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HomeMy WebLinkAboutIR 10276 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10276 May 21, 2019 To the Mayor and Members of the City Council Page 1 of 3 SUBJECT: UPDATE ON RECENT PENSION CHANGES This Informal Report provides an update to Mayor and Council on the effect of benefit changes and (FWERF) Board of Trustees (Board). Background: M&C G-19423 appro changes retirement benefits and called a special election for employees to vote on changes to employee contributions to retirement. These actions were taken to eliminate the Unfunded Actuarially Accrued Liability (UAAL) and set a course for the FWERF to become financially sustainable. The employee election was held in February 2019 with voters approving the increase in employee contributions. The Board canvassed the results at the February 27, 2019 Board meeting. The Board also adopted changes to actuarial assumptions used to calculate the UAAL at the March 27, 2019 Board meeting. Discussion: The Board commissioned an Actuarial Experience Study from their actuary firm Gabriel, Roeder, Smith and Company (GRS) covering the period 2016-2018. The study compared the assumptions used for valuation of the funds assets and liabilities to the results of the Fund over the 2016-2018 period. The Board received the results of the study at the March 27, 2019 meeting along with recommendations for changing various actuarial valuation assumptions to closer match results over the period. The Board adopted new assumptions at that meeting which are summarized below: Economic Assumptions Decrease the price inflation assumption from 2.75% to 2.50% Decrease the nominal investment return assumption from 7.75% to 7.00% Set ultimate salary scale assumption of 3.25% and update service-based salary increase rates for each employee group consistent with actual experience and step schedules Increase the assumed overtime pay for firefighters to 18.00% of base pay and increase the average earnings overtime load on blue service benefits for firefighters to 6.00% Mortality Assumptions Adopt healthy retiree mortality tables published in the Pub-2010 Public Retirement Plans Mortality Tables Report, separately applied for general employees (PubG-2010) and public safety personnel (PubS-2010), with future mortality improvements modeled using the ultimate mortality improvement rates in the MP tables Adopt disability retirement and employee mortality tables based on the appropriate Pub-2010 mortality table by employee group with future mortality improvements modeled using the ultimate mortality improvement rates in the MP tables Other Demographic Assumptions Update termination rates consistent with FWERF member experience and future expectations Update retirement rates consistent with FWERF member experience and future expectations ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10276 May 21, 2019 To the Mayor and Members of the City Council Page 2 of 3 SUBJECT: UPDATE ON RECENT PENSION CHANGES Every member who reaches Normal (Unreduced) Retirement eligibility prior to age 65 is assumed to enter DROP, leave active service in accordance with the assumed retirement rates, and participate in DROP for the maximum possible period upon departure from active service Members who terminate with a vested benefit are assumed to choose the most valuable option available to them at the time of termination: withdrawal of contributions or deferred annuity Actuarial Methods and Policies Modify actuarial cost method to base the normal cost rate on the benefits payable to each individual active member, generally referred to as Individual Entry Age Normal (IEAN), which will require the funding period and Actuarially Determined Employer Contribution (ADEC) rate to be determined based on an open group projection. The Board commissioned an Actuarial Valuation Study with GRS following the adoption of new assumptions to understand the impact of the changes to benefits, increased contributions, and new assumptions on the UAAL. The 2018 actuarial valuation of the fund considers the recently adopted benefit and contribution changes as well as equally significant changes in actuarial assumptions and methods adopted by the Board of Trustees. As a result, the valuation provides the most current assessment of the funded status of the fund and the adequacy of the City and member contributions to meet the actuarial requirements of the fund. The results of this study were presented to the Board at the April 24, 2019 meeting. The City engaged public Financial Management (PFM) to review the study results for reasonableness and received a positive report. A summary of major study findings is provided below: The period to eliminate the UAAL is reduced to a closed, 44-year amortization when considering the risk-sharing contributions Assumption changes are reasonable and appropriate being based on actual experience and include a margin for conservatism -year period was adopted by the fund Investment returns pose the greatest risk to achieving the funding goals Results of the valuation indicate that the risk sharing contributions will be required in 2022 and 2023 The Texas Pension Review Board (PRB) requires a funding soundness restoration plan when three consecutive annual actuarial valuations indicate that unfunded liabilities will not be funded within 40 years. The restoration plan is required to achieve the 40-year target within 10 years of implementing a restoration plan. The 44-year amortization period is expected to satisfy the minimum requirements but continued dialogue with the PRB will be required. However, the 44-year amortization period is a positive outcome for the effort that was invested in the resolution especially considering the adoption of more realistic assumptions. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 10276 May 21, 2019 To the Mayor and Members of the City Council Page 3 of 3 SUBJECT: UPDATE ON RECENT PENSION CHANGES The 2018 actuarial valuation considers all benefit and contribution changes based on revised and more realistic assumptions. The actions taken by the Board adopting revised assumptions are positive and are benefit structure. Please contact Kevin Gunn, Interim Chief Financial Officer at 817.392.2015 with any questions. David Cooke City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS