HomeMy WebLinkAbout2026-038 Denton Firemens Retirement FundJune 26, 2026 Report No. 2026-038
INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL
SUBJECT:
On June 2, 2026, Council Member Villarreal presented a two-minute pitch to consider a cost-of-living adjustment for retired firefighters and the transfer of public safety dispatchers from the Denton Firemen’s Relief and Retirement Fund (DFRRF) into the Texas Municipal Retirement
System (TMRS). Council provided consensus for an Informal Staff Report to provide financial information related to this topic.
EXECUTIVE SUMMARY:
Council Member Villarreal has requested a discussion of two retirement-related topics. The first item involves providing a cost-of-living adjustment for retired firefighters in the Denton Firemen’s Relief and Retirement Fund (DFRRF), and the second involves evaluating whether public safety dispatchers should move from DFRRF into the Texas Municipal Retirement System (TMRS). The
City of Denton participates in two separate pension plans. The DFRRF covers firefighters in the Denton Fire Department and public safety dispatchers. The TMRS plan covers all other City of Denton employees, with the exception of temporary positions. This summary provides a high-level overview of both plans, their current financial condition, and the potential impacts of these changes.
BACKGROUND:
TMRS Overview
TMRS was created in 1948 by the Texas Legislature. TMRS is a hybrid of a defined benefit and
defined contribution plan. Under this approach, contributions are defined until the date of retirement. Upon retirement, the value of these contributions and investment earnings define the benefits for the retiree (also known as a cash balance plan). In this way, the unfunded liabilities associated with many defined benefit plans are minimized.
While TMRS is a state-wide retirement system, the plan does not receive any state funding. Rather, all funding associated with TMRS is provided by employers, employees, and investment earnings of the system. Furthermore, individual cities determine the level of benefits provided to their retirees.
As of December 31, 2024, the TMRS system had 942 cities that participated in the plan. Collectively, these cities have 127,818 active members and 75,706 retired members. The market value of the assets in TMRS is approximately $43.4 billion.
TMRS Investment Performance
The TMRS plan assumes an annual investment return equal to 6.75% of plan assets. However,
June 26, 2026 Report No. 2026-038
the actuarial valuation process utilizes asset smoothing techniques to “smooth out” the natural year-to-year fluctuations that are inherent in the investment markets. In 2024, the TMRS net investment return was 10.41%, which exceeded both the benchmark return of 9.82% and the target
return of 6.75%. However, over the 10-year period prior to 2024, TMRS achieved an average investment return of 6.62%, which is more closely aligned with the long-term target rate of 6.75%.
While TMRS has had strong investment returns in the past, there is no guarantee that the system will be able to achieve these rates in the future. It is also important to note that any one year, or
even a series of years, of below-average investment returns is not a cause for alarm. The TMRS plan is designed to provide benefits to employees and retirees over decades, and as such, a long-term view of investment performance assumptions is the proper way to evaluate the health of the plan.
TMRS Actuarial Information and Funding Progress
As of December 31, 2024, the City of Denton had an Actuarial Value of Assets (AVA) of $632.0 million and a Total Actuarial Accrued Liability (AAL) of $726.0 million for the TMRS plan. This
equates to an Unfunded Actuarial Accrued Liability (UAAL) of $93.9 million and a funded ratio of 87.1%. The UAAL is being amortized over a period of 12.2 years at our existing contribution rate, so assuming all assumptions are met, the TMRS plan for Denton will be 100% funded by 2037. However, if investment returns or other economic assumptions are not realized, the fund will amortize these actuarial differences over a longer period of time, and the full funding of the
plan may be extended.
Note: These figures are provided on an actuarial basis and will be different from the funding levels identified in the City’s Annual Comprehensive Financial Report (ACFR) which are prepared on an accounting basis.
DFRRF Overview
The Denton Firemen’s Relief and Retirement Fund (DFRRF) cover firefighters in the Denton Fire Department and public safety dispatchers, and the Board of Trustees is the administrator of the
pension plan. The plan provides service, death, and disability benefits to members, with retirement eligibility after 20 years of service. Participants are vested in the plan and eligible for benefits at retirement after 10 years. The normal service retirement benefit is equal to 2.59% of the highest 36-month average salary for each year of service under the plan.
As of December 31, 2023, the most recent biennial valuation, the plan served 236 active firefighters and 104 retirees or beneficiaries.
The TMRS plan experienced actuarial issues in 2008 related to TMRS miscalculating cost-of-living adjustments system-wide, and as a result, the City was required to increase its contribution
rate to the plan over time. There was, however, no increase in benefits provided in the plan.
Instead, the increase in contributions was intended to reduce liabilities and improve the overall financial health of the plan. Due to increases in the TMRS contribution rate, the Firefighters
June 26, 2026 Report No. 2026-038
Association requested that the same contribution rate given to TMRS be provided to the DFRRF. In 2010, the City agreed to this arrangement.
While this funding methodology worked well from 2010 to 2017, this arrangement needed to be modified due to changing demographics and the investment climate. The primary reason for this change at the time was that the City’s TMRS contribution was declining as a percentage of payroll due to growth in the municipal workforce. As a result, it was determined that the DFRRF needed a contribution from the City, which is decoupled and independent of TMRS.
To address this, the City, the Firefighters Association, and the DFRRF entered into an agreement in 2017, to revise the funding formula and require that the City Council formally approve the actuarial study every two years, among other items. Beginning in 2019, based on the required
actuarial study, the actuarial determined contribution (ADC) required to fund the liabilities over
the amortization period was lower than the total contribution by the City. The ADC subsequently continued to decline in each progressive study, however the City contributions have remained at or near the TMRS contribution rate. This has effectively resulted in a planned overcontribution by the City to DFRRF. Below are two charts summarizing the ADC and contributions by DFRRF
participants (employees) and the City (employer), as well as distributions in comparison to
contributions.
Since the total contributions are sufficient to pay the fund’s normal cost and to amortize the fund’s UAAL in 6.5 years, the 2023 actuarial study noted the fund, based on present levels of benefits and assumed contributions, has an adequate contribution to meet the 100% funding target by 2030.
DFRRF Investment Performance
The annual investment return assumption is 6.75% of plan assets. Like TMRS, the actuarial valuation process utilizes asset smoothing techniques to “smooth out” the natural year-to-year
fluctuations that are inherent in the investment markets.
June 26, 2026 Report No. 2026-038
The average annual rate of investment return, net of investment-related expenses, on the market value of assets during the two plan years 2022 and 2023 was 2.2%. However, the actuarial value of assets (AVA) used in the valuation and the determination of the amortization period is based on
an adjusted market value. The average annual rate of return on the AVA, net of investment-related expenses, for plan years 2022 and 2023 was 7.8% compared to the assumed rate of return for those years of 6.75%. This caused a decrease in the amortization period by 1.7 years.
However, there is no guarantee that the DFRRF will exceed the assumed rate of 6.75% in the
future. If they are not able to do so, the plan will need to alter the level of benefits or request a higher contribution rate from its members or the City. Similar to the TMRS plan, it is also important to note that any one year, or even a series of years, of below average investment returns is not a cause for alarm. The DFRRF is designed to provide benefits to employees and retirees
over decades, and as such, a long-term view of investment performance assumptions is the proper
way to evaluate the health of the plan.
DFRRF Actuarial Information and Funding Progress
As of December 31, 2023, the most recent actuarial valuation, the City of Denton had an Actuarial
Value of Assets (AVA) of $152.5 million and a Total Actuarial Accrued Liability (AAL) of $167.3 million for the DFRRF plan. This equates to an Unfunded Actuarial Accrued Liability (UAAL) of $14.8 million and a funded ratio of 91.1%, compared to 88.8% in 2021. The UAAL is being amortized over a period of 6.5 years in our existing contribution rate, so assuming all assumptions
are met, the DFRRF plan for Denton will be 100% funded by 2030 (if not prior). However, if
investment returns or other economic assumptions are not realized, the fund will amortize these actuarial differences over a longer period of time, and the full funding of the plan may be extended. The 2025 actuarial valuation is in process, and we expect to be able to present updated figures to the Council with the impact of contribution changes in the Fall of 2026.
Note: These figures are provided on an actuarial basis and will be different from the funding levels identified in the ACFR which are prepared on an accounting basis.
DFRRF Cost of Living Adjustment:
Cost of living adjustments are currently provided ad hoc based on the financial condition of the fund as determined by the fund actuary. The DFRRF Board of Trustees has expressed interest in implementing a cost-of-living adjustment (COLA) similar to the TMRS annually repeating COLA equal to 70% of the consumer price index (CPI). The funding policy in the current Meet and
Confer Agreement, effective October 1, 2023, does not provide for annual COLA adjustments. Prior action to provide an ad-hoc increase occurred in May 2022, when the City Council agreed to a set of tiered post-retirement increases of 4%, 3%, or 2%, depending on the length of time since the initial benefit commenced.
In December 2024 the DFRRF Board of Trustees requested an actuarial study on the effects of
adding an annual automatic cost-of-living adjustment to the Fund. The study was based on the actuarial valuations as of December 31, 2023. The information below utilizes the study
June 26, 2026 Report No. 2026-038
contribution rates and applies them to the City’s FY 2025 actual contributions to provide a general estimate of the cost impact.
FY 2025 City’s Fire Pension Contribution $ 6,136,740.96
City’s Pension Contribution (No COLA) 18.50% City’s Pension Contribution (COLA @ 1.75%) 25.45% Increase in Contribution Rate 6.95%
The rate change from 18.50% to 25.45% represents a 37.5% increase in City-paid contributions. Therefore, the annual contribution of the City would increase as follows:
Increase in Annual Contribution $ 2,378,647.89 New Contribution Amount $ 8,515,388.85
Dispatcher Positions Moving From DFRRF to TMRS:
In 2005, the DFRRF and the City had a dispute regarding whether public safety dispatch employees
are required to be in the Fire Pension plan. This disagreement arose from differences in the interpretation of state statutes related to fire pension plans. A lawsuit was filed by the DFRRF (Denton Firefighters Relief and Retirement Fund v. City of Denton, Cause No. 2005 30380-211, in the 211th District Court of Denton County, Texas) and settled in 2006, whereby the DFRRF and
City agreed that all dispatchers be included in the Fire Pension plan unless the employees are:
•Over 35 years of age when beginning service.
•Any employee that participated in TMRS prior to June 20, 2006.
This approach has remained in place since the settlement of the lawsuit. However, this arrangement
has contributed to turnover and retention difficulties for many years with our public safety dispatch employees. The primary reasons for this are:
•The Fire Pension vesting period (10 years) is longer than TMRS.
•The Fire Pension is not portable to other positions or cities.
•The employee contribution rate to DFRRF is significantly higher than TMRS (12.6%versus 7%).
Summary of Plan Differences
Fire Pension Plan (DFRRF) TMRS
10 Year Vesting Period 5 Year Vesting Period
Employees Contribute 12.6% Employees Contribute 7%
Defined Benefit Plan – 2.59% per service year Cash Balance Plan
Not portable to other positions or cities Portable to other positions and cities
94.4% (as of 2024; estimated) 87.1% Funded (as of 2024)
June 26, 2026 Report No. 2026-038
Beginning in 2018, and subsequently through various meet and confer negotiations, City staff have discussed with the Fire Association and the DFRRF Board of Trustees a potential agreement which would allow dispatch employees to choose between being a member of the DFRRF or TMRS plan.
The actuarial impact of these changes will need to be studied and presented to the City Council once the results are known. If directed to proceed, staff estimates the cost for the study is $5,000. The movement of personnel between plans will have an impact on both TMRS and DFRRF and the actuarily determined contribution rate (ADCR) for each.
The current meet and confer agreement specifically allows for the continued discussion of dispatcher membership in the DFRRF or TMRS. However, any agreement must be ratified by a majority vote of the Association membership and the City Council, using the ratification process
under Local Government Code Chapter 142.114, in order to take effect. In addition, the proposed
change must be submitted to the DFRRF and TMRS for their consideration and approval.
Financial Position of the City:
The beginning fund balance of the City as of 10/1/2025 was $42.6 million, which is 19.6% of
$218.8 million in budgeted expenses, below the policy target of 20% to 25%. GFOA recommends two months of reserves as a minimum level (16.67%), but any decrease materially below 20% risks a potential impact on the City’s AA+ bond rating and subsequent borrowing costs.
CONCLUSION:
The TMRS and DFRRF plans are well-funded and managed responsibly. Going forward, the funding ratios for these plans are expected to improve with their financially sustainable funding mechanisms. The implementation of an annual COLA in the DFRRF funded by an increase in City
contributions is a significant expense for the General Fund. Considerations for implementation
should be evaluated, including a phased approach or provided as a one-time ad-hoc increase.
The movement of dispatchers from DFRRF to TMRS would be less financially impactful, but staff will need time to engage the actuary and determine the specific impact. In addition, The Meet and
Confer agreement allows Article 12, Pension, to be reopened with the mutual consent of the
Association President and the City Manager
RECOMMENDATION:
The 2025 DFRRF biennial actuarial valuation will provide updated information and should serve
as the basis for any recommended changes. If the Council would like to proceed, an initial discussion can occur during the Budget Workshop using the 2023 actuary dispatcher analysis. If the Council decides to include an allocation in the FY 26–27 Budget, staff recommends waiting for the 2025 valuation report, which is expected to be completed by September 2026, followed by
staff evaluation in October and a Council Work Session in November.
June 26, 2026 Report No. 2026-038
The Meet and Confer agreement allows Article 12, Pension, to be reopened with the mutual consent of the Association President and the City Manager. Any agreement reached by both parties must then be ratified by a majority vote of the Association membership and the City Council,
following the ratification process outlined in Local Government Code Chapter 142.114. In addition, the proposed change must be submitted to the DFRRF and TMRS for their consideration and approval.
ATTACHMENTS:
1. 2023 Denton Firemen's Relief and Retirement Fund Actuarial Valuation
STAFF CONTACT: Matt Hamilton
Chief Financial Officer
matthew.hamilton@cityofdenton.com (940) 349-8244
REQUESTOR: Council Member Villarreal
STAFF TIME TO COMPLETE REPORT: 3 Hours
Denton Firemen’s
Relief and Retirement Fund
Actuarial Valuation
as of December 31, 2023
September 16, 2024
W. Lee Bello, A.S.A.
Mitchell L. Bilbe, F.S.A.
Evan L. Dial, F.S.A.
Philip S. Dial, F.S.A.
Charles V. Faerber, F.S.A., A.C.A.S.
Mark R. Fenlaw, F.S.A.
Brandon L. Fuller, F.S.A.
Christopher S. Johnson, F.S.A.
Oliver B. Kiel, F.S.A.
Dustin J. Kim, F.S.A.
Edward A. Mire, F.S.A.
Rebecca B. Morris, A.S.A.
Amanda L. Murphy, F.S.A.
Michael J. Muth, F.S.A.
Khiem Ngo, F.S.A., A.C.A.S.
Timothy B. Seifert, F.S.A.
Raymond W. Tilotta
Ronald W. Tobleman, F.S.A.
David G. Wilkes, F.S.A.
9500 Arboretum Blvd., Suite 200 Austin, Texas 78759 www.ruddwisdom.com Phone: (512) 346-1590 Fax: (512) 345-7437
September 16, 2024 Board of Trustees Denton Firemen’s Relief and Retirement Fund
P.O. Box 2375 Denton, TX 76202 Members of the Board of Trustees: At the request of the Board of Trustees of the Denton Firemen’s Relief and Retirement Fund,
we have prepared this report of the results of the actuarial valuation of the fund as of December 31, 2023. This valuation was prepared (1) to determine the city’s contribution rate under its current funding policy, which is a modified actuarially determined contribution rate funding policy, (2) to recommend a city contribution rate for the next two years, and (3) to
highlight the fund’s actuarial condition. In a separate report dated July 26, 2024, we provided the necessary disclosures for the fund’s compliance with the Governmental Accounting Standards Board (GASB) Statement No. 67
for the plan year ending December 31, 2023. Similarly, we will provide a separate report later
in the year containing the pension expense, net pension liability, and disclosure information for the city’s compliance with GASB 68 for the fiscal year ending September 30, 2024. GASB 68 prescribes the city’s accounting for your fund, while this actuarial valuation report reflects the assumed continuation of the current funding policy, first adopted in December 2017.
We certify that we are members of the American Academy of Actuaries who meet Qualification Standards of the American Academy of Actuaries to render the actuarial opinions contained in this report.
Sincerely,
Mark R. Fenlaw, F.S.A.
Rebecca B. Morris, A.S.A.
i:\clients\fire\wd\vals\2024\denton\denton-12-31-23.docx
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC.
TABLE OF CONTENTS Section I Valuation Summary..................................................................................... 1
Section II Key Results of the Actuarial Valuation ...................................................... 7
Section III Benefit Improvements .............................................................................. 10
Exhibit 1 Distribution of Firefighters by Age and Service ..................................... 11
Exhibit 2 Summary of Pensioner Data .................................................................... 12
Exhibit 3 Firefighter and Pensioner Reconciliation ............................................... 13
Exhibit 4 Breakdown of Pensioners by Monthly Benefit Amounts ....................... 14
Exhibit 5 Historical Comparison of Actuarial Accrued Liability and Actuarial Value of Assets ......................................................................... 15
Exhibit 6 Summary of Asset Data ............................................................................ 16
Exhibit 7 Statement of Changes in Assets ............................................................. 17
Exhibit 8 Development of Actuarial Value of Assets ............................................. 18
Exhibit 9 Historical Comparison of Market and Actuarial Value of Assets ........................................................................................................ 19
Exhibit 10 Comparison of Market Value Asset Allocation as of the Prior and Current Actuarial Valuation Dates .................................................... 20
Exhibit 11 Actuarial Methods and Assumptions ...................................................... 21
Exhibit 12 Disability Rates, Termination Rates, and Compensation
Increases ................................................................................................... 25
Exhibit 13 Definitions ................................................................................................. 26
Exhibit 14 Summary of Present Plan ......................................................................... 28
Appendix A Review of the Actuarial Economic Assumptions ................................... 30
Appendix B Other Disclosures as of December 31, 2023 ........................................... 33
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 1
Section I
Valuation Summary An actuarial valuation of the assets and liabilities of the Denton Firemen’s Relief and Retirement Fund as of December 31, 2023 has been completed. The valuation was based on the Present Plan (plan effective July 1, 2022) and the provisions of the Texas Local Fire
Fighters’ Retirement Act (TLFFRA) which were in effect on December 31, 2023. Section II shows the summary of key results of the actuarial valuation as of December 31, 2023 and discusses the significant changes since the prior valuation that we prepared as of December 31, 2021.
The city’s funding policy for the fund, first adopted in December 2017, has been a part of the Meet and Confer Agreements effective October 1, 2019 and October 1, 2023. The funding policy is a modified actuarially determined contribution rate (ADCR). Under that policy, the city’s initial contribution rate was set at 18.5% and is to be re-evaluated by the city council
following every actuarial valuation. The funding policy has the intent of paying off the unfunded actuarial accrued liability (UAAL) over a closed 25-year period or sooner. The policy language implies that the rate should stay at 18.5% for at least the first five years, even if the ADCR is less than 18.5%, in order to pay down the UAAL. A key requirement of the
policy is city approval of any change to the contribution level. The funding policy begins with the 18.5% city contribution rate, has an ADCR over a closed 25-year period we assume began January 1, 2018, but in no event will the city contribution
rate be less than the contribution rate to its TMRS plan for the other city employees. The ADCR over the 19 years remaining in the closed period as of December 31, 2023 is 13.33% based on this actuarial valuation. The TMRS rate for the year beginning January 1, 2024 is 18.94% and for the year beginning January 1, 2025 is 18.88%. In spite of the city contribution rate somewhat above 18.5% in 2024 and 2025, we assumed the city would contribute a level 18.5% each year to actuarially determined the UAAL amortization period. With the assumed continuous future 18.5% city contribution rate, there would be a total contribution rate each year of 31.1%, comprised of 12.6% by the firefighters and 18.5% by the city. The total contribution rate of 31.1% exceeds the normal
cost rate of 22.16%, leaving 8.94% available to amortize the UAAL of $14,816,720. Assuming that the total payroll increases at the rate of 3% per year in the future, the contributions in excess of the normal cost would be expected to amortize the UAAL in 6.5 years.
There are several reasons that support the city planning to keep its contribution rate at no less than 18.5%:
• Continuing to contribute at least 18.5% each year would continue to accelerate both the amortization of the UAAL and increasing the funded ratio.
• It would hedge against potential future adverse experience, such as the investment experience in 2018 and in 2022, as well as all other experience losses such as the ones that have occurred in the last three actuarial valuations.
• It would better position the fund to provide another ad hoc increase in the monthly benefit for retirees at some future date without a rate increase.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 2
The city should also consider contributing more to the retirement plan for its firefighters than to TMRS every year for these reasons: 1. Low firefighter turnover – Their lower turnover than other city employees means that a higher percent of firefighters will ultimately qualify for a retirement benefit than other city
employees. As a result, their benefits cost more as a percent of pay.
2. Physical demands of the job – Because of this, firefighters tend to retire at earlier ages than other city employees. As a result, their benefits cost more as a percent of pay because they are paid over a longer period of retirement.
3. Post-retirement increases – Retirees in TMRS have for years been getting annual increases in their monthly benefits based on 70% of the CPI while retired firefighters have had only two increases since 2008, a modest 2% increase in 2008 and a modest tier of increases in 2022 (4% for those retired for 15 or more years, 3% for those retired for 10
to 15 years, and 2% for those retired 5 to 10 years).
4. Employee contribution rates – Firefighters contribute 12.6% of their pay to the fund while other city employees contribute only 7% to TMRS. In order for a retirement plan to have an adequate contribution arrangement, contributions
must be made that are sufficient to pay the plan’s normal cost and to amortize the plan’s UAAL over a reasonable period of time. Based on the current Texas Pension Review Board (PRB) pension funding guidelines, our professional judgment, and the actuarial assumptions and methods used in making this valuation, we consider periods of 20 years or less to be
preferable and 30 years to be the maximum acceptable period. Since the total assumed
contributions are sufficient to pay the fund’s normal cost and to amortize the fund’s UAAL in 6.5 years, we are of the opinion that the fund, based on present levels of benefits and assumed contributions has an adequate contribution arrangement. Section III presents considerations for future benefit improvements.
Projected Actuarial Valuation Results In addition to completing this actuarial valuation, we estimated the amortization periods as of December 31, 2025 and as of December 31, 2027 by making projections from the
December 31, 2023 actuarial valuation and assuming a fixed city contribution rate of 18.5% until the UAAL is amortized. These projections examine the effect on the amortization period in the next two actuarial valuations of the actuarial investment gains and losses that the fund experienced in the four years prior to the valuation date (loss in 2022 and gains in 2020, 2021,
and 2023) that have been only partially recognized as of December 31, 2023. As shown in Exhibit 8, a smoothing method is used to determine the actuarial value of assets (AVA) for this valuation. This method phases in over a five-year period any investment gains or losses (net actual investment return greater or less than the actuarially assumed investment return) that the fund has had. The AVA used in this current valuation is deferring recognition of
various portions of the gains and losses in 2020-2023 that the fund experienced. The AVA used in this valuation is $152,516,894. The market value of assets (MVA) is $152,072,995. The $443,899 difference between the MVA and the AVA is the deferred net loss over the past four years that will be recognized in the next two actuarial valuations.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 3
The theory behind the AVA method is to allow time for investment gains and losses to partially
offset each other and thereby dampen the volatility associated with the progression of the MVA over time. In practice, the timing and amounts of investment gains and losses can result in irregular effects on the AVA in a given year. However, as intended, the pattern of the AVA is smoother over time than the pattern of the MVA, as seen in Exhibit 9. That exhibit shows that the $14 million deferred net gain from two years ago greatly helped cushion the effect of
the large investment loss in 2022. For the purpose of projecting the amortization period through 2027 we used six scenarios of various assumed annual rates of investment return, net of investment-related expenses, over
the 2024-2027 projection period. These projections show the expected effects over the next four years after the valuation date (1) of the recognition of the portions of the investment gains and losses over the past four years that are deferred as of December 31, 2023, and (2) of investment returns over the next four years different from the 6.75% assumption used in this valuation.
Scenario
1 2 3 4 5 6
Assumed Investment Return for Calendar Year
2024
2025 2026 2027
2028 and later
6.75%
6.75 6.75 6.75
6.75
4.00%
6.75 6.75 6.75
6.75
4.00%
4.00 10.00 10.00
6.75
10.00%
6.75 6.75 6.75
6.75
10.00%
10.00 6.75 6.75
6.75
0.00%
0.00 10.00 10.00
6.75 Amortization Period in Years
as of December 31: 2023 (actual) 2025 (projected) 2027 (projected)
6.5 4.0 2.7
6.5 4.8 4.4
6.5 5.2 4.2
6.5 3.0 0.9
6.5 2.5 0.0
6.5 7.4 9.1
The projected amortization period as of December 31, 2027 in Scenario 1 (no investment gains or losses) reveals that the expected decrease of four years from 6.5 years to 2.5 years is almost realized because of the very small effect of the $443,899 deferred net loss.
Scenarios 2 and 3 assume modestly adverse investment experience that would not cause an increase in the amortization period. Scenario 6 assumes fairly adverse investment experience in 2024 and 2025, but because of the very low 6.5-year amortization period in the December 31, 2023 actuarial valuation, the projected amortization periods stay under 10
years. The favorable investment experience in 2024 and 2025 of Scenario 5 would accelerate the amortization of the unfunded liability so that it would be fully amortized by December 31, 2027.
We do not know what the investment experience will be for each of the next four calendar years. Variations in experience from the underlying assumptions, other than investment return, will cause the actual amortization periods to be different from the periods shown above, but investment experience will be the biggest influence on future actuarial valuations. In addition, the future investment experience in each of the next four years could be better or
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 4
worse than the assumed rates shown. These scenarios present a range of scenarios for the
next two valuations assuming no changes in contribution rates or benefits or assumptions. Participant and Asset Data
We have relied on and based our valuation on the active firefighter data, pensioner data, and asset data provided on behalf of the board of trustees by Gary Calmes, who provides
administrative services for the board of trustees. We have not audited the data provided but have reviewed it for reasonableness and consistency relative to the data provided for the December 31, 2021 actuarial valuation. Exhibit 1 is a distribution of the active firefighters by age and service. The assumed 2024 compensation used for projecting future contributions
and benefits for each active firefighter in the valuation was the actual compensation for calendar year 2023, adjusted by 6% to reflect the effect of the approximately 6% general pay increase effective in February 2024. The total of these assumed compensation amounts is our assumed annualized covered payroll for the plan year beginning January 1, 2024 and is used to determine the UAAL amortization period with the assumed 18.5% city contribution
rate. The averages of the assumed compensation amounts for the 2024 plan year are shown in Exhibit 1. Exhibit 2 contains summary information on the pensioners. The monthly benefit payments
are generally based on the amounts paid in January 2024. Exhibit 3 is a reconciliation of firefighters and pensioners from December 31, 2021 to December 31, 2023. Exhibit 4 shows a breakdown of the dollar amount of the monthly benefits for retirees and surviving spouses. Exhibit 5 shows a historical comparison of the actuarial accrued liability and the actuarial value of assets.
The summary of assets contained in Exhibit 6 is based on the December 31, 2023 market value of assets contained in the information received from the board. This exhibit also shows a comparison with the market values and actuarial values of assets as of December 31, 2021
and December 31, 2023. Exhibit 7 contains the statement of changes in assets for 2023 and 2022. Exhibit 8 shows the development of the actuarial value of assets. Exhibit 9 shows a historical comparison between the market value and actuarial value of assets. A comparison of the market value asset allocation by asset class as of December 31, 2021 and
December 31, 2023 is shown in Exhibit 10. Assumptions
As a part of each actuarial valuation, we review the actuarial assumptions used in the prior actuarial valuation. As a result of our review, we have selected and used actuarial
assumptions we consider to be reasonable and appropriate estimates of future experience for the fund for the long-term future. Their selection complies with the applicable actuarial standards of practice. Significant actuarial assumptions used in the valuation are:
1. 6.75% annual investment return net of investment-related expenses;
2. 3% annual general compensation increase combined with promotion, step, and longevity increases which average 1.98% per year over a 30-year career;
3. Retirement rates which result in an average expected age at retirement of 57.0; and
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 5
4. PubS-2010 (safety employees) total dataset mortality tables projected for mortality
improvement using scale MP-2019. No changes in actuarial assumptions have been made compared to those used in the December 31, 2021 valuation. A summary of all the assumptions and methods used in the valuation is shown in Exhibits 11 and 12. In our opinion, the assumptions used, both in the
aggregate and individually, are reasonably related to the experience of the fund and to reasonable expectations. Other Supporting Exhibits
Exhibit 13 contains definitions of terms used in this actuarial valuation report. Exhibit 14
summarizes the plan provisions of the Present Plan. Appendix A documents our review of the economic assumptions. Funding Policy for the City
After negotiations in 2017 among representatives from the city manager’s office, the board of trustees, and the Denton Fire Fighters Association, an agreement was reached to amend the prior Meet and Confer Agreement. Final approval by the city council occurred in December
2017. The same language was included in the Meet and Confer Agreements effective October 1, 2019 and October 1, 2023. The city’s funding policy for the fund is a modified actuarially determined contribution rate (ADCR) policy summarized below.
• The funding policy is intended to fully pay off the UAAL over a closed 25-year
amortization period that we assume began January 1, 2018.
• The city began contributing 18.5% of compensation in late December 2017.
• Each subsequent actuarial valuation for the board will include the modified ADCR for the city’s review.
• If the actuarial valuation and modified ADCR are determined to be reasonable by the
city, the city’s contribution rate will be adjusted to the new modified ADCR beginning on the next October 1st.
• Two minimum constraints for the modified ADCR are that it will not be less than the city’s TMRS rate or the minimum rate under TLFFRA.
• Any change to the contribution level is subject to final approval by the city. Variability in Future Actuarial Measurement Future actuarial measurements may differ significantly from the current measurements
presented in this report due to such factors as the following:
• Plan experience differing from that anticipated by the current economic or demographic assumptions;
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 6
• Increases or decreases expected as part of the natural operation of the methodology used for these measurements;
• Changes in economic or demographic assumptions; and
• Changes in plan provisions.
Analysis of the potential range of such future measurements resulting from the possible sources of measurement variability was provided in the projected amortization periods for the next two biennial actuarial valuations under six scenarios. These projections were designed to assess the risk of variance of potential future investment rates of return in the four years
following the actuarial valuation date from the assumed 6.75% rate and the potential effect on the amortization period. Additional or other sensitivity analysis could be performed in a subsequent report if desired by the board of trustees.
Respectfully submitted, RUDD AND WISDOM, INC.
Mark R. Fenlaw Rebecca B. Morris Fellow, Society of Actuaries Associate, Society of Actuaries Member, American Academy of Actuaries Member, American Academy of Actuaries
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 7
Section II
Key Results of the Actuarial Valuation
December 31, December 31, 20211 2023 1. Actuarial present value of future benefits a. Those now receiving benefits or former firefighters entitled to receive benefits b. Firefighters c. Total 2. Actuarial present value of future normal cost contributions 3. Actuarial accrued liability (Item 1c – Item 2) 4. Actuarial value of assets 5. Unfunded actuarial accrued liability (UAAL) (Item 3 - Item 4) 6. Contributions (percent of pay) a. Firefighters b. City of Denton2
c. Total 7. Normal cost (percent of payroll) 8. Percent of payroll available to amortize the UAAL (Item 6c - Item 7) 9. Annualized covered payroll 10. Actuarially determined period to amortize the UAAL based on Item 6b continuing 11. Funded ratio (Item 4 ÷ Item 3)3
$ 50,741,710 149,133,377 $ 199,875,087 $ 57,435,441 $ 142,439,646 $ 126,483,819 $ 15,955,827 12.60% 18.50% 31.10% 22.23% 8.87% $ 23,631,852 9.1 years 88.8%
$ 57,450,474 182,054,172 $ 239,504,646 $ 72,171,032 $ 167,333,614 $ 152,516,894 $ 14,816,720 12.60% 18.50% 31.10% 22.16% 8.94% $ 28,955,532 6.5 years 91.1%
1 All items are from the December 31, 2021 actuarial valuation and reflect the Present Plan. 2 For both actuarial valuations, 18.5% is the initial contribution rate in the current city funding policy, and was assumed to continue. 3 The funded ratio is not appropriate for assessing either the need for or the amount of future contributions or the adequacy of the assumed contribution rates. Using the market value of assets instead of the actuarial value of assets for Item 11 would have resulted in funded ratios of 98.7% as of December 31, 2021 and 90.9% as of December 31, 2023. The best indicator of the fund’s health is Item 10.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 8
Changes in the Unfunded Actuarial Accrued Liability
In comparing this actuarial valuation to the prior one, the UAAL decreased by $1,139,107 from $15,955,827 as of December 31, 2021 to $14,816,720 as of December 31, 2023. The table below summarizes the reasons for the decrease.
Reason for Change Amount
• Expected decrease (assumed amortization payments accumulated with interest exceeding interest on UAAL)
• Investment gain for the two years (based on the AVA average annual return of 7.8%)
• Experience loss (net difference between actual experience and assumed experience for contributions, pay increases, retirements,
mortality, and terminations, but primarily due to greater pay increases than expected)
Total
$ (2,310,995)
(2,887,166)
4,059,054
$ (1,139,107)
Changes in the Actuarially Determined Amortization Period
The amortization period, based on the Present Plan provisions, was determined in the actuarial valuation as of December 31, 2021, to be 9.1 years. Since two years have passed since that valuation date, a 7.1-year amortization period would be expected if all actuarial assumptions had been exactly met, no changes had occurred (other than those expected) in
the firefighter and pensioner data, and no changes in assumptions or benefits or funding policy had been made. The amortization period is now 6.5 years based on the same assumptions, funding policy and plan provisions. The actual experience occurring between December 31, 2021 and December 31, 2023 differed from the expected experience, and the resulting amortization period is 6.5 years, which is 0.6 of a year less than the expected 7.1-
year period for the following reasons: 1. The average annual rate of investment return, net of investment-related expenses, on the market value of assets during the two plan years 2022 and 2023 was 2.2%. However,
the actuarial value of assets (AVA) used in the valuation and the determination of the amortization period is based on an adjusted market value. The average annual rate of return on the AVA, net of investment-related expenses, for plan years 2022 and 2023 was 7.8% compared to the assumed rate of return for those years of 6.75%. This caused a decrease in the amortization period of 1.7 years.
2. The aggregate payroll increased at an average rate of 10.7% per year, compared to the assumed 3% per year rate, which caused the amortization period to decrease by 0.8 of a year.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 9
3. The net result of all experience other than the investment experience and the aggregate
payroll experience had the combined effect of increasing the amortization period by 1.9 years. This was the net result primarily of greater-than-expected pay increases in the last two years.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 10
Section III
Benefit Improvements
The funding policy in the current Meet and Confer Agreement effective October 1, 2023 is silent on benefit improvements. The prior agreement effective October 1, 2019 said that there would be no benefit enhancements until after September 30, 2023. However, in May 2022, the city council agreed to a set of tiered post-retirement increases of 4%, 3%, or 2%,
depending on the length of time since the initial benefit commenced. Perhaps they were influenced by the fact that there had been no prior ad hoc increase for the retirees since a 2% increase in 2008. In contrast, the retirees in the TMRS plan have received an increase each January for many years based on 70% of the increase in the CPI.
We understand that there is interest in determining the cost to the fund of adding an automatic annual increase in benefits for retirees (current and future retirees) that would be comparable to the annually repeating cost-of-living adjustment (COLA) for retirees in the TMRS plan for other city employees. Separately, we will provide a description of a COLA special study and
fee quote.
In addition, the funding policy references the interest to place dispatchers in the TMRS plan. We have completed a special study report on the dispatchers dated December 9, 2021 and more recently November 29, 2023.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 11
Exhibit 1
Distribution of Firefighters by Age and Service on December 31, 2023 with Average Annual Salary
Years of Service
Age
Total Average Salary Under 25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60 or Over 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20-24 25-29 30-34 35+ Totals
5 5 3 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 13
7 7 5 4 0 2 2 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 28
5 5 4 4 0 3 4 3 3 0 4 2 1 0 0 0 0 0 0 0 0 0 0 0 38
0 2 4 5 1 3 4 5 3 0 4 1 4 1 0 0 0 2 0 0 0 0 0 0 39
0 0 0 0 0 1 0 2 3 2 0 7 2 1 1 3 1 5 4 1 4 0 0 0 37
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 4 5 2 13 1 0 0 27
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 4 2 1 15 7 4 0 34
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6 9 4 1 20
0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
17 19 16 13 1 9 10 11 9 2 8 10 7 2 1 5 2 15 11 4 38 17 8 1 236
$ 82,824 83,044 93,747 99,922 117,009 108,073 114,497 121,204 118,886 149,033 129,559 123,692 122,811 152,499 170,312 128,266 131,210 132,746 144,043 149,411 141,077 156,468 170,516 164,391 $122,693
Average $86,363 $103,547 $134,283 $150,210 Salary $94,173 $115,328 $141,328 $143,597 $122,693 Average age 39.9 Average years of service 12.4 Average age at hire 27.5
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 12
Exhibit 2
Summary of Pensioner Data
Type of Benefit
Pensioner Data Used in December 31, 2023 Valuation
Number of Recipients
Total Monthly Benefit Payments
Service Retirement1
Disability Retirement Vested Terminated (Deferred)2
Surviving Spouse Surviving Child
Total
75
0 8 20 1
104
$ 350,850
0 20,392 62,060 1,028
$ 434,330
Type of Benefit
Comparison of Pensioner Count by Type as of
The Prior and Current Actuarial Valuations
December 31, 2021 New Ceased December 31, 2023
Service Retirement1 Disability Retirement
Vested Terminated (Deferred) Surviving Spouse Surviving Child
Total
75 0
7 15 2
99
+7 0
+1 +5 0
+13
(7) 0
0 0 (1)
(8)
75 0
8 20 1
104
1 Includes three alternate payees receiving benefits according to the terms of a Qualified Domestic Relations Order. 2 Monthly benefit payments are deferred to begin at terminated firefighter’s future retirement date.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 13
Exhibit 3
Firefighter and Pensioner Reconciliation
Firefighters
Current
Payment Status
Vested
Terminated Firefighters Total
1. As of December 31, 2021 2. Change of status a. retirement
b. disability c. death d. survivor payment begins e. withdrawal f. vested termination
g. completion of payment h. QDRO alternate payee i. correction j. net changes
3. New firefighters 4. As of December 31, 2023
211 (7)
0 0 0 (10) (1)
0 0 0 (18)
43 236
92 1 7
0 (7) 5 0 0
(1) 0 0 4
0 96 1
7 0
0 0 0 0 1
0 0 0 1
0 8
310 0
0 (7) 5 (10) 0
(1) 0 0 (13)
43 340
1 Includes three alternate payees receiving benefits according to the terms of a Qualified Domestic Relations Order (QDRO).
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 14
Exhibit 4
Breakdown of Pensioners by Monthly Benefit Amounts as of December 31, 2023
Under $2,00140%
$2,001-$4,00030%
$4,001-$6,00020%
Over $6,00010%
Retirees Surviving Spouses
Under $2,001 $2,001-$4,000 $4,001-$6,000 Over $6,000
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 15
Exhibit 5
Historical Comparison of Actuarial Accrued Liability and Actuarial Value of Assets
(Present Plan Valuations as of December 31)
$ in Millions
81%
89%
91%
81%
82%
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 16
Exhibit 6
Summary of Asset Data
Asset Type
Market Value
as of December 31, 2023
Allocation
As a Percent of Grand Total
Equities U.S. Large Cap U.S. Small/Mid Cap International
Total Alternatives Real Estate MLP’s/Royal Trusts
Total Fixed Income U.S. Core
Cash Equivalents Grand Total
$56,259,000 13,974,000 12,556,000
82,789,000 15,812,000 8,410,000
24,222,000 25,829,000
19,232,995 $152,072,9951
37.0% 9.2 8.2
54.4 10.4 5.5
15.9 17.2
12.7 100.0%
1 The grand total is the total in the audited financial report. All of the invested amounts were either from or estimated from the investment consultant’s report, except for an updated value of real estate in the audited financial report. The cash equivalents amount is the balancing item.
Comparison of Asset Values as of the Prior and Current Actuarial Valuation Dates
Market Value Actuarial Value
Actuarial Value as a Percent of Market Value
December 31, 2021 $140,537,577 $126,483,819
90.0%
December 31, 2023 $152,072,995 $152,516,894
100.3%
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 17
Exhibit 7
Statement of Changes in Assets
for the Years Ended December 31, 2023 and 2022 12/31/20231 12/31/20221
Additions
1. Contributions a. Employer $ 4,888,426 $ 4,545,905 b. Employees 3,329,414 3,096,130 c. Total $ 8,217,840 $ 7,642,035
2. Investment Income a. Interest and dividends $ 4,985,104 $ 4,003,453 b. Net appreciation in fair value 8,251,204 (10,096,927) c. Total $ 13,236,308 $ (6,093,474)
3. Other Additions 0 0 Total Additions $ 21,454,148 $ 1,548,561
Deductions 4. Benefit Payments a. Monthly benefits $ 4,894,049 $ 4,565,500 b. Lump-sum benefits 815,516 250,972
c. Total $ 5,709,565 $ 4,816,472 5. Expenses a. Investment-related $ 386,740 $ 352,587
b. General administrative 87,648 114,279
c. Total $ 474,388 $ 466,866 Total Deductions $ 6,183,953 $ 5,283,338 Net Increase in Assets $ 15,270,195 $ (3,734,777) Market Value of Assets (Fiduciary Net Position) Beginning of Year $ 136,802,800 $ 140,537,577
End of Year $ 152,072,995 $ 136,802,800 Rate of Return Net of All Expenses 9.24% (4.62)% Net of Investment-Related Expenses 9.31% (4.54)%
Gross 9.60% (4.30)% Investment-Related Expenses (Direct) 0.29% 0.24%
1Audited
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 18
Exhibit 8
Development of Actuarial Value of Assets
Calculation of Actuarial Investment Gain/(Loss) Based on Market Value for Plan Years Ending December 31 2023 2022 2021 2020 1. Market Value of Assets as of Beginning of Year 2. Firefighter Contributions 3. City Contributions 4. Benefit Payments and Administrative Expenses1 5. Expected Investment Return2 6. Expected Market Value of Assets as of End of Year 7. Actual Market Value of Assets as of End of Year 8. Actuarial Investment Gain/(Loss) 9. Market Value Rate of Return Net of Expenses 10. Rate of Actuarial Investment Gain/(Loss)
$136,802,800 3,329,414 4,888,426 (5,797,213) 9,315,885 148,539,312 152,072,995 3,533,683 9.31% 2.56%
$140,537,577 3,096,130 4,545,905 (4,930,751) 9,577,792 152,826,653 136,802,800 (16,023,853) (4.54)% (11.29)%
$117,198,139 2,894,437 4,249,769 (5,011,139) 7,982,865 127,314,071 140,537,577 13,223,506 17.93% 11.18%
$103,815,795 2,771,532 4,069,311 (5,772,448) 7,043,624 111,927,814 117,198,139 5,270,325 11.80% 5.05%
1 Administrative expenses are included because the investment return assumption was net of investment-related expenses for those years. 2 Assuming uniform distribution of contributions and payments during the plan year; actuarially assumed investment return was 6.75%.
Deferred Actuarial Investment Gains/Losses to be Recognized in Future Years Plan Year Investment Gain/(Loss) Deferral Percentage Deferred Gain/(Loss) as of 12/31/2023
2023 2022 2021 2020 Total
$ 3,533,683 (16,023,853) 13,223,506 5,270,325
80% 60% 40% 20%
$ 2,826,946 (9,614,312) 5,289,402 1,054,065 $ (443,899)
Actuarial Value of Assets as of December 31, 2023
11. Market Value of Assets as of December 31, 2023 12. Deferred Gain/(Loss) to be Recognized in Future 13. Preliminary Value (Item 11 – Item 12) 14. Corridor for Actuarial Value of Assets
a. 90% of Market Value as of December 31, 2023 (minimum) b. 110% of Market Value as of December 31, 2023 (maximum) 15. Actuarial Value as of December 31, 2023
16. Write Up/(Down) of Assets (Item 15 – Item 11)
$ 152,072,995 (443,899) $ 152,516,894
$ 136,865,696 $ 167,280,295 $ 152,516,894
$ 443,899
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 19
Exhibit 9
Historical Comparison of Market and Actuarial Value of Assets(Valuation as of December 31)
$ in Millions
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 20
Equities61%Cash & Equivalent11%
Fixed Income14%
Alternatives14%
December 31, 2021
Exhibit 10
Comparison of Market Value Asset Allocation as of the Prior and Current Actuarial
Valuation Dates
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 21
Exhibit 11
Actuarial Methods and Assumptions A. Actuarial Methods
1. Actuarial Cost Method
The Entry Age Actuarial Cost Method is an actuarial cost method in which the actuarial present value of projected benefits of each active firefighter included in the valuation is allocated as a level percentage of compensation over the period from age at hire to the last age before 100% assumed retirement. Each active firefighter’s normal cost is
the current annual contribution in a series of annual contributions which, if made throughout the firefighter’s total period of employment, would fund his expected benefits. Each firefighter’s normal cost is calculated to be a constant percentage of his expected compensation in each year of employment. The normal cost for the fund is the sum of the normal costs for each active firefighter for the year following the
valuation date. The normal cost as a percent of payroll reflects that contributions are made biweekly. The fund’s actuarial accrued liability is the excess of the actuarial present value of
projected benefits over the actuarial present value of all future remaining normal cost contributions. The unfunded actuarial accrued liability (UAAL) is the amount by which the actuarial accrued liability exceeds the actuarial value of assets. The UAAL is recalculated each time a valuation is performed. Experience gains and losses, which represent deviations of the UAAL from its expected value based on the prior valuation,
are determined at each valuation and are amortized as part of the newly calculated UAAL.
2. Amortization Method
The UAAL is assumed to be amortized with level percentage of payroll contributions (total assumed contribution rate less normal cost contribution rate) based on assumed payroll growth of 3% per year. The actuarial determination of the amortization period reflects that contributions are made biweekly, as does the actuarially determined UAAL amortization contribution rate with the closed amortization period.
3. Actuarial Value of Assets Method
All assets are valued at market value with an adjustment made to uniformly spread actuarial gains or losses (as measured by actual market value investment return vs.
expected market value investment return) over a five-year period. The total adjustment amount shall be limited as necessary such that the actuarial value of assets shall not be less than 90% of market value nor greater than 110% of market value. See Exhibit 8.
B. Actuarial Assumptions As a part of each actuarial valuation, we review the actuarial assumptions used in the prior actuarial valuation. The investment return assumption is reviewed using the building
block approach that includes several asset allocations, assumed real rates of return for each asset class, an assumed rate of investment-related expenses, and an assumed rate
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 22
of inflation, with all assumptions for the long-term future. Our economic assumptions are
influenced both by long-term historical experience and by future expectations of investment consultants and economists, but we select the economic assumptions and discuss them with the board as a part of the actuarial valuation. See our review of the economic assumptions in Appendix A.
We review the termination and retirement experience since the prior valuation and periodically look back more than two years. We also periodically review the average salaries by years of service to get insights into the promotion, step, and longevity compensation patterns for the purpose of reviewing our compensation increase
assumption. For the mortality assumptions, we use an appropriate published mortality table with projections for improvement beyond the valuation date. We are guided in our review and selection of assumptions by the relevant actuarial standards of practice. As a result of our review, we have selected actuarial assumptions we consider to be reasonable and appropriate for the fund for the long-term future.
1. Investment Return
6.75% per year net of investment-related expenses.
2. Inflation
2.5% per year included in compensation increases and investment return assumptions.
3. Mortality Rates
PubS-2010 (public safety) total dataset mortality tables for employees and for retirees (sex distinct), projected for morality improvement generationally using the projection scale MP-2019.
4. Compensation Increases
General increases of 3% per year (2.5% inflation plus 0.5% productivity) in combination with promotion, step, and longevity increases that average 1.98% per year over a 30-year career. See Exhibit 12.
5. Retirement Rates
Age Rate per Year for Firefighters Eligible to Retire
50-53 54-58
59-61 62-64 65
5% 15
30 50 100
The average expected retirement age for firefighters under age 50 based on these rates is 57.0.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 23
6. RETRO DROP Election
a. Percent of firefighters eligible electing RETRO DROP: 100% of service retirements eligible to elect at least a 12-month lump sum. b. Months assumed for lump sum: Maximum they are eligible for, up to 48 months.
7. Termination Rates
See Exhibit 12. 8. Disability Rates
See Exhibit 12. 9. Reduction in Benefit after 2½ Years of Disability Retirement
45% weighted average reduction in benefit.
10. Percent Married
90% of the firefighters are assumed to be married at retirement, disability, or death while employed, with male firefighters having a spouse four years younger and female firefighters having a spouse four years older. We use actual spouse data once a
monthly benefit is being paid.
11. Payment Form for Retirement Benefits Due to Service Retirement, Disability Retirement, or Vested Termination
• Joint and 2/3 to surviving spouse for the 90% assumed to be married
• Life annuity for the 10% assumed to be single
To the extent optional forms of payment are elected and the amounts are determined
under an actuarial basis which differs from the basis used in the valuation, actuarial gains or losses will occur. These gains or losses are expected to be very small and will be recognized through the valuation process for those retiring since the prior valuation who made an optional election.
12. Surviving Child’s Death Benefit
None are assumed as a result of future deaths.
13. Firefighters’ Contribution Rate
12.60% of covered pay. 14. City’s Assumed Contribution Rate
For the scenarios with an actuarially determined amortization period for the UAAL,
18.50% of covered payroll for as long as the actuarially determined period.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 24
15. Covered Payroll for First Year Following Valuation Date
Actual (or annualized) pay for 2023 with an adjustment of 6% for each firefighter to reflect the effect of the approximately 6% general pay increases effective in February 2024.
16. Administrative Expenses
The expenses paid by fund assets for other than investment-related expenses are assumed to be 0.50% of payroll. The normal cost rate as a percent of payroll is assumed to be 0.50% of payroll higher to reflect these expenses.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 25
Exhibit 12
Disability and Termination Rates per 1,000 Active Members Compensation Increases by Years of Service
Disability Rates Termination Rates Compensation Increases
Attained Age Rate Years of Service Rate Years of Service Increase Percent 20 21 22 23 24 25 26 27 28 29
30 31
32 33 34
35 36 37 38 39 40 41 42 43 44
45 46 47
48 49
50 51 52 53 54 55 & Over
0.14 0.15 0.16 0.17 0.18 0.19 0.21 0.23 0.25 0.28
0.31 0.35
0.40 0.45 0.49
0.52 0.54 0.57 0.62 0.73 0.92 1.14 1.32 1.48 1.73
2.09 2.55 2.98
3.34 3.62
3.79 3.92 4.04 4.24 4.56 0.00
0 1 2 3 4 5 6 7 8 9
10 11
12 13 14
15 16 17 18 19 20 & Over
60 54 48 42 37 32 27 24 21 19
17 14
12 11 10
9 9 8 8 8 0
1 2 3 4 5 6 7 8 9 10
11 12
13 14 15
16 17 18 19 20 21 22 23 24 25
26 27 28
29 30
31 & Over
9.18% 9.18 9.18 9.18 9.18 6.09 6.09 6.09 6.09 6.09
6.09 6.09
6.09 6.09 6.09
3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
3.00 3.00 3.00
3.00 3.00
3.00
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 26
Exhibit 13
Definitions
1. Actuarial Accrued Liability That portion, as determined by the particular actuarial cost method used, of the Actuarial Present Value of future pension plan benefits as of the Valuation Date that is not provided for by the Actuarial Present Value of future Normal Costs.
2. Actuarial Assumptions Assumptions as to the occurrence of future events affecting pension costs, such as: mortality, termination, disablement and retirement; changes in compensation; rates of investment earnings and asset appreciation; and other relevant items. 3. Actuarially Equivalent
Of equal Actuarial Present Value, determined as of a given date with each value based on the same set of Actuarial Assumptions. 4. Actuarial Gain (Loss) A measure of the difference between actual experience and that expected based on the Actuarial Assumptions during the period between two Actuarial Valuation dates, as determined in accordance with the particular actuarial cost method used. 5. Actuarial Present Value The value of an amount or series of amounts payable or receivable at various times, determined as of a given date (the Valuation Date) by the application of the Actuarial Assumptions.
6. Actuarial Valuation The determination, as of a Valuation Date, of the Normal Cost, Actuarial Accrued Liability, Actuarial Value of Assets and related Actuarial Present Values for a pension plan. 7. Actuarial Value of Assets The value of cash, investments and other property belonging to a pension plan, as determined by a method and used by the actuary for the purpose of an Actuarial Valuation.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 27
8. Entry Age Actuarial Cost
Method
An actuarial cost method under which the Actuarial Present Value of the Projected Benefits of each individual included in the Actuarial Valuation is allocated as a level percentage of compensation over the period from age at hire to the last age before 100% assumed retirement. The portion of this Actuarial Present Value allocated to a valuation year is called the Normal Cost. The portion of this Actuarial Present Value not provided for at a Valuation Date by the Actuarial Present Value of future Normal Costs is called the Actuarial Accrued Liability. Under this method, Actuarial Gains (Losses), as they occur, reduce (increase) the Unfunded Actuarial Accrued Liability.
9. Plan Year A 12-month period beginning January 1 and ending December 31.
10. Normal Cost That portion of the Actuarial Present Value of pension plan benefits that is allocated to a valuation year by the actuarial cost method. 11. Projected Benefits Those pension plan benefit amounts that are expected
to be paid at various future times according to the Actuarial Assumptions, taking into account such items as the effect of advancement in age and past and anticipated future qualified service.
12. Overfunded Actuarial Accrued Liability The excess, if any, of the Actuarial Value of Assets over the Actuarial Accrued Liability. 13. Unfunded Actuarial Accrued
Liability
The excess, if any, of the Actuarial Accrued Liability
over the Actuarial Value of Assets. 14. Valuation Date The date upon which the Normal Cost, Actuarial Accrued Liability and Actuarial Value of Assets are
determined. Generally, the Valuation Date will coincide with the end of a Plan Year. 15. Years to Amortize the Unfunded Actuarial Accrued
Liability
The period is determined in each Actuarial Valuation as the number of years, beginning with the Valuation Date,
to amortize the Unfunded Actuarial Accrued Liability with a level percent of payroll that is the difference between the expected total contribution rate and the Normal Cost contribution rate.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 28
Exhibit 14
Summary of Present Plan
1. Normal Service Retirement Monthly Benefit as a Percent of Highest 36-Month Average Salary for Each Year of Service 2.59% 2. Normal Service Retirement Eligibility (Minimum) Age 50 and 20 Years
3. Retroactive Deferred Retirement Option Plan (RETRO DROP) (a) Earliest RETRO DROP benefit calculation date Age 52 and 22 Years (b) Maximum RETRO DROP benefit accumulation period 48 Months
(c) Earliest employment termination date with maximum RETRO DROP accumulation period Age 56 and 26 Years (d) RETRO DROP lump sum includes (i) Monthly benefits that would have been received between RETRO DROP benefit calculation date
and end of month of termination of employment, (ii) accumulated contributions made by the firefighter after the RETRO DROP benefit calculation date, and (iii) no interest
4. Initial Disability Retirement Monthly Benefit as a Percentage of Highest 36-Month Average Salary (a) Minimum percentage 51.80% (b) Additional percentage for each year of service in excess of 20 years 2.59%
5. Disability Retirement Monthly Benefit for Firefighters Who Become Totally Disabled while Employed (a) For initial 30-month period, is (i) plus (ii) if not able to
perform job in fire department (i) Minimum monthly amount based on 20 years (ii) Additional monthly amount per year of service in excess of 20 years
(b) Following initial 30-month period, is the greater of (i) and (ii) (i) Initial benefit reduced by the portion of the initial benefit equal to estimated annual residual earning capacity divided by annual base earnings (ii) Initial benefit multiplied by percentage of disability
(c) Upon attaining eligibility for normal retirement, the member’s vested retirement benefit becomes payable if the disability benefit has been reduced or terminated 6. Vested Terminated Benefit Eligibility
(Benefit Deferred to Normal Retirement Age) 10 Years
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 29
7. Surviving Spouse’s Monthly Death Benefit as a Percent of
Highest 36-Month Average Salary for Each Year of Service for Death while an Active Firefighter (a) Minimum percentage 34.53% (b) Additional percentage for each year of service in excess of 20 years 1.73%
8. Surviving Spouse’s Monthly Death Benefit as a Percent of Highest 36-Month Average Salary for Each Year of Service for Death while Eligible to Retire as an Active Firefighter 2.59% x 96%
9. Surviving Children’s Monthly Benefit as a Percent of Surviving Spouse’s Benefit (a) When the spouse is receiving a benefit, for each child 20% (b) When the spouse is not receiving a benefit or there is no spouse 100%
10. Contributions as a Percent of Payroll by: (a) Firefighters 12.60% (b) City of Denton Funding Policy
11. The normal form of annuity payment at retirement is a Joint and Two-Thirds to Surviving Spouse, and payment is the first day of each month. 12. A Social Security Leveling Option optional form of payment is available to firefighters
eligible for a service retirement benefit and to surviving spouses of firefighters who die while employed where the surviving spouse is between ages 45-60. A Joint and 100% to Surviving Spouse Optional form of payment and a Joint and 50% to Surviving Spouse are also available to firefighters eligible for a service retirement benefit.
13. Salary used to determine the Highest 36-Month Average Salary includes all elements of pay except for (a) lump sum distributions upon termination for unused sick leave or vacation and (b) overtime pay earned after June 13, 2007 for special deployments in excess of $2,000 per biweekly pay period. The average is based on the highest consecutive 78 biweekly pay periods during active participation in the fund.
14. Refund of firefighters’ accumulated contributions without interest will be made to firefighters who terminate employment and either are not eligible for any other benefit from the fund or request a refund from the fund.
15. A lump sum death benefit will be payable upon the death of a participating member of the fund in an amount equal to the current annual salary of the participating member.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 30
Appendix A
Review of the Actuarial Economic Assumptions for the December 31, 2023 Actuarial Valuation Asset Allocation and Investment Return Assumption Development
Asset Class
Gross Annual Real Rate of Investment
Return (ROR)1
Asset Allocation
Actual 12/31/20212 Actual 12/31/20233 Current Target4 More Fixed Income Equities Domestic Large Cap Small/Mid Cap International
Fixed Income MPLs, Royalty Trusts Real Estate Cash Total
6.5 7.0 7.0
1.5 7.0 4.5 0.0
39% 9 13
61 14 4 10 11 100%
37% 9 8
54 17 6 10 13 100%
40% 10 10
60 15 8 15 2 100%
40% 8 7
55 20 5 10 10 100% Weighted Average Gross Real ROR Assumption 4.72% 5.46% 4.75% Weighted Average Net Real ROR Assumption5 4.22% 4.96% 4.25% Possible Theoretical Annual Investment Return Assumption: Net Real ROR Plus Assumed Annual Rate of Inflation
Assumed 2.50% Inflation 6.72% 7.46% 6.75% 1 A gross real rate of return is an assumed total annual rate of investment return, before expenses, that is in excess of the assumed annual inflation rate. These are long-term assumptions made by Rudd and Wisdom, Inc.
2 This allocation is from a combination of the investment consultant’s 12/31/2021 report and the auditor’s final 12/31/2021
draft.
3 This allocation is from a combination of the investment consultant’s 12/31/2023 report and the 12/31/2023 audited financial report.
4 This allocation is from the investment consultant’s 12/31/2023 report.
5 A weighted average Net Real ROR is an annual rate equal to the weighted average Gross Real ROR reduced by investment-related expenses of an assumed annual rate of 0.5%.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 31
Appendix A (continued) Price Inflation in the USA Average Annual Rates of Increase in the CPI-U
Years Number Average (Dec. to Dec.) of Years Annual Increase
1958 – 2023 65 3.70% 1963 – 2023 60 3.90 1968 – 2023 55 4.00
1973 – 2023 50 3.86 1978 – 2023 45 3.41 1983 – 2023 40 2.81 1988 – 2023 35 2.71
1993 – 2023 30 2.51 1998 – 2023 25 2.54 2003 – 2023 20 2.58 Most inflation forecasts are for 10 years or less. For example, the average 10-year forecast in
the June 2024 Livingston Survey published by the Federal Reserve Bank of Philadelphia was 2.25%. However, 10 years is too short a forecast period for a public employee defined benefit pension plan. In the 2024 annual report of the OASDI Trust Funds (Social Security), the ultimate inflation assumptions for their 75-year projections are 3.0%, 2.4%, and 1.8% for the low-cost, intermediate, and high-cost assumptions, respectively. Looking at the average
annual increase in the CPI-U over historical periods of 30 to 65 years above and considering the Social Security forecasts, we believe that reasonable assumed rates of inflation for the long-term future would range from 2.25% to 3.00%. Administrative Expenses Paid by the Fund Plan Year Administrative % of Payroll
Ending 12/31 Expenses Paid by the Fund Covered Payroll (2) ÷ (3)
(1) (2) (3) (4)
2023 $ 87,648 $26,423,921 0.33% 2022 114,279 24,572,460 0.47 2021 87,866 22,971,722 0.38
2020 116,909 21,996,287 0.53
2020-2023 $406,702 $95,964,390 0.42% The administrative expenses are not reflected in the investment return assumption but are
reflected as a percent of payroll that is added to the normal cost contribution rate. For the December 31, 2023 actuarial valuation, we recommend 0.50%, the average developed above for the last four plan years, rounded up to a multiple of 0.10%. It is the same assumption we used for the December 31, 2021 actuarial valuation. (The covered payroll was determined as the firefighter contributions for the plan year divided by the firefighter contribution rate during
the plan year.)
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 32
Comparison of 12/31/2021 Actuarial Economic Assumptions with 12/31/2023 Actuarial Economic Assumptions
Actuarial Assumption1
12/31/2021 Actuarial Economic Assumptions
12/31/2023 Actuarial Economic Assumptions
Inflation (Price) Net real rate of return2 Net total investment return2
Firefighter pay increase3
Aggregate payroll increase
Administrative expenses
2.50% 4.25 6.75%
4.98%
3.00%
0.50% of payroll
2.50% 4.25 6.75%
4.98%
3.00%
0.50% of payroll
1 All assumptions are annual rates. 2 Net of investment-related expenses. 3 The 4.98% for 12/31/2021 and 12/31/2023 is comprised of a 3.00% annual general compensation increase combined with annual promotion, step, and longevity pay increases that vary by length of service (highest in early years) and that average 1.98% over a 30-year career.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND ACTUARIAL VALUATION
AS OF DECEMBER 31, 2023
RUDD AND WISDOM, INC. PAGE 33
Appendix B Other Disclosures as of December 31, 2023
Negative Amortization
• As of this actuarial valuation, the fund has no negative amortization because the total contributions in each future year are expected to exceed the sum of the normal cost and
interest on the Unfunded Actuarial Accrued Liability (UAAL), with the UAAL expected to be fully amortized in less than seven years. Reasonable Actuarially Determined Contribution Rate
• The 2024 actuarially determined contribution (ADC) rate resulting from the city’s current funding policy on page 1 is a reasonable ADC rate consistent with actuarial standards of practice. Actuarial Valuation Software
• We have utilized software licensed from Winklevoss Technologies, LLC in the development of the liabilities summarized in the report. We have independently confirmed the model developed by Winklevoss and have sufficiently tested it to ensure the model is an accurate representation of the fund’s liabilities.
Low-Default-Risk Obligation Measure (LDROM)
• The LDROM is a new required disclosure calculated as of the date of the actuarial valuation using a discount rate based on high quality bond yields instead of the expected
return on the fund’s diversified investment portfolio.
Low-Default-Risk Obligation Measure $266,294,086
Actuarial Accrued Liability $167,333,614
• The difference between the LDROM and the actuarial accrued liability determined in this actuarial valuation could be viewed as the expected savings from investing in the fund’s diversified portfolio instead investing only in high quality bonds.
• For our calculation of the LDROM, we have used the same actuarial cost method and actuarial assumptions from this actuarial valuation summarized in Exhibits 11 and 12,
except for an assumed discount rate of 3.26% instead of the investment return assumption of 6.75%. To determine the assumed discount rate, we used the Bond Buyer Index of general obligation bonds with 20 years to maturity, which has an average rating roughly equivalent to Moody’s Investors Services’ Aa2 rating and Standard and Poor’s Corporation AA. The weekly index closest to the December 31, 2023 measurement date
was 3.26%.
• Because the fund’s assets are not invested only in high-quality bonds, the LDROM does not reflect the fund’s actuarial condition, nor does it offer insights into the total contribution required for an adequate contribution arrangement or the security of participant benefits.