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HomeMy WebLinkAboutJune 2, 2008 Agenda AGENDA CITY OF DENTON CITY COUNCIL June 2, 2008 After determining that a quorum is present, the City Council of the City of Denton, Texas will convene in a Special Called Work Session on Monday, June 2, 2008 at 11:30 a.m. in the Council Work Session Room, 215 E. McKinney, Denton, Texas at which the following items will be considered: NOTE: A Work Session is used to explore matters of interest to one or more City Council Members or the City Manager for the purpose of giving staff direction into whether or not such matters should be placed on a future regular or special meeting of the Council for citizen input, City Council deliberation and formal City action. At a Work Session, the City Council generally receives informal and preliminary reports and information from City staff, officials, members of City committees, and the individual or organization proposing council action, if invited by City Council or City Manager to participate in the session. Participation by individuals and members of organizations invited to speak ceases when the Mayor announces the session is being closed to public input. Although Work Sessions are public meetings, and citizens have a legal right to attend, they are not public hearings, so citizens are not allowed to participate in the session unless invited to do so by the Mayor. Any citizen may supply to the City Council, prior to the beginning of the session, a written report regarding the citizen’s opinion on the matter being explored. Should the Council direct the matter be placed on a regular meeting agenda, the staff will generally prepare a final report defining the proposed action, which will be made available to all citizens prior to the regular meeting at which citizen input is sought. The purpose of this procedure is to allow citizens attending the regular meeting the opportunity to hear the views of their fellow citizens without having to attend two meetings. 1.Receive a report, hold a discussion and give staff direction regarding the Texas Municipal Retirement System (TMRS). C E R T I F I C A T E I certify that the above notice of meeting was posted on the bulletin board at the City Hall of the City of Denton, Texas, on the ________day of ___________________, 2008 at ________o'clock (a.m.) (p.m.) ____________________________________ CITY SECRETARY NOTE: THE CITY OF DENTON COUNCIL WORK SESSION ROOM IS ACCESSIBLE IN ACCORDANCE WITH THE AMERICANS WITH DISABILITIES ACT. THE CITY WILL PROVIDE SIGN LANGUAGE INTERPRETERS FOR THE HEARING IMPAIRED IF REQUESTED AT LEAST 48 HOURS IN ADVANCE OF THE SCHEDULED MEETING. PLEASE CALL THE CITY SECRETARY'S OFFICE AT 349-8309 OR USE TELECOMMUNICATIONS DEVICES FOR THE DEAF (TDD) BY CALLING 1-800-RELAY-TX SO THAT A SIGN LANGUAGE INTERPRETER CAN BE SCHEDULED THROUGH THE CITY SECRETARY’S OFFICE. AGENDA INFORMATION SHEET AGENDA DATE: June 2, 2008 DEPARTMENT: Finance ACM: Jon Fortune SUBJECT Receive a report, hold a discussion, and give staff direction regarding the Texas Municipal Retirement System (TMRS). BACKGROUND Any discussion of actuarial and pension issues is inherently complex. As such, the below discussion is meant to be a high level overview of the key issues involved. The attached presentation provides more detail related to the TMRS plan, and it will be presented to you at the nd June 2 Council workshop. In addition to the presentation, I have also attached a copy of the 2009 rate letter that we received from TMRS. This letter contains a variety of information that nd will assist you with understanding the complexities of the plan. At our meeting on June 2, I have invited Eric Henry, Executive Director of TMRS, to attend. While Mr. Henry will not be making a formal presentation, he will be available to answer questions that you may have regarding this issue. The City of Denton participates in two pension plans Retirement Fund and the Texas Municipal Retirement System (TMRS). With the exception of Fire Civil Service and some Fire personnel, all full-time City of Denton employees are required to participate in the TMRS plan. Over 800 cities in Texas participate in TMRS. The system includes over 132,000 contributing and non-contributing members and over 30,000 retirees and beneficiaries. As of December 31, 2007, the City of Denton has 1,331 members in TMRS (986 contributing) and 308 retirees. The purpose of this agenda item is to communicate to you some In early 2007, the long time Executive Director of TMRS, Gary Anderson, retired, and the TMRS board appointed Eric Henry as his successor. Shortly after his arrival, Mr. Henry began considering a number of issues that were causing the Unfunded Accrued Actuarial Liability (UAAL) to increase and the funded ratio to decrease substantially for many cities. Mr. Henry sought to determine whether the TMRS plan was accurately calculating long term liabilities and required City contributions. The intent was to ensure that TMRS remained soundly funded, preserved d a more complete picture of the actual benefit plan costs. After discussing these issues in detail with the TMRS board, a new actuarial method known as the Projected Unit Credit Method was adopted to more accurately project and recover costs. As a result of this change, the contribution rate for most TMRS cities will increase substantially. The ill need to increase from the current rate of 13.28% to increase over a period of up to eight years. If this option is chosen, the phase in rate for FY 2008-09 will be 14.06%. In addition to the change in actuarial method, TMRS has also decided to diversify the investment portfolio into equities. Previously, the plan had been exclusively invested in bonds. While bonds are considered to be safe investments, they have limited investment returns under certain market conditions. As such, TMRS intends to move approximately 12% of the investment portfolio to equities by the end of 2008, and eventually, the plan intends to have approximately 60% of the investment portfolio in equities. The intent of these changes is to increase the investment return of the plan over the long term so that contribution rates do not have to be increased further. TMRS has also changed the amortization period used to eliminate the UAAL. Previously, the UAAL was amortized over a 25 year rolling amortization period was reset for another 25 year period each year, and therefore, the UAAL was not reduced substantially in many cases. To address this issue, TMRS is implementing a th year. For cities that have an increase in their contribution rate of 0.5% or more from the previous year, the municipality may request that a 30 year closed amortization period be used. The City of Denton will qualify for the 30 year amortization period. OPTIONS The City of Denton has the following options available to address the TMRS funding issues. Pay the full contribution rate in 2009. Phase in the rate over as many as eight years. contribution rate. Change the level of existing benefits to reduce the ongoing contribution rate. RECOMMENDATION After studying this issue carefully, management is recommending that the City of Denton maintain the existing benefit structure for retirees and employees. In addition, it is recommended that the higher contribution rate be phased in over the next eight years, and that the City pass an ordinance to lift the statutory contribution limit of 13.5%. The phase in rate is being recommended due to cost of implementing the full rate in 2009, and the potential growth of Denton in the coming years. If the City of Denton grows substantially, it is possible that the overall contribution rate will be lower than the current 18.06%. Should this growth not materialize, however, the City can choose to continue the phase in process, or instead, may elect to pay the full rate at any time. In addition, staff also recommends that the TMRS actuarial data be reviewed on an annual basis to determine the most appropriate funding strategy. Respectfully submitted: Bryan Langley Director of Finance Attachments: 1) PowerPoint Presentation 2) 2009 TMRS Rate Letter UAAL ution RateContrib 1 (]ption 4. Pay only the Statutory Maximum Contribution Rate Your ci can elect to a onl the statutory maximum contribution rate, plus the cost of the tY P y Y , Supplemental Death Benefit, if applicable. Refer to the chart below to determine your city s maximum contribution rate limit. TMRS does not recommend this option. If this option ~s chosen, your city will not be a in the retirement cost contribution rate for the plan of benefits adopted, and the funding status of your city's plan will decline. As a result, your city cannot adopt any additional plan im rovements, including USC or COLAs. Also, if USC or COLAs have been adapted on an annually p re eatin basis, these options w~11 be sus ended until the retirement cost contnbution rate drops below p g the statuto maximum contribution rate limit. This could lead to further funding difficulties in the ~' ., future since our city will have to make up the unpaid amount at some later time. In addition, because y your city is paying less than the retirement cost rate, this difference will be reflected as an Increase m our ci 's unfunded actuarial liability and amortized accordingly. Paying less than the required rate to Y ~' fund your city's retirement cost will also result ~n your city s funded ratio declining. STATUTORY MAXlMUNt CONTR~~UTION RATES 1to1 1~hto1 7to1 396* 5.5496 7.5496 9.50° 596 7.5096 9.50 11.5096 fi96 8,50 10.50 12.50 13.50 11.049'4 7~ 9.5096 11.5096 13.509a 15.5096 12.5096 For the four plans shpwing split limits, the left number is the base limit, and the right number is what the limit can be increased ta. 'This deposit rate is no longer an option for new cities. Ordinances to adopt any of the above options may be requested from TMRS. If you need further information, please call ~8~0} 924-8677. The Statutory Maximum Contribution Rate--Page 2 of 2