HomeMy WebLinkAboutIR 8767Date: April 25, 2006
ct 40 To the Mayor and Members of the City Council
Page I of 3
®r SUBJECT: Update on Employee Retirement Fund
le"
The purpose of this Informal Report is to inform the City Council about state law limitations on employee
contributions to pension funds (which will impact the proposed increase in contribution rates) and provide
an update on efforts to address the Unfunded Actuarial Accrued Liability (UAAL) of the Employee
Retirement Fund (ERF).
M
On August 4, 2005, the Executive Director of the ERF presented the Actuarial Evaluation of the ERF as of
October 1, 2004. The Actuarial Evaluation confirmed the following major items:
Actuarial Value of Assets
Actuarial Accrued Liability
UAAL
$1,376,344,667
$1,732,166,780
$ 355,822,113
AMC
The funded ratio of the ERF based on the actuarial value of assets was reported as 79.5% and the
amortization period for the UAAL was listed as "Infinite."
At the direction of the City Council, the Board of Directors of the ERF were asked to research contribution
rates and benefit options which could be considered to address the UAAL and the amortization thereof.
CURRENT CONTRIBUTION k-XTES
PROPOSED CONTRIBUTION RATES
city
FINt
Em yee
city
Em to ee
T1
Police Dicers 11.46%
833%
N/A*
N/A*
------ - ---- --------------
A I h e r�s 10,74%
----------- - I--,-,,,,-, -- - --------------- I--,--,-, ------
&25%
------------ ---- I ---------- - I'll ---------------
- ---------------
N/A*
-------- - — ----- -------
N/A*
- --------------- --- 111111-1111 ------------
Average 10,96%*
8.39%*
13.961 *
1039%*
*Based on actuatnal report. averages
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8767
Date: April 25, 2006
AA ,,..161IR; a To the Mayor and Members of the City Council
Page 2 of 3
' SUBJECT: Update on Employee Retirement Fund
Ia79
The increased cost to the City is summarized below. It has been proposed that the City's three percent
(3 %) contribution rate increase be phased in over three (3) years, i.e., 1% per year.
3% 1%
All Funds $9.48 mil. $3.16 mil.
General Fund Only $7.06 mil. $2.35 mil.
In reviewing this proposal the City Attorney's Office has determined that State Law 6343K limits the
contribution rates for employee pension members to ten percent (10 %). The proposed two percent (2 %)
increase in contribution rates would result in employee contributions exceeding the state mandated cap.
Also, because of the differential in benefits and contributions between police officers, which allows for a
25 year and out full retirement benefit, and fire and general employees, the ten percent (10 %) cap would
equalize employee contributions and thus raise the expectation for the same 25 year and out benefit. Such
A changes in benefits would likely require an additional increase in the City's contribution rate beyond the
proposed three percent (3 %) increase. Any consideration for expanding the 25 year and out retirement
benefit to all employees would require a specific actuarial valuation to accurately determine the long term
impact on the fund.
In order to maintain the current benefits and ratio of contribution rates, while increasing the total
contributions by five percent (5 %) and incorporating the Ad Hoc COLA option, the following increases
would be needed in contribution levels.
Current Proposed
Police 8.73% 10.00%
All Other employees 8.25% 9.52%
These changes, combined with the City's three percent (3 %) increase, would leave a .73% shortfall to the
five percent (5 %) total. This .73% amounts to $2.31 million for all City funds. Of this amount, $1.72
million would represent the general fund cast.
The most prudent course of action would be to seek a change in the state law that would allow an increase
to the ten percent (10 %) cap upon approval of the employee pension fund members. Under the current
ordinance any changes in contribution rates require a seventy -five percent (75 %) approval of the fund
members; and the proposed cap removal legislation would likely require the same seventy -five percent
(75 %) approval level.
Currently the FY 2007 General Fund Budget Fiscal Outlook includes a place - holder in the amount of
$2.35 million to fund the one percent (I %) year one increase. Since the State Legislature will convene in
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 8767
s4"a
To the Mayor and Members of the City Council
SUBJECT: Update on Employee Retirement Fund
Date: April 25, 2006
Page 3 of 3
2007, it is anticipated that the ten percent (10 %) cap restrictions law (subject to approval of the
Legislature) could be amended in time to continue the one percent (1%) increase per year to ultimately
achieve the City's three percent (3 %) and employees' two percent (2 %) increases (subject to employee
election approval).
Options to Address UAAL
Subsequent to the January 10, 2006 briefing, the Council requested that the ERF provide the Gabriel
Roeder Smith and Company actuary report outlining the estimated monetary impacts to the Fund and
specifically the UAAL. Attached is the primary exhibit of the actuary's March 27, 2006 report forwarded
by the ERF. The summary includes information on benefit redesign studies for 5 -year Final Average
Earnings, 2.75% and 2.50% multipliers, Base Pay and the Ad Hoc COLA options. For each of these study
scenarios, baseline data and actuarial projections are identified including Normal Costs, UAAL, 30 -year
funding cost, Funded Ratio and Funding Period. The report confirms that the Ad Hoc COLA option,
ge'Ts mbined with the increase in contributions, would generate a definitive Funding Period in years. It is
nportant to note that the ERF Board of Directors has taken an official position of not recommending any
reductions in benefits.
Next Steps
At the Council's direction, the City Auditor is in the process of conducting an audit of the ERF.
Concurrent to the audit process, staff will conduct further review of the Benefit Studies and will
incorporate any additional recommendations related to the contribution rates and/or benefit levels in line
with the City Auditor's Audit Report.
The ERF Board of Directors has called an election seeking the approval of the active members for the
increase in the employee contribution rate. The election will occur June 9 -23, 2006 and the election results
are scheduled to be officially canvassed by the Board on June 28, 2006.
A presentation will be made at the City Council Work Session on May 2, 2046 regarding all matters
campaigned herein. In the interim, should you have any questions, please contact Richard Zavala, Acting
Assistant City Manager, or me.
&,L C�,qou �
Charles R. Boswell
ity Manager
ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS
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