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e e EXPLANATION OF ITEMS INCLUDED IN THE RECONCILIATION OF THE MUNICIPAL CONTRIBUTION RATE FOR 2004 WITH THAT OF 2003 NORMAL COST CONTRIBUTION RATE RECONCILIATION 1. CHANGE DUE TO TERMINATION OF STATUS AS A CONTRIBUTING MEMBER: This item reflects changes due to termination of status as a contributing member that may result from death, termination of employment, disability, or retirement. When a member stops contributing to TMRS, the city's cost of matching deposits ends, and the employee's salary is removed from the total payroll used to fund all benefits. Unless another employee fills the vacated position, this will normally cause an increase in the contribution rate. 2. CHANGES IN SERVICE AND SALARY CHARACTERISTICS OF CONTRIBUTING MEMBERS: Changes in Service: An increase in the number of contributing members from one year to the next increases the overall payroll used to fund retirement benefits. Although the liability for the city's matching funds will increase due to the new employees, the overall effect of increasing the number of contributing members usually is a decrease in a city's contribution rate. Changes in Salary: When a member's compensation changes from one actuarial valuation to another, the city's matching requirements likewise change. If the actual compensation experience is less than expected, the contribution rate generally increases; conversely, if the actual compensation experience is greater than expected, the contribution rate will generally decrease. 3. CHANGE DUE TO INCREASED AGE OF CONTRIBUTING MEMBERS: As the age of contributing members increases, the probability of the member remaining employed until retirement also increases. Increasing age of members will therefore increase the likelihood that a member will reach retirement eligibility and retire, resulting in an increase in the city's contribution rate. 4. INCREASE DUE TO PHASE-IN OF ACTUARIAL ASSUMPTION CHANGES: For eligible cities that chose to phase-in the effect of changes in actuarial assumptions resulting from the 5-year experience study completed in 1998, this amount is an increase in the calculated rate. The 2003 rate took into account 80% of the effect of the assumption changes. The 2004 rate takes into account 100% of the effect; thus the 2004 rate acknowledges the final 20% of the rate increase caused by changes in the actuarial 5. CONSERVATIVE FUNDING AND OTHER FACTORS: For cities with fewer than three contributing members, conservative funding formulas are used to calculate the normal cost contribution rate. These conservative funding formulas ensure that the city's matching portion is fully funded at the time of the employee's retirement eligibility. Also included in this category are adjustments for other actuarial factors. This is usually just the effect of rounding in the actuarial valuation process. PRIOR SERVICE CONTRIBUTION RATE RECONCILIATION 1. CHANGE DUE TO ANNUALLY REPEATING UPDATED SERVICE CREDITS AND ANNUITY INCREASES: For a city that has adopted annually repeating Updated Service Credits, this increase is the effect of the additional actuarial liability derived from the new credits to be granted effective January 1 of the year in which the rate is effective. Likewise, if the city has adopted annually repeating Annuity Increases, the effect of the additional actuarial liability derived from the annuity increases to be granted is included here also.