19-609AN ORDINANCE OF THE CITY OF DENTON, TEXAS APPROVING THE DENTON
FIREMEN'S RELIEF AND RETIRMENT FUND ACTUARIAL VALUATION AS OF
SECEMBER 31, 2017; AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, the City of Denton participates in the Texas Municipal Retirement System
?,nd the Denton Firemen's Relief and Retirement Fund pension plans; and
WHEREAS, the Denton Firemen's Relief and Retirement Fund covers firefighters in the
Denton Fire Department, and the Texas Municipal Retirement System covers all other city of
Denton employees with the exception of temporary positions; and
WHEREAS, due to actuarial issues the City increased its contribution rate to the plan over
time, which provided no increase in benefits and instead reduced liabilities and improved the
overall health of the plan; and
WHEREAS, due to the increases in the Texas Municipal Retirement System contribution
rate, the Denton Firemen's Relief and Retirement Fund requested the same contribution rate; and
WHEREAS, in 2010 the City agreed to increase the Denton Firemen's Relief and
Retirement Fund through the meet and confer process; and
WHEREAS, due to changes in the demographic and investment climate, the Denton
Firemen's Relief and Retirement Fund needed to be decoupled from the Texas Municipal
Ketirement System contribution rate; and
WHEREAS, as a result of changing demographic and investment factors, the Denton
Firemen's Relief and Retirement Fund, the City of Denton, and the Denton Firefighter's
Association entered into an agreement in 2017 intended to achieve a 100% funding ratio over a
closed 25 year amortization period; and
WHEREAS, the 2017 agreement also required the Denton Firemen's Relief and
Retirement Fund to conduct an actuarial analpsis everp two pears and the Cit Council has the
opportunity to approve each actuarial report; and
WHEREAS, the overall results of the Denton Firemen's Relief and Retirement Fund
Actuarial Valuation as of December 31, 2017 (the "Actuarial Valuation") are very positive, the
funded ratio has improved from 80.8% to 82.1%, and the amortization period has been reduced
from 31.6 to 14.6 years; and
WHEREAS, the Actuarial Valuation and the contribution level determined in the Actuarial
Valuation are reasonable; and
WHEREAS, despite the health of the fund, staff is recommending that the Denton
Firemen's Relief and Retirement Fund contribution be maintained because this is the first year of
the new funding methodology, funds are currently budgeted for this purpose, keeping the
contribution rate level will continue to improve the overall health of the fund, and will allow
flexibility to address turnover and retention issues with public safety dispatch employees; NOW
THEREFORE,
THE CITY COUNCIL OF THE CITY OF DENTON HEREBY ORDAINS:
SECTION 1. The findings and recitations contained in the preamble of this ordinance are
incorporated herein by reference.
SECTION 2. The City Council and the City of Denton hereby approves the Denton
Firemen's Relief and Retirement Fund Actuarial Valuation as of December 31, 2017 attached to
this ordinance and incorporated herein for all purposes.
SECTION 3. This ordinance shall become effective immediately upon its passage and
approval.
The motion to approve t1iis oi-dinance was made by m � J �. � �44, and
seconded by ,the ordinance wasp sed and approved by
the following vote
Aye Nay
Mayor Chris Watts:
Gerard Hudspeth, District 1:
Keely Briggs, District 2:
Don Duff, District 3:
John Ryan, District 4:
Deb Armintor, At Large Place 5:
Paul Meltzer, At Large Place 6:
PASSED AND APPI OVFID this die
ATTEST:
ROSA RIOS, CITY S
BY: ;
APPROVED AS TO LEGAL FORM:
AARON LEAL, CITY ATTORNEY
Abstain Absent
CHRIS WATTS, MAYOR
Denton Firem.en's
Relief and Retirement Fund
Actuarial. Valuation
as of �December 31, 2017
December 14, 2018
Rudd and Wisdom, Inc.
CONSULTING ACTUARIES
Mitchell L. Bilbe, F.S.A.
Evan L. Dial, F.S.A.
Philip S. Dial, F.S.A.
Philip J. Ellis, A.S.A.
Charles V. Faerber, F.S.A., A.C.A.S.
Mark R. Fenlaw, F.S.A.
Brandon L. Fuller, F.S.A.
Board of Trustees
Denton Firemen's Relief
and Retirement Fund
P.O. Box 2375
Denton, Texas 76202
Members of the Board of Trustees:
Shannon R. Hatfield, A.S.A.
Christopher S. Johnson, F.S.A.
Oliver B. Kiel, F.S.A.
Dustin J. Kim, A.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, A.S.A.
Chelsea E. Stewart, A.S.A.
Raymond W. Tilotta
Ronald W. Tobleman, F.S.A.
David G. Wilkes, F.S.A.
December 14, 2018
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,
2017. 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 20, 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, 2017. Similarly, we will provide a separate report later in December
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, 2018. GASB 68 prescribes
the city's accounting for your fund, while this actuarial valuation report reflects the assumed
continuation of the current funding policy, 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,
V".X �L. Mark R. R. Fenlaw, F.S.A.
"0-04 . ma�
Rebecca B. Morris, A.S.A.
i:Aclients\fireAwd\vals\2018\denton\denton-12-31-17.docx
9500 Arboretum Blvd., Suite 200 www.ruddwisdom.com Phone: (512) 346-1590
Austin, Texas 78759 Fax: (512) 345-7437
DECV'll'ON RlREi0.UEN'aw 11uri:hIR AL °VhL,0.'h'll'aON
A N' ) Rt 'ra]Ct]@ NIENT F vN D AS OF D C1[;NIBE R 31, 2017
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TABLE OF CONTENTS
SectionI Valuation Summary................................................................................... I
Section II Key Results of the Actuarial Valuation ................................................... 8
SectionIII Benefit Improvements.............................................................................10
Exhibit 1 Distribution of Firefighters by Age and Service...................................11
Exhibit 2 Summary of Pensioner Data...................................................................12
Exhibit 2A Firefighter and Pensioner Reconciliation..............................................13
Exhibit 3 Breakdown of Pensioners by Monthly Benefit Amounts .....................14
Exhibit 4 Historical Comparison of Actuarial Accrued Liability and
ActuarialValue of Assets........................................................................15
Exhibit 5 Summary of Asset Data...........................................................................16
Exhibit 5A Statement of Changes in Assets..............................................................17
Exhibit 6 Development of Actuarial Value of Assets............................................18
Exhibit 7 Historical Comparison of Market and Actuarial Value of
Assets.........................................................................................................19
Exhibit 8 Comparison of Market Value Asset Allocation as of the
Prior and Current Actuarial Valuation Dates ...................................... 20
Exhibit 9 Actuarial Methods and Assumptions..................................................... 21
Exhibit 10 Disability Rates, Withdrawal Rates, and Compensation
Increases.................................................................................................... 25
Exhibit11 Definitions................................................................................................. 26
Exhibit 12 Summary of Present Plan........................................................................28
Appendix A Review of the Actuarial Economic Assumptions .................................. 30
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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, 2017 has been completed. The valuation was based
on the Present Plan (plan effective January 1, 2011) and the provisions of the Texas Local
Fire Fighters' Retirement Act (TLFFRA) which were in effect on December 31, 2017.
Section II shows the summary of key results of the actuarial valuation as of December 31,
2017 and discusses the significant changes since the prior valuation that we prepared as of
December 31, 2015.
The most significant change since the December 31, 2015 actuarial valuation is the city's
new funding policy for the fund, which is now a modified actuarially determined
contribution rate (ADCR) funding policy. Under that policy adopted in December 2017,
the city's initial contribution rate was set at 18.5% and is to be re-evaluated following every
actuarial valuation. While the funding policy has the intent of paying off the unfunded
actuarial accrued liability (UAAL) over a closed 25-year period, the language implies that
the rate should stay at 18.5% early in the amortization process, even if the ADCR is less
than 18.5%, in order to pay down the UAAL. However, the language of the policy can
also be interpreted to result in a minimum rate of 17.18% equal to the TMRS 2019
contribution rate. A key requirement of the language is also city approval of any change
to the contribution level. Based on input from the board at your December 11 meeting
and from Mr. Bryan Langley, Deputy City Manager, we recommend to the city the
continuation of the 18.5% contribution rate until the next biennial actuarial
valuation.
There are several reasons that support the city planning to keep its contribution rate at
18.5%:
• The 2018 plan year is the first year in which the city has contributed 18.5%.
• It is the budgeted rate currently, and rate stability over multiple budgets is desirable
for budget planning.
• It would accelerate both the amortization of the UAAL and the expected increase in
the funded ratio.
• It would hedge against potential future adverse experience, such as the investment
experience in 2018 so far, or a change in assumption, such as a new mortality
assumption that projects longer lifetimes, reducing the possibility of a rate increase
in future years.
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It would better position the fund to provide an ad hoc increase in the monthly benefit
for retirees at some future date, perhaps as soon as in two years, without a rate
increase.
The city should be contributing more to the retirement plan for firefighters than to the
retirement plan for other city employees (TMRS) for three additional reasons. First is that
firefighters have much lower turnover than other city employees. So, a higher percent of
newly hired firefighters will ultimately qualify for a retirement benefit than will newly
hired other city employees. As a result, the cost of firefighter retirement benefits is higher
than the cost of comparable retirement benefits for other city employees. A second reason
for a higher contribution rate is that firefighters tend to retire at earlier ages than other city
employees because of the physical demands of the job. This also increases the cost of
firefighter retirement benefits compared to the cost for other city employees because of a
longer period for benefits to be paid. The third reason is that retirees in TMRS have for
years been getting annual automatic increases in their monthly benefit based on 70% of the
CPI while the retired firefighters get only periodic ad hoc increases, with the most recent a
2% increase in 2008. The recommended 18.5% contribution rate exceeds the TMRS rate
in recent years and in 2019 by only a little over 1% of payroll. The firefighters understand
their higher cost and contribute 12.6% of their pay to the fund while the other city
employees contribute only 7% to TMRS.
Because of the modified nature of the funding policy, we have actuarially determined the
amortization period assuming the hypothetical continuation of the city contributing 18.5%.
With the assumed continuous future 18.5% city contribution rate, the valuation reflects a
total contribution rate 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 21.77%, leaving
9.33% available to amortize the UAAL of $18,435,302. Assuming that the total payroll
increases at the rate of 3% per year in the future, the contributions in excess of the normal
cost will amortize the UAAL in 14.6 years.
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 10 years
to 25 years 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 less than 15 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.
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Projected Actuarial Valuation Results
In addition to completing this actuarial valuation, we estimated the amortization periods as
of December 31, 2019 and as of December 31, 2021 by making projections from the
December 31, 2017 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 (losses in 2014 and 2015
and gains in 2016 and 2017) that have been only partially recognized as of December 31,
2017. As shown in Exhibit 6, 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 2014-2017 that the
fund experienced. The AVA used in this valuation is $84,410,626. The market value of
assets (MVA) is $85,388,283. The $977,657 difference between the MVA and the AVA
is the net of the deferred gains and losses over the past four years that will be recognized
in the next two actuarial valuations.
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 7.
For the purpose of projecting the amortization period through 2021 we used six scenarios
of various assumed annual rates of investment return, net of investment -related expenses,
over the 2018-2021 projection period. The projected amortization periods will not be the
same as the actual amortization periods from completed future actuarial valuations but are
the result of projected future actuarial valuation results based on the completed December
31, 2017 actuarial valuation. 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, 2017, and
(2) of investment returns over the next four years different from the 6.75% assumption
used in this valuation.
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Scenario
1
2
3
4
5
6
Assumed Investment Return
for Calendar Year
2018
6.75%
0.00%
0.00%
0.00%
-4.00%
-4.00%
2019
6.75
10.00
6.75
0.00
0.00
0.00
2020
6.75
10.00
6.75
10.00
10.00
4.00
2021
6.75
10.00
6.75
10.00
10.00
10.00
2022 and later
6.75
6.75
6.75
6.75
6.75
6.75
Amortization Period in Years
as of December 31:
2017 (actual)
14.6
14.6
14.6
14.6
14.6
14.6
2019 (projected)
13.4
15.5
16.1
17.3
19.1
19.1
2021(projected)
9.6
10.9
14.6
16.9
20.6
23.5
The projected future December 31, 2019 valuation in Scenario 1 reveals that instead of
decreasing by the expected two years from 14.6 years to 12.6 years, the amortization period
is projected to decrease to only 13.4 years. The decrease two years after that is 3.8 years
to 9.6 years. The pattern of these changes is due to the timing and magnitude of the
significant loss from 2015 that will be recognized sooner than the good gains from 2016
and 2017.
One of the characteristics of a relatively well -funded plan like yours is that the amortization
period is sensitive to investment gains and losses. For example, Scenario 3 is the same as
Scenario 1 except for a projected rate of return of 0% for calendar year 2018. The one
adverse year, without any investment gains or losses in the next three years, would result
in a projected amortization period of 14.6 years as of December 31, 2021, which is 5.0
years greater than the projected amortization period of 9.6 years in Scenario 1.
We do not know what the investment experience will be for each of the next four calendar
years. However, these scenarios show the sensitivity of the UAAL amortization period in
the next two biennial actuarial valuations with an assumed continuation of the 18.5%
contribution rate. 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. In addition, the future investment experience in each of the next
four years could be better or worse than the assumed rates shown. These scenarios present
a range of plausible scenarios for the next two valuations assuming no changes in benefits.
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
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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, 2015 actuarial valuation. Exhibit 1 is a distribution of the active
firefighters by age and service. We included all the dispatchers that were participants as
of December 31, 2017. The salaries used for projecting future contributions and benefits
in the valuation were based on the actual pay for the 2017 calendar year, adjusted by 3%
to reflect the net effect of the variable pay increases effective in April 2017 and April 2018.
The total of these salaries is our assumed annualized covered payroll for the plan year
beginning January 1, 2018 and is used in the valuation to determine the UAAL
amortization period. The averages of the assumed salaries for the 2018 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 December 2017. Exhibit 2A is a reconciliation
of firefighters and pensioners from December 31, 2015 to December 31, 2017. Exhibit 3
shows a breakdown of the dollar amount of the monthly benefits for retirees and surviving
spouses. Exhibit 4 shows a historical comparison of the actuarial accrued liability and the
actuarial value of assets.
The summary of assets contained in Exhibit 5 is based on the December 31, 2017 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, 2015 and December 31, 2017. Exhibit 5A contains the statement of changes
in assets for 2017 and 2016. Exhibit 6 shows the development of the actuarial value of
assets. Exhibit 7 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, 2015 and December 31, 2017 is shown in Exhibit 8.
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 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 plus 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;
4. RP-2000 Combined Healthy Mortality Tables projected to 2024; and
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Because the city contribution policy changed since the prior valuation, our assumption and
methodology regarding the city contribution has changed. With the prior funding policy,
the city contributed to this fund the same rate of payroll contributed for the city's other
employees under the Texas Municipal Retirement System (TMRS). In the December 31,
2015 valuation, we assumed that the average of these future contributions would be 15.5%.
In December 2017, the city adopted a modified actuarially determined contribution rate
policy described more fully in the below section entitled "Actuarially Determined
Contribution Rate for the City." For this actuarial valuation as of December 31, 2017, we
assumed a stable future contribution rate of 18.5% to solve for a resulting amortization
period.
The effect of this change in assumption to 18.5% on the UAAL amortization period is
identified in Section II. A summary of all the assumptions and methods used in the
valuation is shown in Exhibits 9 and 10. 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. The assumptions represent a reasonable estimate of anticipated
experience of the fund over the long-term future.
Other Supporting Exhibits
Exhibit 11 contains definitions of terms used in this actuarial valuation report. Exhibit 12
summarizes the plan provisions of the Present Plan.
Actuarially Determined Contribution Rate for the City
After negotiations among representatives from the city manager's office, the board of
trustees, and the Denton Fire Fighters Association (the Association), an agreement was
reached to amend the Meet and Confer agreement between the city and the Association.
Final approval by the city council occurred in December 2017. The amendment changed
the city's funding policy for the fund from matching its contribution rate to its plan in
TMRS for the city's other employees to a modified actuarially determined contribution rate
(ADCR) policy summarized below.
• The new funding policy is intended to fully pay off the UAAL over a closed 25-year
amortization period.
• 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
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• However, the contribution rate will not be lower than the initial 18.5% until the
amortization period is 20 years or less.
• 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;
• 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 is typically outside the scope of an actuarial valuation
for funding purposes. However, we provided projected amortization periods for the next
two biennial actuarial valuations under six scenarios. 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.
7A" 12. 4t4ja,-
Mark R. Fenlaw
Fellow, Society of Actuaries
Member, American Academy of Actuaries
" 64,*E - mnlue
Rebecca B. Morris
Associate, Society of Actuaries
Member, American Academy of Actuaries
MIM) AND WaawDONB, !NC. PAGJ,: 7
DENTON RREMIEN's
Auri:AWAL VALAWHON
A ND Rt, r tRE N 1E N1, F i:N D
AS OF DECENIBER31,2017
Section 11
Key Results of the Actuarial
Valuation
December 31,
December 31,
20151
2017
1 Actuarial present value of future benefits
a. Those now receiving benefits or former
firefighters entitled to receive benefits
39,149,449
39,792,196
b. Firefighters
89,097,935
106,446,377
C. Total
128,247,384
146,238,573
2. Actuarial present value of future normal cost
contributions
38,304,699
43,392,645
3. Actuarial accrued liability (Item lc — Item 2)
89,942,685
102,845,928
4. Actuarial value of assets
72,693,078
84,410,626
5. Unfunded actuarial accrued liability
(UAAL) (Item 3 - Item 4)
17,249,607
18,435,302
6. Contributions (percent of pay)
a. Firefighters
12.60%
12.60%
b. City of Denton 2
15.50%
18.50%
C. Total
28.10%
31.10%
7. Normal cost (percent of payroll)
21.91%
21.77%
8. Percent of payroll available to amortize the UAAL
(Item 6c - Item 7)
6.19%
9.33%
9. Annualized covered payroll
14,965,362
17,624,493
10. Present annual amount available to amortize the
UAAL (Item 8 x Item 9)
926,356
1,644,365
11. Actuarially determined period to amortize the UAAL
based on Item 6b
31.6 years
14.6 years
12. Funded ratio (Item 4 - Item 3)'
80.8%
82.1%
1 All items are from the December 31, 2015 actuarial valuation and reflect the
Present Plan.
2 For the December 31, 2015 valuation, the 15.5% city contribution rate was an
assumed average of the future TMRS rate based on the
city's prior funding policy. For the December 31, 2017 valuation, the 18.5%
is the initial rate in the
new 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 13 would have resulted
in funded ratios of 75.6% as of December 31, 2015 and 83.0% as of December
31, 2017.
MIM) AND W PDONI, !NC. PAGJ,8
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Change 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, 2015, to be 31.6 years. Since two years have passed
since that valuation date, a 29.6-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 methods or funding
policy had been made. The amortization period is now 14.6 years based on the same plan
provisions. The actual experience occurring between December 31, 2015 and December
31, 2017 differed from the expected experience, and in combination with the change in the
assumed city contribution rate due to its new funding policy, the resulting amortization
period is 14.6 years, which is 15.0 years less than the expected 29.6-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 2016 and 2017 was 10.8%.
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 2015 and 2016 was 6.6% compared to the assumed rate of return for those years
of 6.75%. This caused an increase in the amortization period of 0.6 of a year.
2. The aggregate payroll increased at an average rate of 8.5% per year, compared to the
assumed 3% per year rate, which caused the amortization period to decrease by 5.0
years.
3. The gain from city contributions above the assumed long-term average of 15.5% in
2016 (17.41%) and 2017 (17.52%) decreased the amortization period by 1.5 years.
4. The net result of all experience other than the investment experience, the aggregate
payroll experience, and the city contribution rate experience had the combined effect
of increasing the amortization period by 1.9 years. This was primarily the result of
greater -than -expected pay increases in the last two years.
5. The change in the city contribution rate from an assumed average of 15.5% (based on
the prior policy of matching the TMRS rate) to 18.5% (based on a hypothetical scenario
with a stable 18.5% rate) had the effect of decreasing the amortization period by 11.0
years.
DO?Tw'TON RIDCtO?NUEN'aw AB"'ri:AAWAL VAALA 1'HO N
ANll) Rid ,'OIREi0.QH?NT FvND AS OF D CENI BI[?Ih" 31, 2017
000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
Section III
Benefit Improvements
The 2017 amendment to the Meet and Confer agreement says that there will be no benefit
enhancements until after September 30, 2019. There are probably a variety of opinions
among the board members about what conditions should be met before there are any benefit
enhancements. However, one consideration is that there has been no 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.
The board would need to coordinate the development of a benefit enhancement policy
through the Meet and Confer process since the city's funding policy has been put into the
Meeting and Confer agreement. Currently the amended agreement with the city's current
funding policy includes Section 4 which says the board agrees that it will not approve any
benefit enhancements during the term of the agreement which expires on September 30,
2019. During that process, the board will keep in mind the requirements of Section 7 of
TLFFRA, which requires the approval of the firefighters, the board, and the board's
actuarial firm before any benefit changes can be implemented. Whenever that process is
completed, the board should amend Section F(2) of the plan document to make it consistent
with or at least not in conflict with the new benefit enhancement policy.
If the city decides to continue contributing at the rate of 18.5% or at some other rate that
could reasonably be assumed to be stable, then we offer for your consideration a strategy
for future benefit improvements. The idea is to coordinate periodic benefit improvements
with favorable experience so that the recommended city contribution rate based on the
city's funding policy would not be increased and so that the resulting actuarially
determined UAAL amortization period would be acceptable to the board and to the city.
DO?Tw'TON RIDCtEMIEN'aw Ac'B'0.:All21AL VA1L.BWHON
A ) RtO , 'OIREi0.QH?NT Fi:ND AS OF D CENI BE 31, 201.7
000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
Exhibit 1
Distribution of Firefighters by Age and Service on December 31, 2017
with Average Annual Salary
Years
of
Age
Average
Under
60 or
Service
25
25-29
30-34
35-39
40-44
45-49
50-54
55-59
Over
Total
Salary
0
0
2
1
0
0
0
0
0
0
3
$52,000
1
2
5
5
0
0
0
0
0
0
12
64,473
2
0
10
4
3
0
0
0
0
0
17
67,509
3
0
0
1
1
0
0
0
0
0
2
79,117
4
0
4
4
0
0
0
0
0
0
8
79,358
5
0
2
2
6
0
0
0
0
0
10
82,758
6
0
1
4
3
0
0
0
0
0
8
85,030
7
0
0
1
1
0
0
0
0
0
2
90,272
8
0
0
1
0
0
0
0
0
0
1
96,328
9
0
0
0
3
2
0
0
0
0
5
94,196
10
0
1
0
3
1
0
0
0
0
5
79,031
11
0
0
3
6
4
4
0
0
0
17
94,633
12
0
0
1
3
5
3
0
0
0
12
92,036
13
0
0
0
1
3
0
0
0
0
4
100,643
14
0
0
0
4
3
0
0
0
0
7
104,021
15
0
0
0
1
2
1
0
0
0
4
105,858
16
0
0
0
0
4
2
1
0
0
7
95,830
17
0
0
0
1
1
0
0
0
0
2
88,145
18
0
0
0
1
7
9
5
0
0
22
100,858
19
0
0
0
0
0
1
0
0
0
1
112,610
20-24
0
0
0
0
2
15
6
0
0
23
108,087
25-29
0
0
0
0
0
4
6
0
0
10
120,131
30-34
0
0
0
0
0
0
2
3
0
5
140,860
35+
0
0
0
0
0
0
0
0
2
2
132,851
Totals
2
25
27
37
34
39
20
3
2
189
$93,251
Average $59,691 $79,996
Salary $67,763 $90,818
Average age 40.0
Average years of service 12.7
Average age at hire 27.3
$95,821 $112,458 $132,851
$105,537 $134,060 $93,251
DETw'TON RIDCtENDEN'aw AB"'ri:AAWAL VA]L.BWB' ON
ANll) Rid ,'alREi0.QH?NT Fi:ND AS OF D CENI BI[?Ih" 31, 2017
000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
Exhibit 2
Summary of Pensioner Data
Pensioner Data Used in
December 31, 2017 Valuation
Number of
Total Monthly
Type of Benefit
Recipients
Benefit Payments
Service Retirement'
70
$266,946
Disability Retirement
0
0
Vested Terminated (Deferred)'
3
5,615
Surviving Spouse
12
26,146
Surviving Child
11
1,608
3
Total
8
$ 300,315
87
Type of Benefit
Comparison of Pensioner Count by Type as of
The Prior and Current Actuarial Valuations
December 31, 2015
New
Ceased
December 31, 2017
Service Retirement'
68
+2
0
70
Disability Retirement
0
0
0
0
Vested Terminated (Deferred)
2
+1
0
3
Surviving Spouse
12
0
(1)
11
Surviving Child
4
0
-LD
3
Total
86
+3
(2)
87
Includes three alternate payees entitled to receive benefits according to the terms of a Qualified Domestic
Relations Order.
Monthly benefit payments are deferred to begin at terminated firefighter's future retirement date.
DENTON RRENUEN's Auri:AWAL VALAWHON
A Nll) Ri�, r ORE N IE NT F i:N D AS OF DECEMBER31,2017
Exhibit 2A
Firefighter and Pensioner Reconciliation
Firefighters
Current
Payment
Status
Vested
Terminated
Firefighters
Total
1. As of December 31, 2015
176
841
2
262
2. Change of status
a. retirement
(2)
2
0
0
b. disability
0
0
0
0
c. death
0
(1)
0
(1)
d. survivor payment begins
0
0
0
0
e. withdrawal
(3)
0
0
(3)
f. vested termination
(1)
0
1
0
g. completion of payment
0
(1)
0
(1)
h. QDRO alternate payee
0
0
0
0
1. net changes
(6)
0
1
(5)
3. New firefighters
19
— 0
0
19
4. As of December 31, 2017
189
841
3
276
Includes three alternate payees entitled to receive benefits according to the terms of a Qualified
Domestic Relations Order (QDRO).
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DETw'TON RIDCtENDEN'aw AB"'ri:AAWAL V�A]C.0.WIl'lON
ANll) Rid ,'alREi0.QENT Fi:ND AS OF DEC NI BI[?Ih 31, 2017
00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
Exhibit 5
Summary of Asset Data
Asset Type
Market Value
as of
December 31, 2017
Allocation
As a Percent
of Grand Total
Equities
U.S. Large Cap
$29,788,424
34.9%
U.S. Small/Mid Cap
6,230,817
7.3
International
6,145,463
7.2
Total
42,164,704
49.4
Alternatives
Real Estate
11,972,403
14.0
Master Limited Partnership
5,628,510
6.6
Total
17,600,913
20.6
Fixed Income
Certificates of Deposit
4,672,411
5.5
Bond Funds
3,211,300
3.8
Corporate Bonds and Notes
4,390,402
5.1
Total
12,274,113
14.4
Cash Equivalents
13,348,553
15.6
Grand Total
$85,388,2831
100.0%
The grand total is the audited amount. All of the invested amounts were determined from the coordination
of the investment consultant's report and the audited financial report, both of which were provided by the
plan administer, Mr. Gary Calmes. The division of the equities was based on a summary of asset
allocation percentages in the investment consultant's report. The cash equivalents amount is the cash
equivalents net of the receivables and liabilities in the audited financial report.
Comparison of Asset Values as of the Prior
and Current Actuarial Valuation Dates
December 31, 2015
December 31, 2017
Market Value
$67,976,717
$85,388,283
Actuarial Value
$72,693,078
$84,410,626
Actuarial Value as a
Percent of Market
106.9%
98.9%
Value
DETw'TON RIDCtENUEN'aw AB"'ri:AAWAL V�A]C.0.WIl'lON
A ) Rid ,'alREi0.QENT FvND AS OF DEC NI BI[?Ih 31, 2017
00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
Exhibit 5A
Statement of Changes in Audited Assets
for the Years Ended December 31, 2017 and 2016
12/31/2017 12/31/2016
Additions
1. Contributions
a. Employer $ 2,979,807 $ 2,759,844
b. Employees 2,142,990 1,997,155
c. Total $ 5,122,797 $ 4,756,999
2. Investment Income
a. Interest and dividends $ 2,386,363 $ 2,165,637
b. Net appreciation in fair value 6,472,775 4,847,430
c. Total $ 8,859,138 $ 7,013,067
3. Other Additions 7.996 2.329
Total Additions $13,989,931 $11,772,395
Deductions
4. Benefit Payments
a. Monthly benefits $ 3,578,956 $ 3,529,183
b. Lump -sum benefits 189,873 740,823
c. Total $ 3,768,829 $ 4,270,006
5. Expenses
a. Investment -related $ 73,900 $ 80,181
b. General administrative 63,669 94,175
c. Total $ 137,569 $ 174,356
Total Deductions $ 3,906,398 $ 4,444,362
Net Increase in Assets $10,083,533 $ 7,328,033
Market Value of Assets (Fiduciary Net Position)
Beginning of Year
$75,304,750
$67,976,717
End of Year
$85,388,283
$75,304,750
Rate of Return
Net of All Expenses
11.49%
10.03%
Net of Investment -Related Expenses
11.58%
10.17%
Gross
11.68%
10.30%
Investment -Related Expenses
0.10%
0.13%
MIM) AND WaawDONB, !rv(",
PAGE 17
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A ) Rid ,'alREi0.QENT FvND AS OF DEC NI BI[?Ih 31, 2017
00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
Exhibit 9
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 between age at hire
and assumed termination. 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 6.
MIM) AND WaawDONB, !NC. PAGi� 21
DETw'TON RIDCtENUEN'aw AB"'rvAAWAL V�A]C.0.WIl'lON
A ) R 'll'alREi0.QENT FvND AS OF DEC NI BI[?Ih 31, 2017
00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
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 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 before completing 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
RP-2000 Combined Healthy Mortality Table projected to 2024 for males and for
females (sex distinct) for all three types of mortality: pre -retirement, post -
retirement, and post -disability.
4. Compensation Increases
General increases of 3% per year (2.5% inflation plus 0.5% productivity) in addition
to promotion, step, and longevity increases that average 1.98% per year over a 30-
year career. See Exhibit 10.
Ru,DD AND WaawDONB, !NC. PAG'i22
DETw'TON RIDCtENUEN'aw AB"'rvAAWAL V�A]C.0.WIl'lON
A ) R 'll'alREi0.QENT FvND AS OF DEC NI BI[?Ih 31, 2017
00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
5. Retirement Rates
Rate per Year for Firefighters
Age Eligible to Retire
50-53 5%
54-58 15
59-61 30
62-64 50
65 100
The average expected retirement age for firefighters under age 50 based on these
rates is 57.0.
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. Withdrawal Rates
See Exhibit 10.
8. Disability Rates
See Exhibit 10.
9. Reduction in Benefit after 21/z 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 two years younger and
female firefighters having a spouse two years older. We use actual spouse data once
a monthly benefit is being paid.
DETw'TON RIDCtEMIEN'aw AB"'ri:AAWAL V�A]C.0.WIl'lON
A ) R 'll'alREi0.QENT Fi:ND AS OF DEC NI BI[?Ih 31, 2017
00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
11. Payment Form for Retirement Benefits Due to Service Retirement, Disab
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. Citv's Assumed Contribution Rate
For the initial hypothetical scenario as described on page 1, 18.50% of covered
payroll for as long as the actuarially determined period to amortize the UAAL.
15. Covered Payroll for First Year Following Valuation Date
Actual (or annualized) pay for 2017 with an adjustment of 3% for each firefighter
to reflect the average effect of the variable general pay increases effective in April
2017 and April 2018.
16. General Administrative Expenses
The expenses paid by fund assets for other than investment -related expenses are
assumed to be 0.55% of payroll. The normal cost rate as a percent of payroll is
assumed to be 0.55% of payroll higher to reflect these expenses.
MIM) AND WaawDONB, !NC. PAG'i24
DECV'll'ON RIRB?i0.UEN'aw
Ac'B'0.'AWA L V�A1C.0.'A'Il' ON
A ) Rtt , 'alREi0.QENT Fi:ND AS OF DEC NI BI[?Ih 31, 2017
00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
Exhibit 10
Disability and Withdrawal Rates per 1,000 Active Members
Compensation Increases by Years of Service
Disabilit Rates
Withdrawal Rates
Com ensation Increases
Years of
Years of
Increase
Attained Age
Rate
Service
Rate
Service
Percent
20
0.14
0
60
1
9.18%
21
0.15
1
54
2
9.18
22
0.16
2
48
3
9.18
23
0.17
3
42
4
9.18
24
0.18
4
37
5
9.18
25
0.19
5
32
6
6.09
26
0.21
6
27
7
6.09
27
0.23
7
24
8
6.09
28
0.25
8
21
9
6.09
29
0.28
9
19
10
6.09
30
0.31
10
17
11
6.09
31
0.35
11
14
12
6.09
32
0.40
12
12
13
6.09
33
0.45
13
11
14
6.09
34
0.49
14
10
15
6.09
35
0.52
15
9
16
3.00
36
0.54
16
9
17
3.00
37
0.57
17
8
18
3.00
38
0.62
18
8
19
3.00
39
0.73
19
8
20
3.00
40
0.92
20 & Over
0
21
3.00
41
1.14
22
3.00
42
1.32
23
3.00
43
1.48
24
3.00
44
1.73
25
3.00
45
2.09
26
3.00
46
2.55
27
3.00
47
2.98
28
3.00
48
3.34
29
3.00
49
3.62
30
3.00
50
3.79
31 & Over
3.00
51
3.92
52
4.04
53
4.24
54
4.56
55 & Over
0.00
MIM) AND WaawDONB, !N( PAGJ,? 2
DETw'TON RIDCtEMIEN'aw AB"'rvAAWAL V�A]C.0.WIl'lON
A ) R 'll'alREi0.QENT FvND AS OF DEC NI BI[?Ih 31, 2017
00000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000i00000000000000000i
Exhibit 11
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.
MIM) AND WaawDONB, !NC. PAG'i26
DETw'TON RIDCENIIEN'aw AB"'ri:AAWAL V�A]C.0.WIl'lON
A ) R 'll'alREi0.QENT FvND AS OF DEC NI BI[?Ih 31, 2017
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8. Entry Age Actuarial Cost An actuarial cost method under which the Actuarial
Method Present Value of the Projected Benefits of each
individual included in the Actuarial Valuation is
allocated as a level percentage of earnings between
entry age and assumed termination. 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 The excess, if any, of the Actuarial Value of Assets
Accrued Liability over the Actuarial Accrued Liability.
13. Unfunded Actuarial The excess, if any, of the Actuarial Accrued Liability
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 The period is determined in each Actuarial Valuation
Unfunded Actuarial as the number of years, beginning with the Valuation
Accrued Liability 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.
MIM) AND WaawDONB, !NC. PAG'i27
DETw'TON RIDCtENDEN'aw AB"'ri:AAWAL V�A]C.0.WIl'lON
A ) Rid ,'alREi0.QENT FvND AS OF DEC NI BI[?Ih 31, 2017
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Exhibit 12
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
MIM) AND WaawDONB, !NC. PAGJ,2
DETw'TON RIDCtENUEN'aw AB"'ri:AAWAL V�A]C.0.WIl'lON
A ) Rid ,'alREi0.QENT Fi:ND AS OF DEC NI BI[?Ih 31, 2017
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6. Vested Terminated Benefit Eligibility
(Benefit Deferred to Normal Retirement Age) 10 Years
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 New 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.
MIM) AND WaawDONB, !NC. PAG'i29
DETw'TON FIDCENIIF N'aw L1ct,i:AWAL V�A]C.0.WIl'lON
ANll) Rt� ,'alREi0.IEN]' Fi:ND AS OF DEC NI BI[?Ih 31, 201.7
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Appendix A
Review of the Actuarial Economic Assumptions
for the December 31, 2017 Actuarial Valuation
Section 1. Asset Allocation and Investment Return Assumption Development
Gross Annual
Real Rate of
More
Investment
Current
Fixed
More
Asset Class Return (RORP 12/31/2015
12/31/20172
Target
Income
Equities
Equities
Domestic
Large Cap 6.5 38%
35%
40%
35%
44%
Small/Mid Cap 7.0 8
7
10
8
11
International 7.0 8
7
10
7
11
Fixed Income 1.5 17
14
10
20
10
MPLs 8.5 4
7
8
5
0
Real Estate 5.0 13
14
15
15
10
Cash 0.0 12
16
7
10
14
Total 100%
100%
100%
100%
100%
Weiehted Averaee Gross Real ROR Assumption
4.76%
5.58%
4.80%
5.05%
Weighted Average Net Real ROR Assumption 3
4.26
5.08
4.30
4.55
Possible Theoretical Annual Investment Return Assumption:
Net Real ROR Plus Assumed Annual Rate of Inflation
Assumed 3.00% Inflation
7.26
8.08
7.30
7.55
Assumed 2.75% Inflation
7.01
7.83
7.05
7.30
Assumed 2.50% Inflation
6.76
7.58
6.80
7.05
i 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 the investment consultant's 12/31/2017 report.
3 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%. See Section 3.
DETw'TON RIDCtENDEN'aw Ac'B'0.:AAWAL V�A]C.0.WIl'lON
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Appendix A (continued)
Section 2. Price Inflation in the USA
Average Annual Rates of Increase in the CPI-U
Years
(Dec.
to Dec.)
1952
— 2017
1957
— 2017
1962
— 2017
1967
— 2017
1972
— 2017
1977
— 2017
1982
— 2017
1987
— 2017
1992
— 2017
1997
— 2017
Number
of Years
Average
Annual Increase
65
3.48%
60
3.67
55
3.88
50
4.05
45
3.98
40
3.51
35
2.68
30
2.56
25
2.23
20
2.14
Most inflation forecasts are for 10 years or less. For example, the 10-year forecast in the June
2018 Livingston Survey published by the Federal Reserve Bank of Philadelphia was 2.28%.
Similarly, the 2018 Wall Street Censuses Survey for the next decade included an average inflation
forecast of 2.4%. However, 10 years is much too short a forecast period for a public employee
defined benefit pension plan. In the 2018 annual report of the OASDI Trust Funds (Social
Security), the ultimate inflation assumptions for their 75-year projections were 3.2%, 2.6%, and
2.0% 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 2.5% to 3.5%. Shorter term considerations make
the bottom half of that range more desirable.
Section 3. Retirement Plan's Expenses
Market Value of Assets Expenses Expenses as a % of Assets
Plan
Beginning
End
General
Direct
GA
DI
Total
Year
of Year
of Year
Admin.
Investmt
4 - 2
5 - 2
6 + 7
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
2017
$75,304,750
$85,388,283
$63,669
$73,900
0.08%
0.10%
0.18%
2016
67,976,717
75,304,750
94,175
80,181
0.14
0.12
0.26
2015
71,018,518
67,976,717
76,538
86,014
0.11
0.12
0.23
2014
66,412,172
71,018,518
81,005
19,874
0.12
0.03
0.15
Less than 4% of assets were in ETFs at the end of 2017, and all had relatively low expense ratios.
The investment -related expenses have been atypically low for a fund this size but increased some
beginning in 2015 due to investing in some real estate and using a second investment consultant
for a portion of the assets. For the long-term future, we assume a higher, more typical rate of
investment -related expenses of 0.50%.
DETw'TON RIDCtENUEN'aw Act'i:AWAL V�A]C.0.WIl'lON
A ) R 'll'alREi0.IEN1' Fi:ND AS OF DEC MBE 31, 201.7
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Appendix A (continued)
Section 4. General Administrative Expenses
Plan Year
Endin 12�/31
General Administrative
Expenses Paid by the Fund
_
(1)
(2)
2017
$63,669
2016
94,175
2015
76,538
2014
81,005
2014-2017
$315,387
% of Payroll
Estimated Pam
2 - 3
(3)
(4)
$17,007,857
0.37%
15,850,437
0.59
14,310,032
0.53
13,852,532
0.58
$61,020,858
0.52%
The general 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, 2017 actuarial valuation, we recommend 0.55%, which is rounded up from the
average developed above for the last four plan years. (The estimated payroll was determined as
the firefighter contributions for the plan year divided by the firefighter contribution rate during the
plan year.)
Section 5. Comparison of Actuarial Economic Assumptions
12/31/2015
12/31/2017
Actuarial
Actuarial
Economic
Economic
Actuarial Assumption'
Assumptions
Assumptions
Inflation (Price)
2.50%
2.50%
Net real rate of return
4.25
4.25
Net total investment return
6.75%
6.75%
Firefighter pay increase
4.98%
4.98%
Aggregate payroll increase
3.00%
3.00%
General administrative expenses4
0.55%
0.55%
I All assumptions are annual rates.
2 Net of investment -related expenses.
3 3% annual general pay increase and 1.98% average annual promotion, step, and longevity pay increase over a 30-
year career in both the 12/31/2015 assumptions and the 12/31/2017 assumptions.
4 General administrative expenses are reflected as a percent of payroll that is added to the normal cost contribution
rate.
MIM) AND W Pa DOM, !NC. PAGt,32