.52%
The current year is projected to end flat at 0%, which is the equivalent of missing earnings
of $170 million this year alone.
Accumulating an unfunded liability is sort of like
With the pension, we are taking on a debt that
begin paying in benefits until many years in the future
Failure to pay enough results in an
balance each month never paying it off
sort of like a mortgage
We have a projected unfunded liability of over $1.6 billion
The amount of time anticipated to pay off the liability is known
as the and is commonly recommended to
be around 30 years
TEXAS PENSION SYSTEM
What do other cities
in Texas contribute?
Texas City Comparison Chart
FY2017
Employee Contributions including Social Security
GeneralFire
Fort Worth8.25%8.25%
Austin14.20%18.33%
Dallas13.32%13.50%
El Paso15.15%15.28%
Houston9.20%10.50%
San AntonioTMRS18.52%
Employer Contributions including Social Security
General
Fort Worth19.74%19.74%
Austin24.24%18.33%
Dallas22.68%34.50%
El Paso21.15%18.50%
Houston14.37%31.89%
San AntonioTMRS30.84%
After Going to the State Legislature in Austin
What Employees Had Before the ChangeThe Changes Employees Voted
Down
Employee
8.5%9% up to 12%
Contributions
27.5%The City did not agree to this plan and
City Contributions
would not commit to increasing their
contributions
50 for some employees and 55 for others based on
Normal Retirement
hire date
Age
2.0% for years 1-20Members hired after certain date would
Pension Formula
2.5% for years 21-25get a 3% multiplier
3.0% for years 26 until retirement
Average High 3 salaryAverage High 5 salary
4% Automatic COLAAutomatic COLA tied to the US Treasury
COLA
rate bond
Unlimited DROP10 Year DROP
DROP
4% Contributions to Fund while in DROP3% Interest for 7 years and 0 after 7
Interest on DROP Accountyears
Lump Sum Cash WithdrawalOption to have annuity
4% Automatic COLA on DROP balance
THE SOLUTION FOR THE FUTURE
OF FORT WORTH
CONTRIBUTION INCREASE
ELECTION
We need ALL 6,800 City Employees
Must have 50% + 1 for Vote to Pass
(approx. 3401 votes)
What will you be voting on?
1.Member Contribution Increases
2.Risk-Sharing allowing up to 1.6% additional contribution increases
for employee and 2.4% for City no sooner than 2022 and no more
than .8% in a single year
3.
---will not require another employee vote
4.Apply employee contributions to all overtime earned.
Total Contributions
Contingent on Successful Election
Current7/20/2019*
General
9.35% (increase by 1.1% for Group II
General Members )
8.25%
10.05% (increase by 1.1% + .7% for years of
blue service Group I General Members)
Police**
8.73%10.53% (1.8%)
Fire
8.25%10.05% (1.8%)
TaxPayers
19.74% (General & Fire)24.24% (General & Fire)
(City)
20.46% (Police)24.96% (Police)
*Retroactive to PP1 of calendar year 2019 for City
**Higher contributions for Police to retain the 25 and out benefit
Risk Sharing
(Contingent on Successful
Additional contribution changes to be automaticallyimplemented
As early as 2022, if the City and employee contribution is less than the
contribution (ADC)for two consecutive years Contributions will be increased
to 2% of pay in one year or 4% of pay in total in a 60%/40% proportion (City/employee)
o City = 1.2% in one year or 2.4% total
o Employee = 0.8% in one year or 1.6% total
Increases may be unilaterally reduced by City Council, without additional approval of members, if
two consecutive actuarial valuations indicate the ADC will be met without those contributions
If maximum contribution increase has been applied and the following actuarial valuation indicates the
actual contribution is still insufficient, the City Council may consider
Total Contributions
Contingent on Successful Election
Current7/20/2019*20202021
General
9.35% (increase by 1.1% for Group
II General Members )
8.25%
10.05% (increase by 1.1% + .7% for
years of blue service Group I General
Members)
Police**12.53% 13.13%
8.73%10.53% (+1.8%)
(+2%)(+.6%)
Fire12.05%
8.25%10.05% (+1.8%)
(+2%)
TaxPayers
19.74% (General &
24.24% (General & Fire)
Fire)
(City)
24.96% (Police)
20.46% (Police)
*Retroactive to PP1 of calendar year 2019 for City **Higher contributions for Police to retain the 25 and out benefit
Solution Results
Estimated Amortization Periods at Different Investment Return Assumptions
after Proposed Changes and Automatic Adjust Feature
50
45
40
35
30
S
R
25
A
E
Y
20
15
10
5
0
20182019202020212022
Objective7.50%7.25%7.00%
Contribution
With the exception of built-in overtime for firefighters,
currently make contributions on earned overtime
The City makes contributions on all overtime earned by employees who
have any blue service; the City does not make contributions on overtime
earned by employees with only orange service.
A successful election would require employees
contributions on all overtime, including members with only orange
service.
COLA
Cost of Living Adjustment
Adjustments to COLA and Eligibility Dates
Convert COLA of
Retain current COLA
remaining active,
level for service through
eligible employees
7/19/2019 for members
for service through
who are retired or entered
7/19/2019 to a
DROP by 1/1/2021,
variable COLA based
including early retirement
on Fund performance
Variable COLA
Current employees that have a combination of Blue and Orange
Service who do not retire or enter the DROP by January 1, 2021
move to a variable COLA.
This means the COLA will fluctuate based on the performance of the
fund.
Increase in any single year may not exceed 4% increase of base
pension
Fund returns would need to consistently be 9
COLA to be triggered, which is highly unlikely
ENTERING THE DROP
AND MAJOR MEDICAL
DROP
(Deferred Retirement Option Program)
A member who is eligible to retire may enter the DROP, while they continue
to work and draw a regular paycheck.
Upon entering DROP the pension amount is calculated and is frozen, as if the
employee has retired. Future years of service and pay increases will not be
added to the pension benefit
The pension amount is deposited into an account that the member can
withdraw upon retirement.
Extension of DROP from 5 to 6 years is contingent upon successful
contribution increase vote. If adopted, the effective date for the additional
year is 7/20/2019.
Sick/Major Medical Leave
The current policy allows unused sick leave (civil service) and major
medical leave (general) to be applied as service credit
As of July 20, 2019 any future earned sick/major medical leave that is
accrued thereafter will not convert to service credit upon retirement
Upon retirement all unused sick/major medical leave balances that were
accrued prior to July 20, 2019 will continue to convert to service credit
How Sick/Major Medical
Leave Will Be Used
OLD
BLUE ORANGE
SERVICESERVICE
(Groups (All
I, III, V) groups)
Any unused major medical or sick leave accrued after July 20, 2019 will no longer be applied as service credit.
Upon retirement, unused major medical or sick leave hours will be calculated and applied as service credit
based on the ƭğƌğƩǤ ŅƚƩƒǒƌğ when the ağƆƚƩ aĻķźĭğƌ ƌĻğǝĻ ƚƩ {źĭƉ ƌĻğǝĻ ŷƚǒƩƭ
1,040 hours (6 months) earned during Blue Service = ½ of one year x 3.0% x high 3
520 hours (3 months) earned during Orange Service = ¼ of one year x 2.5% x high 5
130 hours (1 month) earned after July 20, 2019 = 0
WHEN AND HOW TO VOTE
The Fort Worth Retirement Fund
Office will administer the vote
Pension Reform Plan Schedule
Date
January 7 February 1 (4 weeks)Employee and Retiree Meetings
February 4 February 22 (3 weeks)Contribution Election
February 27ERF Board certifies election results
March 5 (tentative)Joint ERF Board
Voting For A Solution
Voting ballots will be mailed out February 1, 2019
Voting occurs from February 4 February 22
You can vote three ways:
Mail voting ballot to be received before or on February 22
Vote securely online
Vote securely over the phone
What will you be voting on?
1.Member Contribution Increases
2.Risk-Sharing allowing up to 1.6% additional contribution
increases for employee and 2.4% for City no sooner than 2022
and no more than .8% in a single year
3.
---will not require another
employee vote
4.Apply employee contributions to all overtime earned.
Breakdown of Employee Vote
HELP/COMMUNICATIONS
WHERE TO FIND MORE
INFORMATION
http://fortworthtexas.gov/benefits/pension/
Information on contribution changes for general
employees, police officers and firefighters
Pension Schedule (voting dates)
Educational Meeting Dates
Pension Education Presentation (also on YouTube)
Frequently Asked Questions (FAQs)
Where do I go to get
information about a
specific question I have
about my personal
pension?
Email:pension@fortworthtexas.gov
Phone:817-392-7737
Retirement Fund Website
http://www.fwretirement.org/
Important Points to Remember
Contributions to the Pension Fund are changing, but the
benefit has been preserved and will remain the same
Employee contribution changes must be approved by
a majority vote from employees Feb 4 -Feb 22
A local Fort Worth pension problem should be solved
in Fort Worth not by the state legislature in
457 PLAN
AN ADDITIONAL RETIREMENT
SAVINGS OPTION FOR EMPLOYEES
457 Deferred Compensation Plan TIAA
Set aside pre-tax or post-tax (ROTH) money for retirement
Minimum contribution $10.00/pay period
www.tiaa.org/fortworth
Investment in a variety of funds available
2019 maximum $19,000
www.tiaa.org/fortworth
2019 catch-up contribution
888
$6,000 over age 50
Special catch-up contribution within 3 years of retirement
Contact Benefits or TIAA
You can contribute a percentage of your salary for 2019
QUESTIONS
GLOSSARY
Important Pension Terms You
May Want To Know
Important Pension Terms to Know
Defined Benefit Plan -a type of pension DROP Deferred Retirement Option
plan that promises a specified monthly Program which allows an employee to defer
benefit at retirementretirement while accumulating a lump
benefit payable upon retirement
COLA Cost of living adjustment
Amortization Period
Ad Hoc COLA -allows employees to share
in which the city will pay off the unfunded
in the risks and benefits of investment
liability, if all plan assumptions are met,
returns.
typically 30 years
Simple COLA -calculated on a fixed
Rule of 80 -
percentage rate. The simple COLA in the
city's plan is 2%
age, equals 80. Once a General Employee or
a Fire Employee reaches the Rule of 80, he
Variable COLA -fluctuates based on the
or she is eligible to retire
health/performance of the fund
January 18, 2019
Mr. Todd Cox
Board Chairman
3801 Hulen Street, Suite 101
Fort Worth, TX 76107
Todd.Cox@fwretirement.org
Re: Assessment of the Pension Modifications Adopted on December 11, 2018
Dear Mr. Cox:
As requested, we have estimated the impact of the pension modifications and proposed contribution
changes adopted by the Fort
Worth City Council on December 11, 2018. This letter will describe the modifications, summarize the
impact of the modifications, and outline the assumptions and methods used in the estimates.
This letter is intended to satisfy Sections 5.07 and 5.09 of Article 6243i of the Texas Revised Civil Statutes
which require an actuarial analysis of amendments to Municipality and member contributions to FWERF.
Summary of Modifications
This analysis is based on our understanding of the modifications detailed in the formal ordinance
amending Article I oof the Code of the City of Fort Worth
(2015). The modifications included the following elements:
Changes to Benefits Enacted by the Fort Worth City Council on December 11, 2018
1.Eliminate the COLA on the portion of the benefit associated with future service for current
COLA-eligible (Tier 1) active members, effective July, 2019,
2.Eliminate COLAs applicable to active employees and deferred vested employees who have not
retired or entered DROP on or before January 1, 2021,
3.Establish a Variable COLA for Tier 1 members who have not retired nor entered DROP on or
before January 1, 2021, which can be granted in instances where plan funding meets the
funding requirements of the Ordinance and the Variable COLA is approved by both the FWERF
Board of Trustees and the City Council,
4.Eliminate future accruals of major medical and excess sick leave toward service and Final
Average Compensation (FAC),
Mr. Todd Cox
January 18, 2019
Page 2
Additional Changes to Contributions and Benefits Subject to Approval by the Members
5. Increase the member contribution rate by 1.1% of pay for all General Employees, effective
July, 2019,
6. Increase the member contribution rate by an additional 0.7% of pay for a period equal to the
period of blue service for each individual General Employee, effective July, 2019,
7. Increase the member contribution rate by 1.8% of pay for all Police Officers and Firefighters,
effective July, 2019, and an additional 2.0% of pay, effective January, 2020,
8. Increase the member contribution rate by an additional 0.6% of pay for all Police Officers,
effective January, 2021,
9. Include overtime in the calculation of member contributions, effective July, 2019,
10. Increase the City contribution rate by 4.50% of pay, effective January, 2019,
11. Extend maximum DROP period to six years, and
12. Establish certain automatic risk-sharing contribution increases when plan funding is not meeting
the funding requirements of the Ordinance.
Summary of Results
It is our understanding that the City and the Pension Task Force utilized a 7.50% investment return
assumption as a margin for risk when developing proposed modifications to FWERF. As a result, we
have assessed the impact of the pension modifications using an investment return assumption of 7.50%.
A further discussion of risk margin, the investment return assumption, and the upcoming experience
study is included later in this letter .
section presents the most reasonable expectations for future actuarial valuation results based on all of
the factors known at this time.
The following table presents the results of the projected December 31, 2018 actuarial valuation results
using a 7.75% investment return assumption as well as a 7.50% investment return assumption. The
table also includes the impact of the pension modifications using a 7.50% investment return
assumption.
Mr. Todd Cox
January 18, 2019
Page 3
Projected December 31, 2018 Valuation Results
Pension
Current Plan Current Plan Modifications
Discount Rate 7.75% 7.50% 7.50%
Ultimate Contribution Rates
(prior to risk-sharing)
Members*
8.41% 8.41% 11.75%
City 19.99% 19.99% 24.49%
Additional Revenue from Blue
Service General Employee
Contributions Expected in Year 1 N/A N/A $780,000
Total Normal Cost Rate* 12.70% 13.49% 12.69%
UAAL (millions) $1,733.8 $1,850.5 $1,709.5
Funded Ratio 56.8% 55.2% 57.1%
Funding Period** Infinite Infinite 29 years
30-Year ADEC** 28.44% 30.02% 24.02%
Year UAAL Eliminated*** Not Applicable Not Applicable 2050
* Underlying payroll basis for member contributions and normal cost rate also increased by approximately
5.7% due to the inclusion of overtime
** Based on new statutory contribution rates and zero liability for future Ad Hoc and Variable COLAs
*** Incorporating risk-sharing contribution increases and payment of Ad Hoc COLAs
Unless noted in the remaining sections of this letter, our estimates are based on the same assumptions,
methods, procedures and data as the December 31, 2017 actuarial valuation, including assuming an
actual investment return of 7.75% for 2018.
Effect of Higher Member Contributions
Members contribute a portion of their compensation to FWERF for their entire career. When member
contribution rates are increased, the future benefits payable from FWERF increase as the members now
have higher accumulated contribution balances that must ultimately be distributed. As a result, FWERF
will experience a modest increase in Actuarial Accrued Liability and normal cost as a result of the
increase in member contribution rates; however, these increases are far outweighed by the value of the
increased contributions to the plan over time.
Withdrawal of Member Contributions
Based on the current valuation assumptions, all vested terminations are assumed to leave their
contributions on deposit with FWERF and wait to commence the deferred annuity. With the proposed
increase in the member contributions and the elimination of the COLA for certain members, it is more
likely that accumulated contribution balance at termination will have a greater economic
value to the member than waiting for the deferred annuity. As a result, we have modified the
assumption for withdrawal of member contributions. Specifically, members terminating with a vested
Mr. Todd Cox
January 18, 2019
Page 4
benefit are assumed to choose the most valuable option available to them at the time of termination:
(i) an immediate , or
deposit and receiving a deferred annuity.
Include Overtime in the Calculation of Member Contributions
The pension modifications will require all active members to contribute on overtime earnings. As a
result, Tier 2 members will contribute on overtime earnings but overtime earnings will not be included
in the determination of their benefit. Additionally, the City will continue to contribute on earnings that
exclude overtime for Tier 2 members.
Major Medical and Sick Leave Conversions
In certain circumstances, members are currently allowed to convert unused major medical and sick
leave to service at retirement. The current valuation assumptions include a load to account for these
leave conversions. Specifically, future retirement benefits are loaded by the following percentages:
3.75% for General Employees, 2.00% for Police Officers, and 2.50% for Firefighters.
The enacted pension modifications include the elimination of future accruals of major medical and sick
leave toward service and FAC. In order to incorporate this modification, current members with 20 years
of service are assumed to have a fully-accrued leave balance (i.e., their benefits are loaded by the full
percentage stated above). For current members with less than 20 years of service, the load percentage
oyee with currently
10 years of service will have their retirement benefit loaded by 1.75% (or, one-half of 3.50%). Future
members will not have any load applied to their retirement benefits.
Maintaining COLA Eligibility
The pension modifications dictate that Tier 1 members who retire or enter DROP on or before
January 1, 2021 will maintain their eligibility for the current COLA provisions. This type of provision will
likely cause a significant number of employees to retire or enter DROP earlier than anticipated in order
to maintain the 2% automatic COLA. This approach could also put a significant strain on City staffing as
well as reduce the anticipated savings from the plan changes as more people retire or enter DROP on or
before January 1, 2021 to lock in the more valuable benefits.
We have assumed that 100% of active members that reach the eligibility for Normal Retirement
between December 31, 2017 and December 31, 2020 (approximately 500 members) will enter DROP
and participate in DROP the same period of time currently assumed in the actuarial valuation (i.e., three
years for General Employees and four years for Police Officers and Firefighters). Additionally, we have
assumed that 100% of active members that worked beyond Normal Retirement without entering DROP
as of December 31, 2017 (approximately 100 members) will retire prior to January 1, 2021. Finally, we
have assumed that all Vested Terminated Members who are eligible for the automatic 2% COLA and will
reach age 50 prior to January 1, 2021 (approximately 150 members) will commence their benefit at the
earlier of Normal Retirement and January 1, 2021.
Mr. Todd Cox
January 18, 2019
Page 5
Actuarially Determined Contribution (ADC)
Certain aspects of the pension modifications rely on whether the current fixed contributions to the fund
meet the ADC outlined in the Ordinance. In general, the Ordinance defines the ADC as a contribution
-
assumed that the ADC is the sum of the normal cost, the assumed administrative expenses, and an
amount necessary to eliminate the UAAL over a closed 30-year period beginning on December 31, 2018
with the goal of eliminating the UAAL by December 31, 2048. In this context, the ADC is the sum of the
anticipated member contributions and the City contributions. This provision makes no allowance for
how to handle potentially large, new experience losses that occur in the few years before 2048. Based
time and could create an unmanageable amount of volatility in the contribution rate.
For purposes of the automatic risk-sharing contribution increases, the Ordinance indicates that the
investment return assumption used to determine the ADC must be consistent with the average of rates
reported by two independent sources that are agreed to by the City and For purposes of the
th
Variable COLAs, the Ordinance indicates that COLAs and 13 checks cannot be granted if the investment
return assumption determined by the FWERF Board is higher than the average of the assumed rates of
return as reported by two independent sources that have been agreed to by the City and the Board.
Additionally, the ADC must be determined based on the Actuarial Value of Assets as well as the Market
Value of Assets. These are subtle differences in the description of the ADC but they could lead to slightly
different amounts over time.
Since the City and the members contribute on a different payroll basis, it would not be accurate to add
the City and member contribution rates together. As a result, we may still focus on the Actuarially
Determined Employer Contribution (ADEC) for purposes of reporting required contribution rates so it is
clear which payroll basis is being considered. However, the ADEC will simply be determined as the
projected ADC less the anticipated member contributions.
Independent Sources of Investment Return Assumptions
The description of the ADC in the Ordinance for Variable COLAs and the automatic risk-sharing
contribution increases both refer to a comparison of to rates of
return reported by two independent sources which must be agreed to by the City and the FWERF Board.
To our knowledge, there have been no formal discussions about which independent sources will be
selected. However, examples of two possible sources could include: (1) the National Association of
State Retirement Administrators (NASRA) Public Fund Survey, and (2) the Wilshire Consulting Report on
City & County Retirement Systems. For reference, the most recent NASRA report was published in
November, 2018 and indicated that the median investment return assumption in their survey was
7.38%. Similarly, the most recent Wilshire report was published in September, 2018 and indicated that
the median investment return assumption in their survey was 7.25%. We would like to point out that
both of these sources are already below the 7.50% used in this analysis and are on a downward trend.
Mr. Todd Cox
January 18, 2019
Page 6
Automatic Risk-Sharing Contribution Increases
If the anticipated contributions from the members and the City are less than the ADC for two
consecutive years, the City and member contributions will be increased as required to meet the ADC
with 60% of the increases allocated to the City and the remaining 40% allocated to the members. The
annual increase in the total contribution rate will be capped at 2% of pay and the aggregate increase will
be capped at 4% of pay. These increases cannot commence prior to January 1, 2022.
The City Council can lower the risk-sharing contributions if some or all of the risk-sharing contributions
are no longer needed to meet the ADC for two consecutive years. Such reductions will be allocated 40%
to the members and 60% to the City.
Based on a 7.50% investment return assumption and assuming a positive investment return for 2018,
it is anticipated that the risk-sharing contributions will commence on January 1, 2029 at
approximately 0.02% of pay for the City. The risk-sharing contributions will increase as a percentage
pay until they reach 2.25% of pay in the year 2048. After 2048, the risk-sharing contributions are no
longer expected to be necessary to meet the ADC. This slow increase occurs because the Ad Hoc COLA
provisions begin to grant COLAs to retirees as the funding period declines. The Ad Hoc COLAs increase
the UAAL which pushes the actuarially determined contribution rates up, even for new active members.
An alternative would be to advance recognize the potential future Ad Hoc COLAs in the determination of
the ADC, which would create a more level pattern of contributions, but would also create more Ad Hoc
COLA liabilities.
This projection assumes that an investment return assumption of 7.50% would be considered
City and the
two independent rates would be approximately 7.32%.
Variable COLAs
th
The FWERF Board may, with Council ratification, award a lifetime COLA or 13 check to COLA-eligible
members who have not retired or entered DROP on or before January 1, 2021 as long as the ADC is less
than the anticipated contributions for two consecutive years. COLAs awarded in any single year may not
exceed a 4% increase of base pension. Additionally, no Variable COLA can be awarded if the risk-sharing
contributions are still in effect.
Based on a 7.50% investment return assumption and assuming a positive investment return for 2018,
it is anticipated that Variable COLAs could be awarded beginning in 2049 once the risk-sharing
contributions are no longer necessary. The current analysis assumes that no Variable COLAs are
awarded in the future.
It should be noted that the Variable COLAs cannot be granted if the investment return assumption is
higher than the average of the assumed rates of return as reported by two independent sources that
Mr. Todd Cox
January 18, 2019
Page 7
have been agreed to by the City and the Board.in 2019, it is unlikely
that the 7.50% investment return assumption would meet this criterion.
Legacy Ad Hoc COLAs
Following the enactment of the pension modifications, certain members will still be eligible to receive
Ad Hoc COLAs in the future as long as the amortization period of FWERF is less than 28 years. These Ad
Hoc COLAs are not subject to the same restrictions as the Variable COLAs noted above. Specifically, the
Ad Hoc COLA can still be paid if the ADC outlined in the Ordinance is not being met and if the risk-
sharing contributions are in effect. However, the risk-sharing contributions cannot be used in
determining the amortization period for granting an Ad Hoc COLA.
Based on a 7.50% investment return assumption and assuming a positive investment return for 2018,
it is anticipated that these Ad Hoc COLAs will be paid on an annual basis beginning in 2020. The
projected annuity payments eligible for the Ad Hoc COLA are approximately $16 million in 2020 and
remain at that level (prior to any actual COLAs granted) for approximately 10 years. After that time, the
projected annuity payments slowly start to decrease, slipping beneath $10 million in 2044 and beneath
$5 million in 2054.
It is assumed that the annual determination of the funding period for purposes of granting the Ad Hoc
COLA will not incorporate any liability for the possibility that future Ad Hoc COLAs may be granted.
Impact of Actual Investment Return for 2018
Based on early indications, the FWERF fund will experience a negative investment return of -3.78% for
the 2018 calendar year which could eventually increase the UAAL by more than $265 million.
Based on a 7.50% investment return assumption, an additional $265 million increase in the UAAL due to
actual investment returns in 2018 would have the following effect on the results of this analysis:
Funding Period** 42 years
30-Year ADEC** 27.63% of pay
Risk-Sharing Contributions 1.2% of pay for the City in 2022, 2.4% in 2023, paid through 2050
Variable COLAs Could be awarded beginning in 2051
Legacy Ad Hoc COLAs Will be paid on an annual basis beginning in 2029
Year UAAL Eliminated*** 2052
Based on the current method for developing the Actuarial Value of Assets, it will take a few years before
the full impact of the anticipated $265 million actuarial investment loss will be incorporated into the
actuarial valuation results. However, the results stated above illustrate the ultimate impact on FWERF
assuming no future actuarial gains will emerge to offset the 2018 actuarial investment loss.
Mr. Todd Cox
January 18, 2019
Page 8
Setting Expectations for the Future Actual Investment Returns and Actuarial Assumptions
As plan modifications are considered, it is prudent to also consider the impact of design modifications
based on alternate assumptions. Plan design modifications that are sustainable under multiple sets of
assumptions are more likely to be a permanent solution going forward. Additionally, it is our
understanding that the City and the Pension Task Force utilized a 7.50% investment return assumption
as a margin for risk when developing proposed modifications to FWERF.
analysis is an important step in building a sustainable package of
modifications. An actuarial experience study will be conducted prior to the completion of the
December 31, 2018 actuarial valuation. Based on current market expectations, the upcoming
experience study may find that the most appropriate assumption for future investment returns is less
than 7.50%. Additionally, recently published mortality tables for public employees indicate that the
current mortality assumption for FWERF may also need to be updated as part of the upcoming
experience study.
To illustrate the possible impact of updated assumptions resulting from the upcoming experience study,
we have also determined the results of this analysis based on the combination of a 7.25% investment
return assumption, updated mortality tables, an anticipated increase in the UAAL of $265 million due to
actual investment returns in 2018, and the pension modifications:
Funding Period** 61 years
30-Year ADEC** 30.80% of pay
Risk-Sharing Contributions 1.2% of pay for the City in 2022, 2.4% in 2023, paid through 2059
Variable COLAs Could be awarded beginning in 2060
Legacy Ad Hoc COLAs Will be paid on an annual basis beginning in 2039
Year UAAL Eliminated*** 2061
For the results where the investment return assumption is lowered from 7.75%, only the nominal
investment return was lowered. When the investment return assumption is reviewed during the
upcoming experience study, we will also consider changes to the other economic assumptions (e.g.,
inflation, salary increases, payroll growth, etc.). This estimate also incorporates the recently published
PubG-2010 mortality table with generational mortality improvements in accordance with the ultimate
mortality improvement rates from the most recently published MP scale.
Impact of Pension Modifications if Members do not Approve Contribution Increases
As previously stated, the majority of the changes to benefits were formally enacted by the Fort Worth
City Council on December 11, 2018. However, the changes to contributions will only take effect if they
are approved by the members.
Mr. Todd Cox
January 18, 2019
Page 9
Based on a 7.50% investment return assumption and assuming a positive investment return for 2018,
the formally enacted changes to benefits would provide the following impact on the projected
December 31, 2018 actuarial valuation results without the increases in contributions:
UAAL (millions) $1,703.1
Funding Period** Infinite
30-Year ADEC** 27.86% of pay
Since the UAAL is not expected to be eliminated in this situation, Ad Hoc and Variable COLAs would not
be expected to be paid at any point in the future.
Summary
Based on our analysis, the pension modifications to FWERF outlined in the Ordinance result in an initial
funding period of 29 years as of December 31, 2018. Once the provisions for risk-sharing contributions
and Ad Hoc COLAs are reflected, the UAAL is projected to be eliminated in 2050 based on an investment
return assumption of 7.50% and a positive investment return for 2018. When the analysis is performed
based on a 7.25% investment return assumption, updated mortality tables, and reflecting the
anticipated actual investment returns for 2018, the UAAL is expected to be eliminated in 2061.
Additionally, the City and the members will be required to contribute the maximum risk-sharing
contributions from 2022 through 2059.
Certification
All of our work conforms with generally accepted actuarial principles and practices, and to the Actuarial
Standards of Practice issued by the Actuarial Standards Board. In my opinion, our calculations also
comply with the requirements of, where applicable, the Internal Revenue Code and ERISA.
The signing actuary is independent of the plan sponsor. He is an Enrolled Actuary, a Fellow of the Society
of Actuaries, and a Member of the American Academy of Actuaries, and meets the Qualification
Standards of the American Academy of Actuaries. Finally, the undersigned is experienced in performing
valuations for large public retirement systems.
Sincerely,
Gabriel, Roeder, Smith & Company
R. Ryan Falls, FSA, EA, MAAA
Senior Consultant
cc: Ms. Benita Falls Harper
Interim Executive Director/General Counsel