20-1539ORDINANCE NO.20-1539
AN ORDINANCE OF THE CITY OF DENTON, TEXAS APPROVING THE DENTON
FIREMEN’S RELIEF AND RETIRMENT FUND ACTUARIAL VALUATION AS OF
DECEMBER 3 1, 2019; AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, the City of Denton participates in the Texas Municipal Retirement System
and 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 Texas
Municipal Retirement System 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
Retirement 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 analysis every two years and the City Council has the
opportunity to approve each actuarial report; once the report is approved by the City Council, the
City’s contribution rate will be adjusted to achieve actuarial goals; and
WHEREAS, in 2019 the City and the Denton Fire Firefighters Association agreed to a new
Meet & Confer agreement that incorporated all the pension provisions included in the 2017
agreement; and
WHEREAS, the overall results of the actuarial report are very positive, the funded ratio
has decreased from 82.1% to 80.8%, and the amortization period has been increased from 14.6
years to 18.3 years; and
WHEREAS, despite the health of the fund, staff is recommending that the City’s
contribution rate to the Denton Firemen’s Relief and Retirement Fund be maintained at 18.5%
because of various actuarial factors impacting the fund as well as the current economic uncertainty
and investment market challenges; NOW THEREFORE,
THE CITY COUNCIL OF THE CITY OF DENTON HEREBY ORDArNS:
SECTION 1. The findings and recitations contained in the preamble of this ordinance are
incorporated herein by reference.
SECTION 2. The City Council of the City of Denton hereby approves the Denton
Firemen’s Relief and Retirement Fund Actuarial Valuation as of December 3 1, 2019 attached to
this ordinance and incorporated herein for all purposes.
SECTION 3
approval.
This ordinance shall become effective immediately upon its passage and
The motion to aPProve this ordinance was made by
seconded by
the following vote [k - b]ze/LI S the ordinance was
Klan and
passed and approved by
Aye Nay Abstain Absent
Mayor Chris Watts:
Gerard Hudspeth, District 1 :I
,/
V/
V‘
,/
7
Keely Briggs, DistrIct 2:
Jesse Davis, District 3 :
John Ryan, District 4:
Deb AmHntor, At Large Place 5 :
Paul Meltzer, At Large Place 6:
PASSED AND APPROVED thi, th, \ in day ,f A% D8+_, 2020.
CHRIS WATTS, MAYOR
ATTEST:
ROSA RIOS, CITY SECRETARY
J7£b<7,
APPROVED AS TO LEGAL FORM:
AARON LEAL, CITY ATTORNEY
Denton Firemen’s
Relief and Retirement Fund
Actuarial Valuation
as of December 31, 2019
July 13, 2020
§i; I!:*:1}‘
I IIIIf 'I/
Rudd and Wisdom, Inc.
CONSULTING ACTUARIES
Mitchell L. Bilbe, F.S.A.
Evan L. Dial, F.S.A
Philip S. Dial, F.S.A.
Charles V. Faerber, F.S.A., A.C. A.S.
Mark R. Fenlaw, F.S.A
Brandon L. Fuller, F.S.A.
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. MIrth, 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.
July 13, 2020
Board of Trustees
Denton Firemen’s Relief
and Retirement Fund
p.O. Box 2375
Denton, Texas 76202
Members of the Board of Trustees:
At the request of the Board of Trustees of the Denton Firemen’s Relief and Retirement Fund, we
have prepared this report of the results of the actuarial valuation of the fund as of December 31,
2019. 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 June 9, 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 3 1 , 2019. Similarly, we will provide a separate report later in the year containing
the pension expense, net pension liability, and disclosure information for the city’s compliance
with GASB 68 for the fiscal year ending September 30, 2020. 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,
Wad E. :}%!aAAF
Mark R. Fenlaw, F.S.A.
kle£B.rYIFut&
Rebecca B. Morris, A.S.A.
a
i:\clients\fire\wd\vals\2020\denton\denton- 12-3 1-19.docx
9500 Arboretum Blvd., Suite 200
Austin. Texas 78759
www.ruddwisdom.com Phone: (512) 346-1590
Fax: (512) 345-7437
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACrUARrAL VALUATION
AS OF DECEMBER 31, 2019
TABLE OF CONTENTS
Section I
Section II
Section III
Exhibit 1
Exhibit 2
Exhibit 3
Exhibit 4
Exhibit 5
Valuation Summary................................................................................... 1
Key Results of the Actuarial Valuation .............._..............................._.. 8
Benefit Improvements ___._._._..._..._..___...__..._.___.._........_........... 10
Distribution of Firefighters by Age and Service ................................_. 11
Summary of Pensioner Data ..___..................._........__.......................... 12
Firefighter and Pensioner Reconciliation .............................................. 13
Breakdown of Pensioners by Monthly Benefit Amounts ..................... 14
Historical Comparison of Actuarial Accrued Liability and
Actuarial Value of Assets ..........._._..._....................._..._....................... 15
Summary of Asset Data ............_._._..._..._........__................_............... 16
Statement of Changes in Assets ...__._......_..............._........................._ 17
Development of Actuarial Value of Assets .._..__.................................. 18
Historical Comparison of Market and Actuarial Value of
Assets .._.._._._..._......._........_.._......_..._.._....._..__........._._.._............... 19
Comparison of Market Value Asset Allocation as of the
Prior and Current Actuarial Valuation Dates ..__..._........................... 20
Actuarial Methods and Assumptions ..................................................... 21
Disability Rates, Termination Rates, and Compensation
Increases.................................................................................................... 25
Definitions ............_......._._..._......._..._._.__........_......._.._...._............... 26
Summary of Present Plan........................................................................ 28
Review of the Actuarial Economic Assumptions ........._....................... 30
Exhibit 6
Exhibit 7
Exhibit 8
Exhibit 9
Exhibit 10
Exhibit 11
Exhibit 12
Exhibit 13
Exhibit 14
Appendix A
RUDD AND WISDOM, INC.
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31. 2019
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, 2019 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, 2019.
Section II shows the summary of key results of the actuarial valuation as of December 3 1,
2019 and discusses the significant changes since the prior valuation that we prepared as of
December 3 1 , 2017.
Following the December 3 1 , 2017 actuarial valuation, the city’s funding policy for the fund
was made a part of the new Meet and Confer Agreement effective October 1, 2019. The
fbnding policy is a modified actuarially determined contribution rate (ADCR) which began
in December 2017. Under that policy, the city’s initial contribution rate was set at 18.5%
and is to be re-evaluated 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 flmding 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 TMRS for the other city employees. The ADCR over
the 23 years remaining in the closed period of December 31, 2019 is 17.239/b based on
this actuarial valuation. The TMRS rate for the year beginning January 1, 2021 is 17.79%.
We recommend continuation of the current 18.5% city contribution rate.
Assuming the city continues contributing a level 18.5% each year for the long term, we
actuarially determined the UAAL amortization period. With the assumed continuous future
18.5% city contribution rate, there would be a total contribution rate each year of 3 1.1%,
comprised of 12.6% by the firefighters and 18.5% by the city. The total contribution rate
of 31.1% exceeds the normal cost rate of 22.33%, leaving 8.77% available to amortize the
UAAL of $23,333,103. Assuming that the total payroll increases at the rate of 3% per year
in the future, the contributions in excess of the normal cost would be expected to amortize
the UAAL in 18.3 years.
There are several reasons that support the city planning to keep its contribution rate at
18.5%
• Continuing to contribute 18.5% each year would accelerate both the amortization of
the UAAL and an increase in the funded ratio. This would increase the likelihood
that those metrics would become closer to those of the TMRS plan (TMRS has a
II PAC,E 1
DENTON FrR£MEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31. 20199 l•iV X /
15.6-year amortization period and 84.6% funded ratio compared to the above 18.3-
year amortization period assuming a level 18.5% contribution rate and an 80.8%
funded ratio for the fund, both plans measured as of December 3 1, 2019.)
• it would hedge against potential future adverse experience, such as the investment
experience in 2018 and so far in 2020, or any potential future changes in
assumptIons .
• it would better position the fund to provide an ad hoc increase in the monthly benefit
for retirees at some fbture date without a rate increase.
The city should also consider contributing more to the retirement plan for its firefighters
than to TMRS every year for these reasons:
1. Low firefighter turnover – Their lower turnover than other city employees means that
a higher percent of firefighters will ultimately qualify for a retirement benefit than other
city employees. As a result, their benefits cost more as a percent of pay.
2. Physical demands of the job – Because of this, firefighters tend to retire at earlier ages
than other city employees. As a result, their benefits cost more as a percent of pay
because they are paid over a longer period of retirement.
3. Post-retirement increases – Retirees in TMRS have for years been getting annual
increases in their monthly benefits based on 70% of the CPI while retired firefighters
haven’t had an increase since 2008, a modest 2% increase.
4. Employee contribution rates – Firefighters contribute 12.6% of their pay to the fund
while other city employees contribute only 7% to TMRS.
In order for a retirement plan to have an adequate contribution arrangement, contributions
must be made that are sufficient to pay the plan’s normal cost and to amortize the plan’s
UAAL over a reasonable period of time. Based on the current Texas Pension Review
Board (PRB) pension funding guidelines, our professional judgment, and the actuarial
assumptions and methods used in making this valuation, we consider periods of 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 UAAT. in 18.3 years, we are of the opinion that the fund, based on present levels of
benefits and assumed contributions has an adequate contribution arrangement. Section
III presents considerations for future benefit improvements.
Projected Actuarial Valuation Results
In addition to completing this actuarial valuation, we estimated the amortization periods as
of December 31, 202 1 and as of December 31, 2023 by making projections from the
December 3 1, 2019 actuarial valuation and assuming a fixed city contribution rate of 1 8.5%
RUDD AND WISDOM, INC.PAGE 2
DENTON FIREMtN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
until the UAAL is amortized. These projections examine the effect on the amortization
period in the next two actuarial valuations of the actuarial investment gains and losses that
the fund experienced in the four years prior to the valuation date (loss in 2018 and gains in
2016, 2017, and 2019) that have been only partially recognized as of December 3 1, 2019.
As shown in Exhibit 8, a smoothing method is used to determine the actuarial value of
assets (AVA) for this valuation. This method phases in over a five-year period any
investment gains or losses (net actual investment return greater or less than the actuarially
assumed investment return) that the fund has had. The AVA used in this current valuation
is deferring recognition of various portions of the gains and losses in 2016-2019 that the
fund experienced. The AVA used in this valuation is $98,109,262. The market value of
assets (MVA) is $103,815,795. The $5.7 million difference between the MVA and the
AVA is the net deferred gain 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 9.
For the purpose of projecting the amortization period through 2023 we used six scenarios
of various assumed annual rates of investment return, net of investment-related expenses,
over the 2020-2023 projection period. These projections show the expected effects over
the next four years after the valuation date (1) of the recognition of the portions of the
investment gains and losses over the past four years that are deferred as of December 31,
2019, and (2) of investment returns over the next four years different from the 6.75%
assumption used in this valuation.
Me
312 5
Assumed Investment Return
for Calendar Year
2020
2021
2022
2023
2024 and later
6.75%
6.75
6.75
6.75
6.75
-4.00%
10.00
6.75
6.75
6.75
-4.00%
6.75
6.75
6.75
6.75
-4.00%
4.00
10.00
10.00
6.75
0.00%
0.00
6.75
6.75
6.75
0.00%
0.00
4.00
4.00
6.75
Amortization Period in
as of December 3 1 :
2019 (actual)
2021 (projected)
2023 (projected)
Years
18.3
12.6
8.6
18.3
16.8
15.6
18.3
17.5
17.9
18.3
18.1
17.6
18.3
17.0
19.0
18.3
17.0
21.1
RUDD AND WISDOM. INC.mBE
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31. 2019
The projected amortization period as of December 3 1, 2023 in Scenario 1 (no investment
gains or losses) reveals that instead of decreasing by the expected four years from 18.3
years to 14.3 years, the amortization period is projected to decrease to 8.6 years. The bigger
reduction is due to the $5.7 million net deferred gain.
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 -4% for calendar year 2020. The one
adverse year, without any investment gains or losses in the next three years, would result
in a projected amortization period of 17.9 years as of December 31, 2023, which is 9.3
years greater than the projected amortization period of 8.6 years in Scenario 1.
Scenarios 2-6 assume two different adverse investment results for 2020 due to the negative
effects of the pandemic on global markets and a variety of returns in the three years
following. The funding policy with its initial 25-year closed amortization period would
seek amortization periods no greater than 21 years as of December 3 1, 2021 and no greater
than 19 years as of December 3 1, 2023. Only Scenario 6 would result in a need to increase
the city contribution rate. The $5.7 million net deferred gain will be recognized in the next
two biennial actuarial valuations and will partially offset adverse investment experience.
We do not know what the investment experience will be for each of the next four calendar
years. Variations in experience from the underlying assumptions, other than investment
return, will cause the actual amortization periods to be different from the periods shown
above, but investment experience will be the biggest influence on future actuarial
valuations. In addition, the future investment experience in each of the next four years
could be better or worse than the assumed rates shown. These scenarios present a range of
scenarios for the next two valuations assuming no changes in contribution rates and
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
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, 2017 actuarial valuation. Exhibit 1 is a distribution of the active
firefighters by age and service. The assumed 2020 salaries used for projecting future
contributions and benefits in the valuation were based on the actual pay for the 2019
calendar year, adjusted by 3.5% to reflect the net effect of the variable pay increases
effective in April 2019 and April 2020. The total of these salaries is our assumed
annualized covered payroll for the plan year beginning January 1, 2020 and is used to
determine the UAAL amortization period with the assumed continuation of the 18.5% city
II m1
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
contribution rate. The averages of the assumed salaries for the 2020 plan year are shown
in Exhibit 1.
Exhibit 2 contains summary information on the pensioners. The monthly benefit payments
are generally based on the amounts paid in January 2020. Exhibit 3 is a reconciliation of
firefighters and pensioners from December 31, 2017 to December 31, 2019. Exhibit 4
shows a breakdown of the dollar amount of the monthly benefits for retirees and surviving
spouses. Exhibit 5 shows a historical comparison of the actuarial accrued liability and the
actuarial value of assets.
The summary of assets contained in Exhibit 6 is based on the December 31, 2019 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 3 1, 2017 and December 3 1, 2019. Exhibit 7 contains the statement of changes
in assets for 2019 and 2018. Exhibit 8 shows the development of the actuarial value of
assets. Exhibit 9 shows a historical comparison between the market value and actuarial
value of assets. A comparison of the market value asset allocation by asset class as of
December 3 1, 2017 and December 3 1, 2019 is shown in Exhibit 10.
Assumptions
As a part of each actuarial valuation, we review the actuarial assumptions used in the prior
actuarial valuation. As a result of our review, we have selected actuarial assumptions we
consider to be reasonable and appropriate estimates of future experience for the fund for
the long-term fbture. 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; and
4. PubS-2010 (safety employees) total dataset mortality tables projected for mortality
improvement using scale MP-2019.
The following actuarial assumption changes have been made, and the new assumptions are
compared to those used in the December 3 1 , 2017 valuation:
1. We changed the administrative expenses from 0.55% to 0.50% of payroll based on
the average historical relationship in the last four years, adjusted for a recent
increase in pay for the plan administrator. We believe this assumption is more
reasonable for the long-term future.
RUDD AND WISDOM, INC.PACE 5
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31. 2019
2.The mortality assumption was changed from the RP-2000 Combined Healthy
Mortality Tables projected to 2024 with Scale AA to the PubS-2010 (safety
employees) total dataset mortality tables for employees and for retirees, projected
for mortality improvement generationally using the projection scale MP-2019. The
rationale for the change is to use the results of a new, first-ever study of the mortality
of public employee pension plan participants by the Society of Actuaries. The new
mortality assumption is more appropriate for the ftmd for the long-term future than
the prior assumption.
3. The assumed spouse age of a retiring firefighter was changed from a two-year to
four-year age difference. This change was based on a review of the actual ages of
the married retired firefighters.
The effect of these changes in assumptions 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 11 and 12. In our opinion, the assumptions used, both in the aggregate
and individually, are reasonably related to the experience of the fund and to reasonable
expectations. The assumptions represent a reasonable estimate of anticipated experience
of the fund over the long-term future.
Other Supporting Exhibits
Exhibit 13 contains definitions of terms used in this actuarial valuation report. Exhibit 14
summarizes the plan provisions of the Present Plan.
Funding Policy for the City
After negotiations in 2017 among representatives from the city manager’s office, the board
of trustees, and the Denton Fire Fighters Association, an agreement was reached to amend
the prior Meet and Confer Agreement. Final approval by the city council occurred in
December 2017. The same language was included in the new Meet and Confer Agreement
effective October 1, 20 19. The city’s funding policy for the fund is a modified actuarially
determined contribution rate (ADCR) policy summarized below.
• The funding policy is intended to fully pay off the UAAL over a closed 25-year
amortization period that we assume began January 1, 2018.
•The city began contributing 18.5% of compensation in late December 2017.
• Each subsequent actuarial valuation for the board will include the modified ADCR
for the city’s review.
[1 ml m E!!!!mB
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31. 2019
• 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.
• 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 was provided in the projected amortization periods for
the next two biennial actuarial valuations under six scenarios. These projections were
designed to assess the risk of variance of potential future investment rates of return in the
four years following the actuarial valuation date from the assumed 6.75% rate and the
potential effect on the amortization period. Additional or other sensitivity analysis could
be performed in a subsequent report if desired by the board of trustees.
Respectfully submitted,
RUDD AND WISDOM, INC.
Wad E. +%leAF €Lkl bX. fYIFt/LA
Mark R. Fenlaw
Fellow, Society of Actuaries
Member, American Academy of Actuaries
Rebecca B. Morris
Associate, Society of Actuaries
Member, American Academy of Actuaries
RUDD AND WISDOM, INC.El!!M
DENTON FIREMEN’S RELIEF
AND RETrREM£NT FUND
ACTUARIAL VALUATION
AS Or DECEMBER 31, 2019
Section II
Key Results of the Actuarial Valuation
December 3 1,
20171
December 3 1,
2019
1.Actuarial present value of future benefits
a. Those now receiving benefits or former
firefighters entitled to receive benefits
b. Firefighters
c . Total
$ 39,792,196
106.446.377
$ 146,238,573
$ 44,259,778
127.238,142
$ 171,497,920
2. Actuarial present value of future normal cost
contributions $ 43,392,645 $ 50,055,555
3 . Actuarial accrued liability (Item 1 c – Item 2)
4. Actuarial value of assets
$ 102,845,928 $ 121,442,365
$ 84,410,626 $ 98,109,262
5. Unfunded actuarial accrued liability
(UAAL) (Item 3 - Item 4)$ 18,435,302 $ 23,333,103
6.Contributions (percent of pay)
a. Firefighters
b . City ofDenton2
c. Total
12.60%
18.50%
31.10%
12.60%
18.50%
31.10%
7.
8.
Normal cost (percent of payroll)21 .11o/n 22.33%
Percent of payroll available to amortize the UAAL
(Item 6c - Item 7)9.33%8.77%
20, 151,6879. Annualized covered payroll $ 17,624,493 $
10. Present annual amount available to amortize the
UAAL (Item 8 x Item 9)$ 1,644,365 $ 1 ,767,303
11. Actuarially determined period to amortize the UAAL
based on Item 6b 14.6 years 1 8.3 years
12. Funded ratio (Item 4 + Item 3)3 82.1 % 80.8%
All items are from the December 3 1 . 2017 actuarial valuation and reflect the Present Plan
2 For both actuarial valuations, 18.5% is the initial contribution 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 12 would have resulted
in funded ratios of 83.0% as of December 31, 2017 and 85.5% as of December 31, 2019. The best indicator of the fund’s health is
Item 11
RUDD AND WISDOM, INC.m
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31. 2019
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 3 1, 2017, to be 14.6 years. Since two years have passed
since that valuation date, a 12.6-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 18.3 years based on the same plan
provisions. The actual experience occurring between December 31, 2017 and
December 3 1, 2019 differed from the expected experience, and in combination with the
changes in assumptions, the resulting amortization period is 18.3 years, which is 5.7 years
more than the expected 12.6-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 2018 and 2019 was 8.24%.
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 2018 and 2019 was 5.77% compared to the assumed rate of return for those years
of 6.75%. This caused an increase in the amortization period of 1 .7 years.
2. The aggregate payroll increased at an average rate of 6.9% per year, compared to the
assumed 3% per year rate, which caused the amortization period to decrease by 1.3
years
3. The net result of all experience other than the investment experience and the aggregate
payroll experience had the combined effect of increasing the amortization period by
0.6 of a year. This was primarily the result of greater-than-expected pay increases in
the last two years.
4. The result of the change in the mortality assumption resulted in an increase in the
amortization period of 4.8 years.
5. The reduction in the assumed administrative expenses as a percent of payroll caused
the amortization period to decrease by 0.1 of a year.
Bl I
•
PAGE 9
DENTON FIREMEN’S RELr£F
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
Section III
Benefit Improvements
The funding policy in the Meet and Confer Agreement effective October 1, 2019 in Section
4 of Article 12 says that there will be no benefit enhancements until after September 30,
2023. 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
significant 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.
In the future when benefit improvements are to be implemented, the board would need to
follow 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. As a part of that process, Section F(2) of the plan document should be
amended to make it consistent with the proposed benefit enhancement. The current
language was designed in the 1990s and requires that 25% of any benefit enhancements be
for the retirees.
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.
l I’.\(;E 10
DENTON FIREMEN’S R£Lr£F
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECRMBER 31. 2019
Exhibit 1
Distribution of Firefighters by Age and Service on December 31, 2019
with Average Annual Salary
M
of
Service
0
Under
25
0
3
0
0
60 or
Over
0
0
0
0
0
Average
Sal.
$70,000
71,539
75,810
82,53 1
79,506
25-29
4
5
2
3
30-34
4
6
4
6
35-39
0
2
4
3
40-44
0
0
0
0
45-49
0
0
0
0
0
50-54
0
0
0
0
0
55-59
0
0
0
0
0
Total
2
13
12
11
13
2
3
4
5
6
0
0
0
2
0
5
2 0
0
0
0
0
0
0
0
0
0
0
0
0
2
8
10
8
2
I
5
3
15
12
4
7
4
7
2
41
9
6
89,994
94,073
96,406
93,003
102,600
10
11
12
13
14
0
0
0
0
0
0
0
0
0
0
0
0
1
2
3
115,138
104,233
89,571
104,976
104,6500
0
0
0
0
0
0
0
0
0
4
0
0
0
0
0
0
0
0
0
0
19
15
16
17
18
19
03000
0 3 2 02
0 003
0 0 5 20
0 0 002
112,577
115,413
108,952
104,847
100,519
0
0
0
0
2
0
2
0
4
20-24
25-29
30-34
35+
Totals
0
0
0
0
34
0
0
0
0
36
4
0
0
0
32
19
4
0
0
40
16
5
3
0
27
114,3 16
137,281
137,070
137.680
199 $101 ,265
Average $74,003 $85,532 $104,160 $ 117,279 $144,051
Salary $79,924 $94,667 $ 1 15,080 $ 121 ,51 1 $ 101 ,265
Average age 40.5
Average years of service 13.0
Average age at hire 27.5
RUDD AND WISDOM, INC.1%\ [ ll
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
Exhibit 2
Summary of Pensioner Data
Pensioner Data Used in
December 3 1, 2019 Valuation
Type of Benefit
Number of
Recipients
Total Monthly
Benefit Payments
Service Retirement1
Disability Retirement
Vested Terminated (Deferred)2
Surviving Spouse
Surviving Child
72
0
3
13
2
90
$282,208
0
5,869
36, 156
1.298
$ 325,531Total
Comparison of Pensioner Count by Type as of
The Prior and Current Actuarial Valuations
Type of Benefit eDecember 31, 20171 New
Service Retirement1
Disability Retirement
Vested Terminated (Deferred)
Surviving Spouse
Surviving Child
Total
1 Includes three alternate payees receiving benefits according to the terms of a Qualified Domestic
Relations Order
2 Monthly benefit payments are deferred to begin at terminated firefighter’s future retirement date.
RUDD AND WISDOM, INC.Elm\ ;E 12
DENTON FIREMEN9s RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
Exhibit 3
Firefighter and Pensioner Reconciliation
Current
Payment
Status
84 1
Vested
Terminated
FirefjghtersFirefjghters
189
Total
2761. As of December 31, 2017 3
2.Change of status
a.retrrement (5)
0
0
0
(8)
(2)
0
0
(15)
7
0
(6)
3
0
0
(1)
0
3
(2)
0
0
0
0
2
0
0
0
0
0
(6)
3
(8)
0
(1)
0
(12)
b.disability
deathC.
d.survivor payment begins
e.withdrawal
f.vested termination
g.
h
completion of payment
QDRO alternate payee
net changes1.
3. New firefighters 25 0
87
0
3
25
4. As of December 31, 2019 199 289
Includes three alternate payees receiving benefits according to the terms of a Qualified Domestic
Relations Order (QDRO).
RUDD AND WISDOM, INC.[]!!!!BIB]
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DENTON FrR£MEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
Exhibit 6
Summary of Asset Data
Market Value
as of
December 3 1, 2019
Allocdt'm
As a Percent
of Grand TotalAsset T'
Equities
U.S. Large Cap
U.S. Small/Mid Cap
International
Total
le
$39,482,531
8, 193,83 1
7.615.200
55,291 ,562
38.0(yo
7.9
7.3
53.2
Alternatives
Real Estate
MLP ’s/Royal Trusts
Total
12,988,907
5.565.718
18,554,625
12.5
5.4
17.9
Fixed Income
U.S. Treasury & Agency Bonds
Corporate Bonds
Total
12,387,550
3.793.590
16,181,140
11.9
3,7
15.6
Cash Equivalents 13.788.468 13.3
100.0(yoGrand Total $ 103,815,7951
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 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 3 1 . 2017 December 3 1 . 2019
Market Value $85,388,283 $ 103,815,795
$84,410,626 $98, 109,262Actuarial Value
Actuarial Value as a Percent
94.5(Hoof Market Value 98.9cFo
RUDD AND WISDOM9 INC,PAC,E 16
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
Exhibit 7
Statement of Changes in Audited Assets
for the Years Ended December 31, 2019 and 2018
12/3 1/2019 12/3 1/201 8
Additions
1. Contributions
a. Employer
b. Employees
c. Total
$ 3,639,740
2.478.958
$ 6,118,698
$ 3,434,007
2,338,837S 5,772,844
2. Investment Income
a. Interest and dividends
b. Net appreciation in fair value
c. Total
$ 3,659,547
11 .658.482
$ 15,318,029
§ 2,751,874
(2.742,3 13)
$ 9,561
3. Other Additions 1.704 0
Total Additions $ 21,438,431 $ 5,782,405
Deductions
4. Benefit Payments
a. Monthly benefits
b. Lump-sum benefits
c. Total
$ 3,781,902
425.073
$ 4,206,975
$ 3,709,324
346,532
$ 4,055,856
5. Expenses
a. Investment-related
b. General administrative
c. Total
$
$
S
178,458
71 ,427
249,885
S 1 92,709
87,899
$ 280,608
Total Deductions 4,456,860 $ 4,336,464
Net Increase in Assets $ 16,981,571 $ 1,445,941
Market Value of Assets (Fiduciary Net Position)
Beginning of Year
End of Year
$ 86,834,224
$ 103,815,795
$ 85,388,283
$ 86,834,224
Rate of Return
Net of All Expenses
Net of Investment-Related Expenses
Gross
17.17(yo
17.25cyo
17.48cyo
0.23(Ho
(0.31)Yo
(0,21)Yo
0.01(yo
0.22cFoInvestment-Related Expenses
R1 1 PAGE 17
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DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
Exhibit 11
Actuarial Methods and Assumptions
A. Actuarial Methods
1. Actuarial Cost Method
The Entry Age Actuarial Cost Method is an actuarial cost method in which the
actuarial present value of projected benefits of each active firefighter included in
the valuation is allocated as a level percentage of compensation 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.
RUDD AND WISDOM, INC.PAGE 21
DENTON FIREMEN’S RELIEF
AND RXTIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31. 2019
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
assumptr ons.
3. Mortality Rates
PubS-2010 (public safety) total dataset mortality tables for employees and for
retirees (sex distinct), projected for morality improvement generationally using the
projection scale MP-2019.
4. Compensation Increases
General increases of 3% per year (2.5% inflation plus 0.5% productivity) in
combination with promotion, step, and longevity increases that average 1,98% per
year over a 30-year career. See Exhibit 12.
RUDD AND WISDOM, INC.ED!!!![HIM
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
5. Retirement Rates
Rate per Year for Firefighters
Eljgjble to Retire
5%
15
30
50
100
Age
io-a
54-58
59-61
62-64
65
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. Termination Rates
See Exhibit 12.
8. Disability Rates
See Exhibit 12.
9. Reduction in Benefit after 21/; Years of Disability Retirement
45% weighted average reduction in benefit.
10. Percent Married
90% of the firefighters are assumed to be married at retirement, disability, or death
while employed, with male firefighters having a spouse four years younger and
female firefighters having a spouse four years older. We use actual spouse data
once a monthly benefit is being paid.
I<1 A PAC,E 23
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
11. Payment Form for Retirement Benefits Due to Service Retirement, Disability
Retirement, or Vested Termination
•Joint and 2/3 to surviving spouse for the 90% assumed to be married
• Life annuity for the 10% assumed to be single
To the extent optional forms of payment are elected and the amounts are determined
under an actuarial basis which differs from the basis used in the valuation, actuarial
gains or losses will occur. These gains or losses are expected to be very small and
will be recognized through the valuation process for those retiring since the prior
valuation who made an optional election.
12. Surviving Child’s Death Benefit
None are assumed as a result of future deaths
13. Firefighters’ Contribution Rate
12.60cY, of covered pay.
14. City’s Assumed Contribution Rate
For the scenarios with an actuarially determined amortization period for the UAAL,
18.50% of covered payroll for as long as the actuarially determined period.
15. Covered Payroll for First Year Following Valuation Date
Actual (or annualized) pay for 2019 with an adjustment of 3.5% for each firefighter
to reflect the average effect of the variable general pay increases effective in April
2019 and April 2020.
16. Administrative Expenses
The expenses paid by fund assets for other than investment-related expenses are
assumed to be 0.50% of payroll. The normal cost rate as a percent of payroll is
assumed to be 0.50% of payroll higher to reflect these expenses.
RUDD AND WISDOM, INC.PAGE 24
DENTON FIREMEN’S RELIEF
XND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31. 2019
Exhibit 12
Disability and Termination Rates per 1,000 Active Members
Compensation Increases by Years of Service
Disability Rates Termina1
Years of
Service
0
1
2
3
4
5
6
7
8
9
,on Rates ComDensati
Years of
Service
In Increases
Increase
Percent
9.18%
9.18
9.18
9.18
9.18
6.09
6.09
6.09
6.09
6.09
Attained Age
20
21
22
23
24
25
26
27
28
29
Rate
0.14
0.15
0.16
0.17
0.18
0.19
0.2 1
0.23
0.25
0.28
Rate
60
54
48
42
37
32
27
24
21
19
2
3
4
5
6
7
8
9
10
30
31
32
33
34
35
36
37
38
39
0.3 1
0.35
0.40
0.45
0.49
0.52
0.54
0.57
0.62
0.73
10
11
12
13
14
15
16
17
18
19
17
14
12
11
10
9
9
8
8
8
0
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
6.09
6.09
6.09
6.09
6.09
3.00
3.00
3.00
3.00
3.00
40
41
42
43
44
45
46
47
48
49
0.92
1.14
1.32
1.48
1.73
2.09
2.55
2.98
3.34
3.62
20 & Over 3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.00
3.0050
51
52
53
54
55 & Over
3.79
3.92
4.04
4.24
4.56
0.00
31 & Over
RUDD AND WISDOM, INC.[ !!!EM
DENTON FIR£MEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
Exhibit 13
Definitions
1. Actuarial Accrued Liability That portion, as determined by the particular actuarial
cost method used. of the Actuarial Present Value of
future pension plan benefits as of the Valuation Date
that is not provided for by the Actuarial Present Value
of future Normal Costs.
2. Actuarial Assumptions Assumptions as to the occurrence of fbture 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.
RUDD AND \VI.>HI F!11
B
PAGE 26
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31. 2019
8. Entry Age Actuarial Cost
Method
An actuarial cost method under which the Actuarial
Present Value of the Projected Benefits of each
individual included in the Actuarial Valuation is
allocated as a level percentage of 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 3 1.
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 fhture times according to the
Actuarial Assumptions, taking into account such
items as the effect of advancement in age and past and
anticipated future qualified service.
12. Overfunded Actuarial
Accrued Liability
The excess, if any, of the Actuarial Value of Assets
over the Actuarial Accrued Liability.
13. Unfunded Actuarial
Accrued Liability
The excess, if any, of the Actuarial Accrued Liability
over the Actuarial Value of Assets.
14. Valuation Date The date upon which the Normal Cost, Actuarial
Accrued Liability and Actuarial Value of Assets are
determined. Generally, the Valuation Date will
coincide with the end of a Plan Year.
15. Years to Amortize the
Unfunded Actuarial
Accrued Liability
The period is determined in each Actuarial Valuation
as the number of years, beginning with the Valuation
Date. to amortize the Unfunded Actuarial Accrued
Liability with a level percent of payroll that is the
difference between the expected total contribution rate
and the Normal Cost contribution rate.
RUDD AND WISDOM, INC.PAGE 27
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31. 2019
Exhibit 14
Summary of Present Plan
1. Normal Service Retirement Monthly Benefit as a Percent of
Highest 36-Month Average Salary for Each Year of Service 2.59cyo
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
(b) Maximum RETRO DROP benefit accumulation period
(c) Earliest employment termination date with
maximum RETRO DROP accumulation period
(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
Age 52 and 22 Years
48 Months
Age 56 and 26 Years
4. Initial Disability Retirement Monthly Benefit as a Percentage
of Highest 36-Month Average Salary
(a) Minimum percentage
(b) Additional percentage for each year of service in excess of 20 years
51.80(yo
2.59(Ho
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
RUDD AND WISDOM, INC.PACE 28
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
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
(b) Additional percentage for each year of service in excess of 20 years
34.53(yo
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(yo 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
(b) When the spouse is not receiving a benefit or there is no spouse
20cyo
100(yo
10. Contributions as a Percent of Payroll by:
(a) Firefighters
(b) City of Denton
12.60cyo
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 refbnd 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.
[1 1 PACE 29
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
Appendix A
Review of the Actuarial Economic Assumptions
for the December 31, 2019 Actuarial Valuation
Section 1. Asset Allocation and Investment Return Assumption Development
Gross Annual
Real Rate of
Investment
Return (ROR) 1
More
Fixed More
Income Equities
Current
12/31/20172 12/31/20193 Target3Asset Class
Equities
Domestic
Large Cap
Small/Mid Cap
International
6.5
7.0
7.0
359/a
7
7
37%
8
7
40%
10
10
35%
8
7
46%
12
12
Fixed Income
MPLs, Royalty Trusts
Real Estate
Cash
Total
1.5
7.0
5.0
0.0
14
7
14
16
100%
16
6
12
14
100%
10
8
15
7
100%
20
5
15
10
100%
10
0
10
10
100%
Weighted Average Gross Real ROR Assumption 4.72%
4.22
5.46%
4.96
4.72%
4.22
5.32%
4.82Weighted Average Net Real ROR Assumption4
Possible Theoretical Annual Investment Return Assumption:
Net Real ROR Plus Assumed Annual Rate of Inflation
Assumed 2.50% Inflation 6.72%7.46% 6.72% 7.32%
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
3
4
This allocation is from the investment consultant’s 12/3 1/2017 report.
This allocation is from the investment consultant’s 12/3 1/2019 report.
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.
RUDD AND WISDOM) INC,im\m
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
Appendix A (continued)
Section 2. Price Inflation in the USA
Average Annual Rates of Increase in the CPI-U
Years
(Dec. to Dec.)
Number
of Years
Average
Annual Increase
1954 – 2019
1959 – 2019
1964 – 2019
1969 – 2019
1974 – 2019
1979 – 2019
1984 – 2019
1989 – 2019
1994 – 2019
1999 – 2019
65
60
55
50
45
40
35
30
25
20
3.54%
3.68
3.91
3.91
3.62
3.07
2.58
2.40
2.18
2.14
Most inflation forecasts are for 10 years or less. For example, the average 10-year forecast in the
June 2020 Livingston Survey published by the Federal Reserve Bank of Philadelphia was 2.0%.
Similarly, the 2020 Wall Street Consensus Survey for the next decade included an average inflation
forecast of 2.1%. However, 10 years is much too short a forecast period for a public employee
defined benefit pension plan. In the 2020 annual report of the OASDI Trust Funds (Social
Security), the ultimate inflation assumptions for their 75-year projections are 3.0%, 2.4%, and
1.8% for the low-cost, intermediate, and high-cost assumptions, respectively. Looking at the
average annual increase in the CPI-U over historical periods of 30 to 65 years above and
considering the Social Security forecasts, we believe that reasonable assumed rates of inflation for
the long-term future would range from 2.25% to 3.25%. Shorter term considerations make the
bottom half of that range more desirable.
Section 3. Retirement Plan’s Expenses
Market Value of Assets Expenses
Direct
Admin. Investmt
(3) (4)
Expenses as a % of AssetsAdmin. DI
(3) = (2) (4) = (2)
(5) (6)
Plan
Year
(1)
2019
2018
2017
2016
Beginning of Year
(2)
$86,834,224
85,388,283
75,304,750
GI ,916,1 '17
$7 1 ,427
87,899
63,669
94, 1 75
$ 178,458
192,709
73,900
80, 181
0.08%
0.10
0.08
0.14
0.21%
0.23
0.10
0.12
Less than 12% of assets were in ETFs or mutual funds at the end of 2019, and all had relatively
low expense ratios. Those indirect expenses did not exceed 0.03% of total assets in 2019. The
investment-related expenses have been atypically low for a fund this size but increased some
beginning in 2018. For the long-term fbture, we assume a higher, but still modest rate of
investment-related expenses of 0.50%.
RUDD AND WISDOM, INC.m
DENTON FIREMEN’S RELIEF
AND RETIREMENT FUND
ACTUARIAL VALUATION
AS OF DECEMBER 31, 2019
Appendix A (continued)
Section 4. Administrative Expenses as a Percent of Payroll
Plan Year
Ending 12/3 1
(1)
2019
2018
2017
2016
2015
2014
2016-2019
Administrative
Expenses Paid by the Fund
(2)
$71 ,427
87,899
63,669
94, 175
76.538
8 1 ,005
$317,170
% of Payroll
(2) = (3)
(4)
0.36%o
0.47
0.37
0.59
0.53
0.58
0.45%
Covered Payroll
(3)
$ 19,674,270
18,562, 1 98
17,007,857
15,850,437
14,3 10,032
13,852,532
$71 ,094,762
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 3 1, 2019 actuarial valuation, we recommend 0.50%, based on the average developed
above for the last four plan years increased to reflect an increase starting in 2020 of the monthly
amount to the plan administrator. (The covered 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
12/3 1/201 7
Actuarial
Economic
Assumptions
2.50%
4.25
6.75%
4.98%
3.00%
0.55%
12/3 1/2019
Actuarial
Economic
AssumptionsActuarial Assumption(A)
Inflation (Price)
Net real rate of return(B)
Total investment return(B)
Firefighter pay increase(q
Aggregate payroll increase
Administrative expenses(D)
2.5096
4.25
6.75%
4.98%
3.00%
0.50%
(A) All assumptions are annual rates.
(B) Net of investment-related expenses.
(C) 3% annual general pay increase combined with promotion, step, and longevity pay increases that average 1.98%
over a 30-year career in both the 12/3 1/2017 assumptions and the 12/3 1 /2019 assumptions.
(D) Administrative expenses are reflected as a percent of payroll that is added to the normal cost contribution rate.
RUDD AND WISDOM, INC.PACE 32