2025-055 Denton Firemen's Relief and Retirement Fund Actuarial Audit Final June 27,2025 Report No. 2025-055
INFORMAL STAFF REPORT
TO MAYOR AND CITY COUNCIL
SUBJECT:
Denton Firemen's Relief and Retirement Fund Actuarial Audit
EXECUTIVE SUMMARY:
Section 802.1012 of the Texas Government Code requires an actuarial audit of public retirement
systems in Texas with total assets of at least $100 million every five years. The City selected
Gabriel, Roeder, Smith & Company(GRS) to perform the actuarial audit.
DISCUSSION:
The Actuarial Audit includes the following:
• Comparison and reconciliation of census data provided by DFRRF and that used by the
consulting actuary for preparing the actuarial valuation.
• Review and analysis of the valuation results as well as a review of the mathematical
calculations for completeness and accuracy,based on a detailed review of a representative
sample of the current plan participants.
• Verification that all appropriate benefits have been valued and valued accurately. • Evaluation
of the actuarial cost method and the actuarial asset valuation method in use and whether other
methods may be more appropriate for DFRRF.
• Verification of the reasonableness of the calculation of the unfunded actuarial accrued liability
and the amortization period used under the actuarial cost method.
• Review of the demographic and economic actuarial assumptions for consistency,
reasonableness, and compatibility. Such assumptions shall include, but are not limited to
mortality, retirement and separation rates, levels of pay adjustments, rates of investment return,
and disability factors.
• Assessment of the adherence to relevant Actuarial Standards of Practice (ASOPs)published by
the American Academy of Actuaries.
• Assessment of the adherence to the Texas Pension Review Board(PRB) Pension Funding
Guidelines
The Actuarial Audit outcome:
•Based on the review, the actuarial valuation, studies, and reports of the Plan are reasonable,
used appropriate assumptions and adhered to Actuarial Standards of Practice and Texas PRB
Pension Funding Guidelines.
• The audit was overall clean but one primary recommendation is for the Plan to have an
actuarial experience study performed to meet the requirement under Texas Government Code
Section 802.1014, which was completed May 30, 2025.
June 27,2025 Report No. 2025-055
ATTACHMENTS:
1. Denton Firemen's Relief and Retirement Fund Actuarial Audit
STAFF CONTACT:
Jessica Williams
Chief Financial Officer
jessica.jwilliams@cityofdenton.com
(940) 349-8244
REOUESTOR: Staff Initiated
STAFF TIME TO COMPLETE REPORT: 1 Hour
Denton Firemen's Relief and
Retirement Fund
Report of an Actuarial Audit
Final Actuarial Audit Report in Accordance with
Section 802.1012(f) of the Texas Government Code
June 19, 2025
GR S P:469.524.0000 1 www.grsconsulting.com
June 19, 2025
Jessica Williams
Chief Financial Officer
City of Denton
215 East McKinney Street
Denton, TX 76201
Re: Final Report on the Actuarial Audit of the Denton Firemen's Relief and Retirement Fund
Dear Ms. Williams:
Gabriel, Roeder, Smith & Company(GRS) is pleased to present this report of an actuarial audit of the
December 31, 2023 Actuarial Valuation of the Denton Firemen's Relief and Retirement Fund (the
Fund). The following documents are intended to demonstrate that the plan sponsor has complied with
Section 802.1012 of the Texas Government Code which requires an actuarial audit of public retirement
systems with total assets of at least$100 million every five years.
The following three documents will constitute the final actuarial audit report, as required by Section
802.1012(h) of the Texas Government Code:
1. This cover letter,
2. Actuarial audit report, dated May 16, 2025, and
3. The retained actuary's response to the actuarial audit report, provided to GRS on June 13, 2024.
Following the delivery of the actuarial audit report on May 16, 2025, GRS requested a response to
the report, as required by Section 802.1012(g) of the Texas Government Code.On June 9, 2025,the
plan sponsor provided an email response to GRS regarding the draft report that states:
"The city has reviewed with no further comments."
In addition, a representative of the Fund replied via email to GRS on June 18, 2025 with the
statement:
"The Board approved the study and Rudd & Wisdom's response."
GRS is pleased to report that, in our professional opinion, we believe the December 31, 2023 Actuarial
Valuation of the Denton Firemen's Relief and Retirement Fund was reasonable, used appropriate
assumptions and adhered to Actuarial Standards of Practice and Texas PRB Pension Funding
Guidelines.
_FFM - - Oman
5605Boulevard
City of Denton, TX—Actuarial Audit of DFRRF
June 19, 2025
Page 2
The signing actuaries are independent of the plan sponsor. Mr. Bevins is an Associate of the Society of
Actuaries and Mr. White is an Enrolled Actuary, and a Fellow of the Society of Actuaries. Both Mr. Bevins
and Mr. White are Members of the American Academy of Actuaries and meet the Qualification
Standards of the American Academy of Actuaries to render the actuarial opinions contained herein.
Respectfully submitted,
Gabriel, Roeder, Smith & Company
Thomas J. Bevins, ASA, MAAA Daniel J. White, FSA, MAAA, EA
Consultant Regional Director
G RS
Denton Firemen's Relief and
Retirement Fund
Report of an Actuarial Audit
Final Actuarial Audit Report in Accordance with
Section 802. 1012(f) of the Texas Government Code
DRAFT — May 16, 2025
GR S P:469.524.0000 1 www.grsconsulting.com
May 16, 2025
Jessica Williams
Chief Financial Officer
City of Denton
215 East McKinney Street
Denton, TX 76201
Dear Ms. Williams:
Gabriel, Roeder, Smith & Company (GRS) is pleased to present this report of an actuarial audit of the
December 31, 2023 Actuarial Valuation of the Denton Firemen's Relief and Retirement Fund (the
Fund). We are grateful to the City of Denton (the City) staff, DFRRF staff, and Rudd and Wisdom, Inc.,
the retained actuary, for their cooperation throughout the actuarial audit process.
This actuarial audit involves an independent verification and analysis of the assumptions, procedures,
methods, and conclusions used by the retained actuary for DFRRF, in the valuation of the Plan as of
December 31, 2023, to ensure that the conclusions are technically sound and conform to the
appropriate Standards of Practice as promulgated by the Actuarial Standards Board.
GRS is pleased to report to the City and DFRRF that, in our professional opinion, the December 31,
2023 Actuarial Valuation prepared by the retained actuary provides a fair and reasonable assessment
of the financial position of the Plan.
Throughout this report we make suggestions for ways to improve the work product. We hope that the
retained actuary,the City, and DFRRF find these items helpful. Thank you for the opportunity to work
on this assignment.
Mr. Bevins and Mr. White are Members of the American Academy of Actuaries and meet the
Qualification Standards of the American Academy of Actuaries to render the actuarial opinions
contained herein.
Respectfully submitted,
Gabriel, Roeder, Smith & Company
Thomas J. Bevins, ASA, MAAA Daniel J. White, FSA, MAAA, EA
Consultant Vice President
K:�3409 Denton Fire Audit�Report JDFRRF Actuarial Audit Report 2025.docx
Table of Contents
Page
Section A Executive Summary.......................................................................................................2
Section B General Actuarial Audit Procedure...............................................................................5
Section C Actuarial Assumptions ..................................................................................................9
Section D Actuarial Methods and Funding Policy.......................................................................18
Section E Actuarial Valuation Results.........................................................................................21
Section F Content of the Valuation Report ................................................................................24
SectionG Final Remarks..............................................................................................................27
4�w
Denton Firemen's Relief and Retirement Fund I
Report of an Actuarial Audit
SECTION A
EXECUTIVE SUMMARY
Executive Summary
The City of Denton ("the City") issued a Request for Proposal (RFP) for an Actuarial Audit of the Denton
Firemen's Relief and Retirement Fund (the Fund) and a peer review, including test lives, of the December
31, 2023 actuarial valuation performed by the retained actuary. The City selected Gabriel, Roeder, Smith
& Company (GRS) to perform the actuarial audit. The project commenced in February of 2025.
This Actuarial Audit includes the following:
• Comparison and reconciliation of census data provided by DFRRF and that used by the consulting
actuary for preparing the actuarial valuation.
• Review and analysis of the valuation results as well as a review of the mathematical calculations
for completeness and accuracy, based on a detailed review of a representative sample of the
current plan participants.
• Verification that all appropriate benefits have been valued and valued accurately.
• Evaluation of the actuarial cost method and the actuarial asset valuation method in use and
whether other methods may be more appropriate for DFRRF.
• Verification of the reasonableness of the calculation of the unfunded actuarial accrued liability
and the amortization period used under the actuarial cost method.
• Review of the demographic and economic actuarial assumptions for consistency, reasonableness
and compatibility. Such assumptions shall include, but are not limited to: mortality, retirement
and separation rates, levels of pay adjustments, rates of investment return, and disability factors.
• Assessment of the adherence to relevant Actuarial Standards of Practice (ASOPs) published by the
American Academy of Actuaries.
• Assessment of the adherence to the Texas Pension Review Board (PRB) Pension Funding
Guidelines.
This actuarial audit will satisfy the requirements of Section 802.1012 of the Texas Government Code
which requires an actuarial audit of public retirement systems in Texas with total assets of at least$100
million every five years.
Summary of Findings
Based on our review, the actuarial valuation, studies, and reports of the Plan are reasonable, used
appropriate assumptions and adhered to Actuarial Standards of Practice and Texas PRB Pension Funding
Guidelines. We offer the following recommendations based on the valuation methods and assumptions
used by the retained actuary in the December 31, 2023 actuarial valuation.
Actuarial Assumptions
• During the preparation of this actuarial audit, the retained actuary informed us that an actuarial
experience study was planned for later this year. Had this not come to light, this would have been
a primary recommendation. Thus, we recommend the retained actuary, the City, and the Fund
carry out and complete this project as planned. More specifically, we recommend formal analyses
C
$ Denton Firemen's Relief and Retirement Fund 2
Report of an Actuarial Audit
of demographic assumptions, including but not limited to: retirement rates, termination rates,
disability rates, individual salary increases, and mortality assumptions which include whether the
more current Pub-2016 mortality tables and mortality improvement assumptions are more
appropriate.
• When preparing the actuarial experience study, we recommend the retained actuary consider
extending the number of years for which Merit, Promotion, and Longevity increases apply (if
supported by the Plan's experience).
Actuarial Methods and Funding Policy
• No Recommendations.
Actuarial Valuation Results
• We believe that the valuation results were developed in a reasonable manner based on the
current application of the methods. No Recommendations.
Content of Valuation Report
• Beyond the investment return scenarios shown on p. 3, we recommend the retained actuary expand
its disclosures and risk metrics under the guidance of ASOP 51. As an example, this may include a
historical table of plan maturity metrics such as:
o the ratio of market value of assets to active participant payroll,
o the ratio of retired life actuarial accrued liability to total actuarial accrued liability
o the ratio of a cash flow measure (such as benefit payments, or contributions less benefit
payments) to market value of assets
o the ratio of benefit payments to contributions
o the duration of the actuarial accrued liability
• We recommend providing a reference to the origin of assumptions, whether it be to a formal
experience study, published table, or acquired from prior actuary.
• We recommend additional disclosures to the summary of Actuarial Methods and Assumptions (Exhibit
11) to include:
o Decrement timing
o Timing of individual salary increases
4�w
Denton Firemen's Relief and Retirement Fund 3
Report of an Actuarial Audit
SECTION B
GENERAL ACTUARIAL AUDIT PROCEDURE
General Actuarial Audit Procedure
At the commencement of this engagement, GRS requested the information necessary to thoroughly
review the work product of the retained actuary. Specifically, GRS received and reviewed the following
items:
• Actuarial valuation report as of December 31, 2023,
• The Fund's Investment Policy Statement, revised February 19, 2020,
• The Denton Firemen's Relief and Retirement Fund Plan, effective January 1, 2011
• Civil Service Fire Pay Plan, effective January 7, 2023,
• Civil Service Fire Pay Plan, effective February 6, 2024,
• DFRRF census data as of December 31, 2023,
• DFRRF Salary& Contributions from January 1, 2023 through December 31, 2023,
• Northern Trust Pension Benefit Payment Register, dated as of December 19, 2023, and
• Calculations from the retained actuary for a sampling of 22 plan participants as of December 31,
2023.
Note: GRS requested the most recent experience study. However, a formal experience study has yet
to be performed but is expected in 2025. The retained actuary provided an analysis of economic
assumptions in the valuation report, which was reviewed by GRS.
In performing our review, we:
• Reviewed the plan document to understand the benefits provided by the Plan,
• Reviewed the appropriateness of the actuarial assumptions,
• Reviewed the census data for basic demographic statistics (statuses, pay, benefits, payment
forms, etc.),
• Reviewed the actuarial reports/studies, and
• Reviewed the detailed liability calculation of the sample test lives to ensure that the calculations
were consistent with the stated plan provisions, actuarial methods and assumptions.
The entire review, which follows, is based on our review of this information and subsequent
correspondence with the City, DFRRF, and the retained actuary for clarification and further
documentation.
Key Actuarial Concepts
An actuarial valuation is a detailed statistical simulation of the future operation of a retirement plan using
the set of actuarial assumptions adopted by the plan sponsor. It is designed to simulate all of the
dynamics of such a retirement plan for each current participant of the plan, including:
• Accrual of future service,
• Changes in compensation,
• Leaving the plan through retirement, disability, withdrawal, or death, and
4�w
Denton Firemen's Relief and Retirement Fund 5
Report of an Actuarial Audit
• Determination of and payment of benefits from the plan.
This simulated dynamic is applied to each active participant of the plan. This simulation results in a set of
expected future benefit payments to that participant. Discounting those future payments for the
likelihood of survival and at the assumed rate of investment return, produces the Total Present Value of
Plan Benefits (TPV) for that participant. The actuarial cost method will allocate this TPV between the
participant's past service (actuarial accrued liability) and future service (future normal costs).
PRB Pension Funding Guidelines
During our actuarial audit of the Plan, we reviewed the actuarial valuation of the Plan from the
perspective of the Texas Pension Review Board's "Guidance for Developing a Funding Policy", as adopted
July 25, 2024.
Note: Although this document was adopted after the valuation date of the report being reviewed in this
audit, it was dated prior to the date of the valuation report of September 16, 2024. Furthermore, we
believe this version of the Funding Policy Guidance is most appropriate for prospective reports should any
changes to funding policies be recommended.
The Guidelines state that a funding policy should:
1. Adhere to Texas Government Code, Section 802.2011, which requires the governing board of a
Texas public retirement system and, if the system is not a statewide system, its sponsor to
jointly develop and adopt the same written funding policy and timely revise the policy to reflect
any significant changes, including those made because of a funding soundness restoration plan
(FSRP).
2. Strive to balance the following three primary funding goals: benefit security, contribution security,
and intergenerational equity.
3. Include clear and concrete funding objectives:
a. Must target a funded ratio of 100 percent or greater and be jointly developed and adopted
with the system's sponsor.
4. Select actuarial methods. The system's actuary should be involved in an advisory role.
a. At a minimum, the three actuarial methods that should be addressed are the actuarial cost
method, the asset-smoothing method, and the amortization policy.
5. Develop a roadmap to achieve funding objectives. A funding policy should provide a clear plan
detailing how the system's funding goals will be met. This may include:
a. Contribution rate structure
i. If an Actuarial Determined Contribution (ADC) structure is not used, the funding
policy should determine an ADC as a benchmark to monitor if actual contributions
will satisfy funding objectives.
b. Benefit and contribution change parameters.
c. Working with the Sponsor
d. Monitoring and evaluation
4�w
Denton Firemen's Relief and Retirement Fund 6
Report of an Actuarial Audit
6. Adopt actions that will be taken to address actual experience that diverges from assumptions. This
may include:
a. Risk sharing
b. Contributions
c. Benefits
d. Surplus Management
These key actuarial concepts will be discussed in more detail throughout this report.
4�w
Denton Firemen's Relief and Retirement Fund 7
Report of an Actuarial Audit
SECTION C
ACTUARIAL ASSUMPTIONS
Actuarial Assumptions
Overview
The actuarial valuation report contains a description of the actuarial assumptions which were used in the
actuarial valuation as of December 31, 2023. Within this report (Appendix A) the retained actuary
provides a Review of the Actuarial Economic Assumptions. Additionally, the retained actuary states in its
report: "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." During the preparation of this actuarial audit, the retained actuary
informed us that an actuarial experience study was planned for later this year. We have reviewed the
assumptions section of the valuation report and the analysis in Appendix A in detail in order to assess the
reasonableness of the assumptions used in the actuarial valuation.
The set of actuarial assumptions is one of the foundations upon which an actuarial valuation is based. An
actuarial valuation is, essentially, a statistical projection of the amount and timing of future benefits to be
paid under the retirement plan. In any statistical projection, assumptions as to future events will drive
the process. Actuarial valuations are no exception.
It is important to understand the nature of the retirement plan and the plan sponsor when assessing the
reasonableness of the actuarial assumptions. No projection of future events can be labeled as "correct"
or "incorrect". However, there is a "range of reasonableness" for each assumption. We evaluate
individual elements as follows:
• Whether or not they fall within the range of reasonableness, and
• If they fall within that range, whether they are reasonable for the actuarial valuation of the Plan.
Actuarial assumptions for the valuation of retirement plans are of two types: (i) demographic
assumptions, and (ii) economic assumptions. We have assessed the reasonableness of both types as part
of this actuarial audit.
Demographic Assumptions
General
These assumptions simulate the movement of participants into and out of plan coverage and between
status types. Key demographic assumptions are:
• turnover among active participants,
• retirement patterns among active participants, and
• healthy retiree mortality.
In addition, there are a number of other demographic assumptions with less substantial impact on the
results of the process, such as:
4��
Denton Firemen's Relief and Retirement Fund 9
Report of an Actuarial Audit
• disability incidence and mortality among disabled benefit recipients,
• mortality among active participants,
• distribution of form of payment selection, and
• percent of active participants who are married and the relationship of the ages of participants and
spouses.
Demographic assumptions for a retirement plan such as DFRRF are normally established by statistical
studies of recent actual experience, called experience studies. Such studies underlie the assumptions
used in the valuations. The measurement of experience is normally affected by simply counting
occurrences of an event. Thus, for example, in reviewing retirement patterns, an actuary might count the
number of actual retirees among males aged 55 with 30 years of service. These retirements would be
compared against the number of total people in that group to generate a raw rate of retirement for that
group.
Once it is determined whether or not an assumption needs adjustment, setting the new assumption
depends upon the extent to which the current experience is an indicator of the long-term future.
• Full credibility may be given to the current experience. Under this approach, the new assumptions
are set very close to recent experience.
• Alternatively,the recent experience might be given only partial credibility. Thus, the new
assumptions may be set by blending the recent experience with the prior assumption.
• If recent experience is believed to be atypical of the future, such knowledge is taken into account.
• Finally, it may be determined that the size of the plan does not provide a large enough sample to
make the data credible. In such cases, the experience of the plan may be disregarded and the
assumption is set based upon industry standards for similar groups.
Experience Study
Texas Government Code Section 802.1014 states: "a public retirement system that has assets of at least
$100 million shall conduct once every five years an actuarial experience study and shall submit to the
board a copy of the actuarial experience study before the 31st day after the date of the study's adoption."
The market value of assets of DFRRF has exceeded the $100 million threshold since the December 31,
2019 actuarial valuation (however the actuarial value of assets has only exceeded $100 million since the
December 31, 2021 actuarial valuation), and thus the Fund is currently subject to the requirements under
Sec. 802.1014.
Dating back to the December 31, 2017 actuarial valuation, the retained actuary has provided a Review of
the Actuarial Economic Assumptions in Appendix A of its valuation report. The analyses in Appendix A
have included a review of gross investment returns (and net of investment expenses), price inflation, and
administrative expenses. We believe this satisfies applicable Actuarial Standards of Practice and the
requirements outlined in Texas Government Code Section 802.1014.
Under Section B of Exhibit 11:Actuarial Methods and Assumptions of the December 31, 2023 actuarial
valuation report the retained actuary states: "We review the termination and retirement experience since
the prior valuation and periodically look back more than two years. We also periodically review the
4�w
Denton Firemen's Relief and Retirement Fund 10
Report of an Actuarial Audit
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." Although we believe the
retained actuary's periodic internal review of these assumptions satisfy applicable Actuarial Standards of
Practice, it is unclear if the requirements outlined in Texas Government Code Section 802.1014 have been
satisfied given there has not been a formal experience study report illustrating and/or describing
observed data regarding these and other demographic assumptions. Given the PRB's guidelines and
knowing that an experience study is expected to be prepared later this year,we recommend the
retained actuary,the City, and the Fund collaborate to carry out this project as planned.
Observations on Assumptions
We acknowledge that valuations performed on a biennial frequency pose a challenge from an actuary's
perspective in regard to measuring demographic gains and losses, as well as simply compiling sufficient
data (i.e. exposures, actual counts, and expected counts) necessary to perform experience studies, given
that rates used for demographic assumptions are on an annual basis. Thus, there are "gaps" that must be
filled in order to align actual outcomes with expected outcomes.
Overall, it appears that the current demographic assumptions are reasonable. However, we did notice
that several primary assumptions (specifically retirement rates, termination rates, disability rates, and
individual salary increases) have been unchanged since at least the December 31, 2015 actuarial
valuation. It is important to note that this does not imply these assumptions are not appropriate. This
does, however, reinforce our recommendation for the retained actuary to perform the formal
experience study as planned to ensure the continued appropriateness of these assumptions or
recommend adjustments as necessary.
Below, we offer general observations and considerations for the retained actuary based on our
experiences with similar plans.
Retirement—The current assumption contains rates that increase incrementally from 5%to 15%to 30%
to 50%from the ages of 50 to 64 with an ultimate rate of 100% at age 65. While this assumption is
completely reasonable, we have observed that public safety plans that allow for normal retirement at
relatively young ages (i.e. attainment of age 50 with 20 years of service for DFRRF) tend to have "spikes"
in retirement behavior at certain ages or eligibilities. For example, we may anticipate a spike at the
maximum RETRO DROP eligibility of age 56 and 26 years of service (assuming 20 years was attained by
age 50). We recommend this be observed and measured in the formal experience study.
Turnover—We believe the current termination rates follow a reasonable decreasing pattern. We have
observed that in firefighter plans that as new firefighters experience the physical and mental demands
and qualifications of the occupation, this often causes even higher turnover in the first two to three years,
but level off significantly once the employee has established themselves in the routine of the occupation
and purse a long-term career. Again, we recommend this be observed and measured in the formal
experience study.
Disability Incidence— In general,very little retirement plan experience exists in order to set a reasonable
assumption based on actual retirement plan experience. The current assumption is reasonable and within
4�w
Denton Firemen's Relief and Retirement Fund 11
Report of an Actuarial Audit
industry standards. This assumption is less material than others and we have no further comment
regarding this assumption.
Mortality—The main demographic assumption in an actuarial valuation is the rates of mortality because
this assumption is a predictor of how long pension payments will be made by the trust. The current
mortality assumption for active participants, healthy annuitants, and disabled annuitants is based on the
gender distinct Pub-2010 Safety Employees Mortality Tables with generational mortality improvements
using Scale MP-2019. We concur that the Pub-2010 Safety tables are appropriate tables. However,we
recommend the retained actuary consider using the disabled lives subset for current and future
disabled retirees and whether the more current Pub-2016 mortality tables and mortality improvement
assumptions developed by the Society of Actuaries are more appropriate when preparing the
experience study.
RETRO DROP Election —The current assumption is 100% of service retirements eligible to elect at least a
12-month lump sum and that participants will elect the maximum allowable months (up to 48 months).
Without historical statistics to confirm actual behavior, we believe this is an appropriate assumption.
Percent Married—We have confirmed the 90% married assumption at retirement reasonably aligns with
the distribution of forms of payment in the December 31, 2023 census data.
Economic Assumptions
General
These assumptions simulate the impact of economic forces on the amounts and values of future benefits.
Key economic assumptions are the assumed rate of investment return and assumed rates of future salary
increase. All economic assumptions are built upon an underlying inflation assumption.
Inflation
Inflation refers to mean price inflation as measured by annual increases in the Consumer Price Index (CPI).
This inflation assumption underlies most of the other economic assumptions. It primarily impacts
investment return and salary increases.
The current explicit inflation assumption is 2.50%. This inflation assumption has been in effect since at
least the December 31, 2015 actuarial valuation and was recommended to stay in effect based on analysis
shown in Appendix A of the December 31, 2023 valuation report.
In our review of the 2024 capital market assumption sets for the twelve investment consulting firms listed
on the next page,the average assumption for inflation was approximately 2.39%, with a range of 2.13%to
2.70%. It should be noted that all of these investment consulting firms set their assumptions based on
approximately a ten-year outlook, while actuaries generally must make longer projections.
G R S Denton Firemen's Relief and Retirement Fund 12
Report of an Actuarial Audit
In the Social Security Administration's 2024 Trustees Report, the Office of the Chief Actuary projected a
long-term average annual inflation rate of 2.4% under the intermediate cost assumption. (The low-cost
assumption was 3.0% and the high cost assumption was 1.8%).These inflation assumptions forecasts have
not materially changed for several years, as they were the same rates as in the corresponding reports
from 2020 through 2023.
The Philadelphia Federal Reserve conducts a quarterly survey of the Society of Professional Forecasters. In
their forecast immediately preceding the December 31, 2023 actuarial valuation, fourth quarter of 2023,
was for inflation over the next ten years to average 2.40%. Over the shorter term, the society of
Professional Forecasters are predicting inflation to average 2.5%and 2.3%for the calendar years 2024
and 2025, respectively.
We consider the 2.50% assumption to be within the reasonable range. However,given developments of
high inflation in recent years, we also recommend that the retained actuary continue to monitor this
assumption (which they appear to be doing annually) to ensure that it remains within a reasonable range.
Investment Return
The investment return assumption is one of the principal assumptions in any actuarial valuation of a
retirement plan. It is used to discount future expected benefit payments to the valuation date, in order to
determine the liabilities of the retirement plan. Even a small change to this assumption can produce
significant changes to the liabilities and contribution rates. The current assumption incorporates inflation
of 2.50% per annum plus an annual real rate of return of 4.25%, net of investment-related expenses paid
from the trust, for an assumed nominal rate of return of 6.75%.
We believe an appropriate approach to reviewing an investment return assumption is to determine the
median expected portfolio return given the retirement plan's target allocation and a given set of capital
market assumptions. Per the Plan's Investment Policy Statement, revised February 19, 2020, the Plan's
current target asset allocation is:
Asset Class Target% Range %
Domestic Large-Cap 40 25-50
Domestic Small & Mid-Cap 10 5-15
International Equity 10 5-15
Fixed Income 15 5-20
Cash and Equivalents 2 1-15
Alternative Investments 8 5-10
Real Estate 15 10-20
Because GRS is a benefit consulting firm and does not develop or maintain our own capital market
assumptions, we reviewed assumptions developed and published by the following investment consulting
firms:
• Aon • Meketa
• Black Rock • Mercer
• BNY Mellon • NEPC
4�w
Denton Firemen's Relief and Retirement Fund 13
Report of an Actuarial Audit
• Callan • Northern Trust
• Cambridge • Verus
• JP Morgan • Wilshire
These investment consulting firms periodically issue reports that describe their capital market
assumptions, that is, their estimates of expected returns, volatility, and correlations. While these
assumptions are developed based upon historical analysis, many of these firms also incorporate forward
looking adjustments to better reflect near-term expectations. The estimates for core investments (i.e.
fixed income, equities, and real estate) are generally based on anticipated returns produced by passive
index funds.
In addition to examining the expected geometric return, it is important to review anticipated volatility of
the investment portfolio and understand the range of long-term net return that could be expected to be
produced by the investment portfolio. Therefore, the following table provides the 401", 50t", and 60t"
percentiles of the 20-year geometric average of the expected nominal return, net of investment-related
expenses paid from the trust, as well as the probability of exceeding the current 6.75%assumption.
Capital Market Distribution of 20-Year Average Geometric Probability of
Assumption Net Nominal Return exceeding
Set(CMA) 40th 50th 60th 6.75%
(1) (2) (3) (4) (5)
1 4.20% 4.89% 5.58% 24.85%
2 4.65% 5.38% 6.11% 31.83%
3 5.24% 5.93% 6.63% 38.41%
4 5.55% 6.27% 6.99% 43.28%
5 5.89% 6.57% 7.26% 47.38%
6 6.04% 6.74% 7.44% 49.82%
7 6.07% 6.77% 7.48% 50.30%
8 6.09% 6.81% 7.54% 50.83%
9 6.34% 7.00% 7.66% 53.83%
10 6.41% 7.11% 7.82% 55.16%
11 6.56% 7.21% 7.86% 57.09%
12 6.72% 7.43% 8.13% 59.62%
Average 1 5.81% 6.51% 7.21% 46.9%
The table above shows that the resulting 20-year geometric average of the expected nominal return is
6.51%. Additionally, the table above documents that the average probability of exceeding the current
6.75% investment return assumption over a 20-year period is 46.9%. As an additional point of reference,
the average one-year arithmetic return of the 12 investment consultants was 7.23%. However, looking
back over previous years of capital market assumptions, the three-year average of arithmetic returns
from 2022 through 2024 is 6.80%. This illustrates how short-term outlooks can change significantly from
one year to the next.
The current investment return assumption falls within an appropriate range and we believe that the
assumption is reasonable for this purpose.
G R S Denton Firemen's Relief and Retirement Fund 14
Report of an Actuarial Audit
Earnings Progression
In general, assumed rates of pay increase are often constructed as the total of three main components:
• Price inflation —currently 2.50%
• Economic Productivity Increases—currently 0.50%
• Merit, Promotion, and Longevity—This portion of the salary increase assumption reflects
components such as promotional increases as well as increases for merit and longevity. This
portion of the assumption is not related to inflation. The current assumptions vary this
component based on the participant's years of service.
In the context of a typical employer pay scale, pay levels are set for various employment grades. In
general, this pay scale is adjusted as follows:
• The inflation and economic productivity assumptions, collectively referred to as wage inflation,
reflect the overall increases of the entire pay scale, and
• The Merit, Promotion, and Longevity increase assumption reflects movement of participants
through the pay scale.
Based on the building block approach outlined above, the earnings progression assumption is based on
the sum of the expected pay increases related to wage inflation plus a component for merit, promotion
and longevity.
We find that the current 3.00%wage inflation (2.50% price inflation plus 0.50% economic productivity) is
reasonable for this plan.
Currently, the Merit, Promotion, and Longevity increases (combined as a single rate), range from 6.00%
for the first five years, 3.00%for the next ten years, and 0%thereafter.These rates are compounded with
the 3.00%wage inflation assumption.
As previously noted in this audit report, there has been no formal experience study in which we can
validate actual data supporting this assumption. However, based on our experience with similar plans and
known pay scales, such as the "2024 Civil Service Pay Plan" provided by the Fund, we believe the current
assumption is within the range of reasonableness for the purpose of the intended measurements.
Nonetheless, we once again recommend a careful review of this assumption by the retained actuary in
the upcoming experience study. Below we offer some general comments the retained actuary may wish
to consider in their review.
The current assumption follows an incrementally decreasing pattern of salary increases over a person's
career. This is the standard for most plans and may well continue to be the most appropriate. However, in
our experience with a relatively homogenous workforce and a clearly defined hierarchy, an observation of
a mid-career pay spike from certain promotions may be relevant. In other words, how many firefighters
advance through the ranks and at what point in their career does that typically happen? Each promotion
4�w
Denton Firemen's Relief and Retirement Fund 15
Report of an Actuarial Audit
in title (i.e. Firefighter to Driver to Lieutenant to Fire Captain to Fire Battalion Chief, etc.) may come with a
significant pay increase. For example, moving from Step C (4+years) as Fire Captain to Step A of Fire
Battalion Chief comes with a 7.9% increase in pay. After how many years of service does this promotion
typically take place, what proportion of employees reach this promotion, and is it in alignment with the
Merit, Promotion, and Longevity increase assumptions?
In the current assumptions, the Merit, Promotion, and Longevity increases end after 15 years of service.
This essentially implies that no employees get promotions after 15 years of service. Does this align with
the timing of actual promotions indicated in the Civil Service Fire Pay Plan hierarchy? If not, we
recommend extending this component to greater than 15 years of service.
We find that when it comes to salary increases, a longer duration than the typical four to five years of
experience utilized in experience studies illustrates the economic cycle for compensation (e.g. eight to ten
years). Based on data provided during this audit, it appears the retained actuary has maintained an
extensive amount of historical pay.
In the upcoming experience study, we recommend that the retained actuary consider utilizing eight to ten
years of salary data to analyze compensation increases, as well as consider extending the number of years
for which Merit, Promotion, and Longevity increases apply.
Summary
The set of actuarial assumptions and methods, taken in combination, are within the range of
reasonableness and established in accordance with ASOP No. 27, Selection of Economic Assumptions for
Measuring Pension Obligations, ASOP No. 35, Selection of Demographic and Other Noneconomic
Assumptions for Measuring Pension Obligations, and the Texas PRB Guidelines for Actuarial Soundness.
We have the following recommendations regarding the actuarial assumptions:
(1) In the next experience study, we recommend the retained actuary consider using the disabled
lives subset for current and future disabled retirees and updating the mortality improvement table
to the most recent version of the MP tables.
(2) In the next experience study, we recommend the retained actuary consider that observations of
atypical patterns (i.e. other than strictly increasing or decreasing) for certain assumptions,
specifically retirement rates and salary increases, may be valid and appropriate to use.
(3) In the next experience study, we recommend the retained actuary utilize a longer duration of data
(eight to ten years) for the purpose of determining individual salary increases, as well as consider
extending the number of years for which Merit, Promotion, and Longevity increases apply.
4��
Denton Firemen's Relief and Retirement Fund 16
Report of an Actuarial Audit
SECTION D
ACTUARIAL METHODS AND FUNDING POLICY
Actuarial Methods and Funding Policy
Actuarial Cost Methods
General
The ultimate cost of the Plan is equal to the benefits paid plus the expenses related to operating the Plan.
This cost is funded through contributions to the Plan plus the investment return on accumulated
contributions which are not immediately needed to pay benefits or expenses. The level and timing of the
contributions needed to fund the ultimate cost are determined by the actuarial assumptions, plan
provisions, participant characteristics, investment experience, and the actuarial cost method.
An actuarial cost method is a mathematical process for allocating the dollar amount of the Total Present
Value of Plan Benefits (TPV) between future normal costs and the Actuarial Accrued Liability (AAL). The
retained actuary uses the Entry Age Normal actuarial cost method, characterized by:
(1) Normal Cost (NC) —the level percent of payroll contribution, paid from each participant's date of
hire to date of retirement, which will accumulate enough assets at retirement to fund the
participant's projected benefits from retirement to death.
(2) Actuarial Accrued Liability—the excess of the TPV over the present value of all future remaining
normal costs.
The Entry Age Normal actuarial cost method is the most prevalent funding method in the public sector. It
is appropriate for the public sector because it produces costs that remain relatively stable as a percentage
of payroll over time, resulting in intergenerational equity for taxpayers. Historically, most public plans
have used the Entry Age Normal actuarial cost method. Therefore, the retained actuary's stated methods
for allocating the liabilities of the Plan are certainly in line with national trends.
Comments on the Cost Method
We believe that the use of the Entry Age Normal actuarial cost method is reasonable in this situation.
Asset Valuation Method
Sharp short-term swings in market value can result in large fluctuations in the contributions required to
fund the Plan. Thus, many actuaries use an asset valuation method which smooths out these fluctuations
in support of achieving level contributions. A good asset valuation method places values on a retirement
plan's assets which are related to current market value but which will also produce a smoother pattern of
costs.
ASOP No. 44, Selection and Use of Asset Valuation Methods for Pension Valuations, provides a framework
for the determination of the actuarial value of assets (AVA) emphasizing that the method should bear a
reasonable relationship to the market value of assets (MVA), recognize investment gains and losses over
4��
Denton Firemen's Relief and Retirement Fund 18
Report of an Actuarial Audit
an appropriate time period, and avoid systematic bias that would overstate or understate the AVA in
comparison to MVA.
The actuarial valuation of the Plan currently utilizes a smoothed asset valuation method that immediately
recognizes income equal to the expected return on valuation assets, based on the assumed valuation
interest rate (6.75%). Differences between the assumed investment return on valuation assets and the
actual market investment return is recognized over a five-year period. Further, the AVA is constrained to
be within 90% and 110% of the MVA. This "corridor" assures that the AVA will always be within a
reasonable range around the MVA.
The smoothing method used for the actuarial valuation of the Plan is very common among public
employee retirement systems. We feel that this method complies with ASOP No. 44, Selection and Use of
Asset Valuation Methods for Pension Valuations. Additionally, this method is reasonable and
appropriately applied for the valuation.
Funding Policy
As stated in the retained actuary's December 31, 2023 valuation report, the City's funding policy for the
Denton Firefighter's Relief and Retirement Fund 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%."'
Although the ADCR is slightly above the 18.5%floor,the retained actuary assumes contributions of 18.5%
of pay for the purpose of determining the amortization period of the Unfunded Actuarially Accrued
Liability ("UAAL"). We believe this approach is reasonable and provides some conservatism for potential
adverse experience.
We believe the retained actuary's summary accurately describes the funding policy laid out in Article 12 of
the Meet and Confer Agreement approved September 19, 2023. Furthermore, we believe the funding
policy in Article 12 complies with the provisions of the Plan and the Texas PRB's Guidance for Developing
a Funding Policy. Additionally, on pages 1 and 2 of the valuation report, the retained actuary provides
sound reasoning to support the City maintaining a contribution no less than 18.5%.
4�w
Denton Firemen's Relief and Retirement Fund 19
Report of an Actuarial Audit
SECTION E
ACTUARIAL VALUATION RESULTS
Actuarial Valuation Results
Benefits
At its core, the actuarial valuation and the resulting funding policy contribution must properly reflect the
benefit structure of the retirement plan. We have reviewed both the Plan document and the retained
actuary's benefit summary and compared these to the individual sample calculations provided to us.
In general, the benefits promised by the Plan were reasonably incorporated in the actuarial valuation of
the Plan.
Actuarial Valuation Results
As part of our review, GRS requested sample participant test life calculations from the retained actuary to
ensure that the retained actuary valued the correct benefit levels, used the correct assumptions, and
calculated the liabilities correctly on an individual basis.
Generally accepted actuarial standards and practices provide actuaries with the basic mathematics and
framework for calculating the actuarial results. When it comes to applying those actuarial standards to
complex calculations, differences may exist due to individual opinion on the best way to make those
complex calculations. This may lead to differences in the calculated results, but these differences should
not be material.
Active Participants. At the onset of the review, we requested that the retained actuary provide sample
test life calculations for 10 active participants. The retained actuary provided the information we
requested regarding the active participants with sufficient detail to allow for a thorough review of the
calculations.
Based on our review of the aspects of the actuarial valuation, the liability determination of active
participants was reasonable and appropriately determined.
Participants with deferred benefits. At the onset of the review, we requested that the retained actuary
provide sample test life calculations for two deferred vested participants waiting to commence their
retirement benefits, including two disabled deferred.The retained actuary provided the information we
requested regarding these participants with deferred benefits with sufficient detail to allow for a
thorough review of the calculations.
Based on our review, the liability determination of these participants was reasonable and consistent with
the stated assumptions and methods.
Annuitants. At the onset of the review, we requested that the retained actuary provide sample test life
calculations for 10 annuitants. The retained actuary provided the information we requested regarding the
annuitants with sufficient detail to allow for a thorough review of the calculations.
4�w
Denton Firemen's Relief and Retirement Fund 21
Report of an Actuarial Audit
Based on our review, the liability determination of annuitants was reasonable and consistent with the
stated assumptions and methods.
Summary
Besides the comments made in Section C of this report, we believe that the valuation results are
developed in a reasonable manner.
4�w
Denton Firemen's Relief and Retirement Fund 22
Report of an Actuarial Audit
SECTION F
CONTENT OF THE VALUATION REPORT
Content of the Valuation Report
ASOP No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions, and
ASOP No. 41,Actuarial Communications, provide guidance for measuring pension obligations and
communicating the results. The Standards list specific elements to be included, either directly or by
references to prior communication, in pension actuarial communications. The pertinent items that should
be included in actuarial valuation report on a pension plan should include:
A. The name of the person and/or firm retaining the actuary and the purposes that the
communication is intended to serve.
B. A statement as to the effective date of the calculations, the date as of which the participant
and financial information were compiled, and the sources and adequacy of such information.
C. An outline of the benefits being discussed or valued and of any significant benefits not
included in the actuarial determinations.
D. A summary of the participant information, separated into significant categories such as active,
retired, and terminated with future benefits payable. Actuaries are encouraged to include a
detailed display of the characteristics of each category and reconciliation with prior reported
data.
E. A description of the actuarial assumptions, cost method and the asset valuation method used.
Changes in assumptions and methods from those used in previous communications should be
stated and their effects noted. If the actuary expects that the long-term trend of costs
resulting from the continued use of present assumptions and methods would result in a
significantly increased or decreased cost basis, this should also be communicated.
F. A summary of asset information and derivation of the actuarial value of assets. Actuaries are
encouraged to include an asset summary by category of investment and reconciliation with
prior reported assets showing total contributions, benefits, investment return, and any other
reconciliation items.
G. A statement of the findings, conclusions, or recommendations necessary to satisfy the
purpose of the communication and a summary of the actuarial determinations upon which
these are based. The communication should include applicable actuarial information
regarding financial reporting. Actuaries are encouraged to include derivation of the items
underlying these actuarial determinations.
H. A disclosure of any facts which, if not disclosed, might reasonably be expected to lead to an
incomplete understanding of the communication.
Also, recently added to ASOP No. 4 is guidance for the actuary to calculate a Low-Default-Risk Obligation
Measure ("LDROM"). This measurement is similar to the Actuarial Accrued Liability, but using a discount
rate based on "low-default-risk fixed income securities whose cash flows are reasonably consistent with
the pattern of benefits expected to be paid in the future."The retained actuary has included this measure
in Appendix B. We believe the retained actuary used an appropriate discount rate and properly disclosed
its source, satisfying this requirement in ASOP No.4.
4�v
Denton Firemen's Relief and Retirement Fund 24
Report of an Actuarial Audit
Regarding Items B. (outline of Plan benefits) and E. (describing assumptions and methods) above, we offer
the following minor suggestions to the retained actuary to enhance completeness and clarity:
• Include a disclosure of decrement timing
• Include a disclosure of the timing of individual salary increases
ASOP No. 51,Assessment and Disclosure of Risk Associated with Measuring Pension Obligations and
Determining Pension Plan Contributions, supplements the guidance in the aforementioned ASOP Nos. 4,
27, 35, and 44. ASOP No. 51 provides several examples of methods to assess risk that may include, but
are not limited to "scenario tests, sensitivity tests, stochastic modeling, stress tests, and a comparison of
an actuarial present value using a discount rate derived from minimal-risk investments to a corresponding
actuarial present value from the funding valuation".
On page 3 of the valuation report the retained actuary provides scenarios of variation in the investment
returns over the short term and the impact on the UAAL amortization period. Throughout the Valuation
Summary discussion in Section 1 of the valuation report, the retained actuary provides additional
language that satisfies ASOP No. 51.
Section 3.7 of ASOP No. 51 provides guidance for the actuary to calculate and disclose plan maturity
measures. Examples include:
• the ratio of market value of assets to active participant payroll;
• the ratio of retired life actuarial accrued liability to total actuarial accrued liability;
• the ratio of a cash flow measure (such as benefit payments, or contributions less benefit
payments) to market value of assets;
• the ratio of benefit payments to contributions; and
• the duration of the actuarial accrued liability.
We recommend the retained actuary include in its report a historical table of some or all the measures
above to help stakeholders identify risk trends overtime.
Summary
In general, the actuarial valuation report complied with the applicable Actuarial Standards of Practice.
The presentation of actuarial methods and assumptions is generally complete and understandable. The
methods described in this section are reasonable and appropriate for public retirement plans. We
recommend the retained actuary clarify a few assumption details and expand its disclosure under the
guidance of ASOP No 51, as noted above.
4��
Denton Firemen's Relief and Retirement Fund 25
Report of an Actuarial Audit
SECTION G
FINAL REMARKS
Final Remarks
The auditing actuarial firm, Gabriel, Roeder, Smith & Company (GRS), is independent of the DFRRF, the
plan sponsor (the City), and retained actuarial firm. The auditing actuaries are not aware of any conflict of
interest that would impair the objectivity of this work.
We have presented a few suggestions for areas where we believe the product can be improved and we
hope that DFRRF, the plan sponsor, and the retained actuary find these suggestions useful. The retained
actuary has access to information and an extensive history of experience with DFRRF. We understand
that the retained actuary may agree with some of our recommendations, while rejecting others. We ask
that the retained actuary and DFRRF consider our recommendations carefully.
VGR S Denton Firemen's Relief and Retirement Fund 27
Report of an Actuarial Audit
W. Lee Bello,A.S.A. Xiuyu Li,A.C.A.S.
Mitchell L. Bilbe, F.S.A. Edward A. Mire, F.S.A.
Evan L. Dial, F.S.A. Rebecca B. Morris,A.S.A.
Philip S. Dial, F.S.A. RAW, Amanda L. Murphy, F.S.A.
Charles V. Faerber, F.S.A.,A.C.A.S. Michael J. Muth, F.S.A.
Mark R. Fenlaw, F.S.A. Rudd and Wisdom, Inc. hiem Ngo, F.S.A.,A.C.A.S.
u a som
Brandon L. Fuller, F.S.A. C• Timothy B.Seifert, F.S.A.
Christopher S.Johnson, F.S.A. Consulting Actuaries Raymond W.Tilotta
Oliver B. Kiel, F.S.A. Ronald W.Tobleman, F.S.A.
Dustin J. Kim, F.S.A. David G.Wilkes, F.S.A.
June 13, 2025
Mr. Thomas J. Bevins
Gabriel, Roeder, Smith & Company (GRS)
5605 North MacArthur Blvd., Suite 870
Irving, TX 75038
Re: Response to the Preliminary Report of the
Actuarial Audit of the December 31, 2023
Actuarial Valuation of the Denton FRRF
Dear Mr. Bevins:
The City of Denton engaged your firm, Gabriel, Roeder, Smith & Company (GRS), to conduct
an actuarial audit of the December 31, 2023 actuarial valuation we performed for the Denton
Firemen's Relief and Retirement Fund (Fund or DFRRF). We received your May 16, 2025
preliminary report of the actuarial audit. The state law requiring actuarial audits of public
employee pension plans gives the Fund Board of Trustees the opportunity to make written
comments in response to your preliminary audit report. The Board has asked us to prepare
the comments below on its behalf for inclusion in your final report to the City.
We are pleased with the results of your actuarial audit. For the City of Denton and the Fund
Board of Trustees, the key statement in your preliminary report is this sentence of the cover
letter:
"GRS is pleased to report to the City and DFRRF that, in our professional
opinion, the December 31, 2023 Actuarial Valuation prepared by the retained
actuary provides a fair and reasonable assessment of the financial position of
the Plan."
You made several recommendations in the Executive Summary, each of which is repeated
below, with our response immediately following.
Actuarial Experience Study
"During the preparation of this actuarial audit, the retained actuary informed us
that an actuarial experience study was planned for later this year. Had this not
come to light, this would have been a primary recommendation. Thus, we
recommend the retained actuary, the City, and the Fund carry out and complete
this project as planned. More specifically, we recommend formal analyses of
demographic assumptions, including but not limited to: retirement rates,
termination rates, disability rates, individual salary increases, and mortality
assumptions which include whether the more current Pub-2016 mortality tables
and mortality improvement assumptions are more appropriate."
9500 Arboretum Blvd.,Suite 200 www.ruddwisdom.com Phone: (512)346-1590
Austin,Texas 78759 Fax: (512)345-7437
Mr. Thomas J. Bevins
Page 2
June 13, 2025
We completed the actuarial experience study project for the Fund on May 30. It included
analysis of all the demographic assumptions recommended above. In addition, we
recommended the PubS-2016 mortality tables and the most recent mortality improvement
projection scale (MP-2021) for the December 31, 2025 actuarial valuation.
Compensation Increases
"When preparing the actuarial experience study, we recommend the retained
actuary consider extending the number of years for which Merit, Promotion,
and Longevity increases apply (if supported by the Plan's experience)."
In the actuarial experience study, we recommended assumed annual compensation
increases for promotion, step, and longevity pay increases for the first 25 years of service.
The prior assumption only assumed such increases for the first 15 years.
Content of Valuation Report
"Beyond the investment return scenarios on p. 3, we recommend the retained
actuary expand its disclosures and risk metrics under the guidance of ASOP
51."
"We recommend providing a reference to the origin of assumptions, whether it
be to a formal experience study, published table, or acquired from prior
actuary."
"We recommend additional disclosures to the summary of Actuarial Methods
and Assumptions (Exhibit 11) to include decrement timing and timing of
individual salary increases."
We are planning to implement these recommended additions to the Fund's biennial actuarial
valuation reports beginning with the December 31, 2025 actuarial valuation.
Please let us know if you have any questions about these responses.
We appreciate the professional manner in which you have conducted this actuarial audit and
your communications with Rudd and Wisdom.
Sincerely,
Mark R. Fenlaw, F.S.A.
"64-�8. mamt�
Rebecca B. Morris, A.S.A.
MRF/RBM:nIg
cc: Mr. Gerald Friend, Chairman, Fund Board of Trustees
Ms. Jessica Williams, Chief Financial Officer, City of Denton
hclients\fi re\wd\2025\denton\aud it-response.docx