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Home My WebLink AboutIR 24-1913INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 24-1913 s a rF rn 107.3 Overview To the Mayor and Members of the City Council October 22, 2024 Page 1 of 2 SUBJECT: ESTIMATED ACTUARIAL IMPACT OF ADDING MEDSTAR EMPLOYEES TO FORT WORTH EMPLOYEES' RETIREMENT FUND At the request of City Council and the Fort Worth Employees' Retirement Fund (FWERF) Board of Trustees during their joint meeting on May 14, 2024, GRS Consulting, the actuary for FWERF, conducted an analysis of the actuarial cost impact of adding MedStar employees to the Fund. Below is a summary of the assumptions, key findings, and the potential implications for the City's pension fund. Assumptions Used in the Analysis • The analysis assumes that 564 MedStar employees were added to the FWERF as of December 31, 2023, with no prior service. • MedStar employees with job descriptions of "EMT" or "Paramedic" are classified within the Firefighters employee group, while all others are classified as General employees. • Genders were not provided, so the actuary assumed a gender distribution similar to the existing FWERF population for each group. • Annual salaries were calculated using the provided pay rates, with overtime factored in based on standard valuation assumptions. Key Findings Decrease in Funding Period: The analysis shows a positive effect on the pension plan's funding period, which is the estimated time required to reach a 100% funded ratio (i.e., eliminate the UAAL). Including MedStar employees is projected to reduce this period from 32 to 29 years. This three-year improvement occurs because contributions to the pension fund are based on payroll, and the additional payroll from MedStar employees increases contributions. After covering the normal cost for these employees, the required contributions include an additional amount toward paying down the UAAL. Because the new hires bring no accrued liability with them from their MedStar employment, these additional amounts are applied to paying down the City UAAL faster. Additionally, effective 9/2021, the Texas Pension Review Board requires a Funding Soundness Restoration Plan (FSRP) when the target funding period exceeds 30 years. While the FWERF plan was grandfathered under legacy FSRP requirements (e.g. 40 year funding period), further improvement to the funding period is favorable and compliant with the Texas Pension Review Board requirements. 2. No Impact on Unfunded Actuarial Accrued Liability (UAAL): The actuary determined that including MedStar employees does not impact the existing unfunded actuarial accrued liability (UAAL) or the plan's funded ratio of 55.1 % as of December 31, 2023. This is because the new hires enter the plan with no prior service and thus no accrued liability. 3. Potential for Variance: The actuary notes that the actual financial and actuarial impact could differ from these estimates depending on future plan experience, such as variations in payroll growth, turnover rates, or salary increases. ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 24-1913 To the Mayor and Members of the City Council October 22, 2024 Page 2 of 2 SUBJECT: ESTIMATED ACTUARIAL IMPACT OF ADDING MEDSTAR EMPLOYEES TO FORT WORTH EMPLOYEES' RETIREMENT FUND Considerations for the City Total City Pension Contributions Will Increase: Adding new employees to the plan increases the total dollar amount of the City's pension contributions by approximately $9.3 million annually, including risk sharing contributions. The analysis suggests that these contributions will help accelerate the repayment of the UAAL, ultimately strengthening the fund's long-term financial health. Additionally, EMS revenues generated by the service will help to offset these incremental costs. Expected Timing: Based on the estimated start date of July 1, 2025, the actuarial impact of the new MedStar employees won't be considered until the December 31, 2025 actuarial valuation to be released in the spring of 2026. Plan Administration: Coordination between HR, payroll, and pension administration will be necessary to ensure proper classification of MedStar employees (Firefighter vs. General employee groups) and the accurate tracking of their contributions. Overall Caution Still Required: While the addition of former MedStar employees will have a marginally positive impact on the system's finances, FWERF is still only 55.1 % funded as of the most recent December 31, 2023 valuation, well below full funding and the national median funded of 77.1% in the most recent national Public Fund Survey. Similarly, even if future results align with the actuary's preliminary projections and full funding is reached three years faster than previously forecast, this will still require another 29 years of steady progress, significantly longer than the preferred target range of 10-25 years cited by the Texas Pension Review Board in a 2019 study of pension funding policies. Ongoing Monitoring: Given the assumptions used in the analysis, it will be important to monitor the pension fund's performance after the inclusion of MedStar employees to ensure these assumptions align with actual outcomes. As noted, key factors such as the total number of added employees, payroll levels, and gender distribution may lead to different results. Regular updates from the pension actuary should be requested to track progress, including review under the next FWERF actuarial experience study. Conclusion The inclusion of MedStar employees in the FWERF is projected to have a marginally positive impact on the pension fund's financial health by reducing the funding period by approximately three years. This improvement comes with no immediate impact on the UAAL or the funded ratio, as these employees do not bring any initial actuarial accrued liability. We will continue to monitor the plan's progress and provide updates as needed, and overall caution is still recommended given FWERF's continued funding challenge. Please reach out to Dianna Giordano at Dianna.Giordano(ufortworthtexas.gov if you have any further questions or need additional information. David Cooke City Manager ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS GRS . September 3, 2024 Ms. Linda Webb Executive Director Fort Worth Employees' Retirement Fund 3801 Hulen Street, Suite 101 Fort Worth, TX 76107 Linda.Webb@fwretirement.org Re: MedStar Actuarial Impact Dear Ms. Webb: P: 469,524,0000 1 www.grsconsult'ing.corn As requested, we have estimated the actuarial cost impact of MedStar employees being added to the Fort Worth Employees' Retirement Fund (FWERF). Analysis Exhibit I shows the immediate cost impact of including these MedStar employees. Since new hires enter the plan with zero service and do not have any initial actuarial accrued liability, including these MedStar employees does not impact the unfunded actuarial accrued liability (UAAL) or the funded ratio. However, including them does decrease the funding period (the projected amount of time needed to reach a 100% funded ratio or a zero UAAL) by approximately 3 years. Contributions are a percentage of payroll, so adding new employees and their additional payroll also adds additional contributions. These additional contributions are first used to pay the normal cost of the new employees, but the remaining excess contributions above that are then used to pay down the UAAL faster, which is why the funding period decreases. Basis of Our Analysis Our analysis is based upon the results of the December 31, 2023 actuarial valuation report, dated April 18, 2024, including the member and financial data used in that valuation, unless otherwise noted. The actuarial assumptions and methods are the same as those used in that valuation. We were provided with 564 MedStar employees. In order to estimate the impact of these MedStar employees being added to the FWERF, we included them in the active FWERF population, assuming they were all hired on the valuation date (December 31, 2023) with no prior service. We also assumed the following: • If theirjob description included either 'EMT' or 'Paramedic', we assumed they would be in the Firefighters employee group, otherwise we assumed they would be in the General employee group. Ms. Linda Webb September 3, 2024 Page 2 Genders were not provided, so we assumed the percentage of males/females would be similar to current FWERF active employees for each group. This has no material impact on the results. Annual salaries were calculated using the pay rates provided. Overtime was added for member contributory payroll purposes using the valuation assumptions for each group. Exhibit II shows a data summary of the MedStar employees included in this cost impact. This letter is intended to describe the financial and actuarial effect of the proposed plan change on the FWERF only. Our calculations are based upon assumptions regarding future events, which may or may not materialize. The actual results could deviate significantly from our projections, depending on actual plan experience. This letter was prepared using our proprietary valuation model and related software which, in our professional judgment, has the capability to provide results that are consistent with the purposes of the valuation and has no material limitations or known weaknesses. We performed tests to ensure that the model reasonably represents that which is intended to be modeled. We are not attorneys, and nothing in this letter should be construed as providing legal or tax or investment advice. No statement in this letter is intended to be interpreted as a recommendation in favor of the change or in opposition to it. We certify that the undersigned are members of the American Academy of Actuaries and that we meet the Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained herein. In addition, each of the undersigned have extensive experience as retained public sector actuaries for several large, statewide public retirement systems. All computations were performed using generally accepted actuarial principles and methods. If you have any questions, or require any additional or clarifying information, please do not hesitate to contact either of the undersigned. Respectfully submitted, Gabriel, Roeder, Smith & Company Joseph Newton, FSA, EA, MAAA Pension Market Lead and Actuary f Bill Detweiler, ASA, EA, FCA, MAAA Consultant and Actuary Ms. Linda Webb September 3, 2024 Page 3 Fort Worth Employees' Retirement Fund Exhibit I — MedStar Actuarial Impact ($ millions) Item Valuation as of December 31, 2023 With MedStar Employees Increase/ (Decrease) 1. Member Contributory Payroll $611 $646 $35 2. Unfunded actuarial accrued liability (UAAL, millions) $2,303 $2,303 $0 3. Funded ratio 55.1% 55.1% 0.0% 4. Funding period* 32 years 29 years 3 years *Incorporating projected risk sharing contributions and Ad Hoc COLAs All of the results ore based on the actuarial value of assets. Projections - Valuation as of December 31, 2023 2,500 2,000 c 2 1,500 E a 1,000 6771If, ace n O 400 Cr c rt O 300 N 3 200 0. 100 0 ■ or or or OF 1 I 2024 20272030 2033 20361 142 2045 2048 2051 Statutory Contributions � Risk -sharing Contributions 4w —UAAL Ms. Linda Webb September 3, 2024 Page 4 Projections —with MedStar Employees 2,500 2,000 N .0 1,500 E a 1,000 500 n O 400 Cr c _rt O 300 N 3 200 O 100 1 ■ IF 91 IF IF If 2024 20272030 2033 2036I I420452048 2051 2054 IF Statutory Contributions Risk -sharing Contributions —UAAL Exhibit II — MedStar Data Summary Employee Group Fire General Total 1. Count 385 179 564 2. Average Age 29.8 38.1 32.5 3. Total Salary* $23,372,383 $11,490,415 $34,862,798 4. Average Salary* $60,707 $64,192 $61,813 *Member Contributory Payroll (includes overtime) kljG�R S