HomeMy WebLinkAboutO-1993-1875-J
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ORDINANCE NO. l<f15-0"
AN ORDINANCE AMENDING ORDINANCE 1875-1, AUTHORIZING AND
ALLOWING, UNDER THE ACT GOVERNING THE TEXAS MUNICIPAL
RETIREMENT SYSTEM, "UPDATED SERVICE CREDITS" IN SAID SYSTEM ON AN
ANNUAL BASIS FOR SERVICE PERFORMED BY QUALIFYING MEMBERS OF
SUCH SYSTEM WHO AT THE EFFECTIVE DATE OF THE ALLOWANCE ARE IN
THE EMPLOYMENT OF THE CITY OF LA PORTE; PROVIDING FOR INCREASED
PRIOR AND CURRENT SERVICE ANNUITIES FOR RETIREES AND
BENEFICIARIES OF DECEASED RETIREES OF THE CITY; AND ESTABLISHING
AN EFFECTIVE DATE FOR THE ORDINANCE,
BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF LA PORTE, TEXAS:
Authorization of Updated Service Credits.
(a) On the terms and conditions set out in Sections 853.401 through 853.404 of
Subtitle G of Title 8, Government Code, as amended (hereinafter referred to as the "TMRS
ACT"), each member of the Texas Municipal Retirement System (hereinafter referred to as the
"System") who has current service credit or prior service credit in the System in force and effect
on the 1 st day of January of the calendar year preceding such allowance, by reason of service in
the employment of the City, and on such date had at least 36 months of credited service with the
System, shall be and is hereby allowed "Updated Service Credit" (as that term is defined in
subsection (d) of Section 853.402 of the TMRS Act).
(b) On the terms and conditions set out in Section 853.601 of the TMRS Act, any
member of the System who is eligible for Updated Service Credits on the basis of service with
this City, who has unforfeited credit for prior service and/or current service with another
participating municipality or municipalities by reason of previous service, and was a contributing
member on the 1st day of January of the calendar year preceding such allowance, shall be
credited with Updated Service Credits pursuant to, calculated in accordance with, and subject to
adjustment as set forth in said Section 853.601, both as to the initial grant hereunder and all
future grants under this ordinance.
(c) The Updated Service Credit hereby allowed and provided for shall be 100% of
the "base Updated Service Credit" of the member (calculated as provided in subsection (c) of
Section 853.402 of the TMRS Act).
(d) Each Updated Service Credit allowed hereunder shall replace any Updated
Service Credit, prior service credit, special prior service credit, or antecedent service credit
previously authorized for part of the same service.
(e) In accordance with the provisions of subsection (d) of Section 853.401 of the
TMRS Act, the deposits required to be made to the System by employees of the several
participating departments on account of current service shall be calculated from and after the
effective date of this ordinance on the full amount of such person's compensation as an employee
of the City.
ORDINANCE NO.
Page 2
I g 1_0
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Increase in Retirement Annuities,
(a) On terms and conditions set out in Section 854.203 of the TMRS Act, the City
hereby elects to al10w and to provide for payment of the increases below stated in monthly
benefits payable by the System to retired employees and to beneficiaries of deceased employees
of the City under current service annuities and prior service annuities arising from service by
such employees to the City. An annuity increased under this Section replaces any annuity or
increased annuity previously granted to the same person.
(b) The amount of the annuity increase under this Section is computed as the sum of the
prior service and current service an.nuities on the effective date of retirement of the person on
whose service the annuities are based, multiplied by 70% of the percentage change in Consumer
Price Index for All Urban Consumers, from December of the year immediately preceding the
effective date of the person's retirement to the December that is 13 months before the effective
date of this Section.
(c) An increase in an annuity that was reduced because of an option selection is reducible
in the same proportion and in the same manner that the original annuity was reduced.
(d) If a computation hereunder does not result in an increase in the amount of an annuity,
the amount of the annuity will not be changed hereunder.
(e) The amount by which an increase under this Section exceeds all previously granted
increases to an annuitant is an obligation of the City and of its account in the municipality
accumulation fund of the System.
Dates of Allowances and Increases
The initial allowance of Updated Service Credit and increase in retirement annuities hereunder
shall be effective on January 1, 2004, subject to approval by the Board of Trustees of the
System. An allowance of Updated Service Credits and an increase in retirement annuities shall
be made hereunder on January 1 of each subsequent year until this ordinance ceases to be in
effect under subsection (e) of Section 853.404 of the TMRS Act, provided that, as to such
subsequent year, the actuary for the System has made the determination set forth in subsection
(d) of Section 853.404 of the TMRS Act.
Effective Date
Subject to approval by the Board of Trustees of the System, this ordinance shall be and become
effective on the 1st day of January 2004.
PASSED AND APPROVED this the 8th day of December, 2003.
CITY OF LA PORTE
BY~P/'-
Ntm an L. Malone, Mayor
ATTEST:
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t!!c4tdA ~-dL
art a Gillett, CitY Secretary
APP~td ~
Knox W. Askins
City Attorney
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PLAN IMPROVEMENT STUDY
EXPLANATION OF PLANS
TMRS member cities have the opportunity to annually adopt Updated Service Credit and Annuity Increases; improving
retirement benefits for both active employees and retirees who are currently receiving a monthly retirement benefit from
the System.
Section I {Proposed Plans "1" through "5"}
If the City adopts 1 00% Updated Service Credit effective January 1, 2004, a member's updated service credit will be
calculated based on the member's average monthly salary for the three-year period of 2000, 2001 and 2002, assuming
the member had always earned that average salary and made contributions to the System, matched by the City on the
basis of the three-year average salary, and had earned 3% annual interest. In other words, a member's retirement
benefits are "updated" based on the wages earned in recent years {granted a credit if the updated service credit
calculation is greater than the actual amount from all sources in the member's account}. In addition, if the City has
increased the employee deposit rate and/or the City's matching ratio, the new updated service credit will reflect those
changes. If the City adopts an Updated Service Credit of less than 100%, the percentage adopted will be used in
calculating the member's credit.
The "Proposed Plans" on the Plan Improvement Study {Section I} are prepared as follows:
1. The first plan includes Updated Service Credit, along with the Senate Bill 505 provisions if the City has not
previously adopted these provisions. If your City has adopted the Annually Repeating Updated Service
Credit and Annuity Increases, this plan indicates the separate cost of the update.
2. If your City has a matching ratio other than 2 to 1, or an employee deposit rate other than 7%, additional
proposed plans will be shown with a higher matching ratio or a higher employee deposit rate, as well as
Updated Service Credit. These plans will also include the optional provisions of Senate Bill 505 if the City
has not previously adopted these provisions.
Section II {Proposed Plans "A" through "C"}
The City also has the option to adopt increases in the monthly annuities being paid to retirees. Most cities adopt
annuity increases each year along with the Updated Service Credit. The increase that can be granted to retirees is
calculated based on a maximum of 70% of the change in the Consumer Price Index {CPI-U}, less any previously
granted increases. The change in the CPI is measured from the December preceding the individual's actual retirement
date through December 2002. Proposed Plans "A" through "C'" indicate the cost of the various levels of annuity
increases. The rate shown under one of these proposed plans must be added to the rate of a Proposed Plan in Section
I to yield the City's total contribution rate.
The City can adopt Updated Service Credit and Annuity Increases by adoption of an ordinance each year, or by
adopting the annually repeating provision whereby the City is not required to adopt an ordinance each year. By
adopting Updated Service Credit and Annuity Increases regularly, the City will be providing a retirement program that
keeps benefits in line with increases in employees' salaries, in addition to protecting retirees' monthly retirement
annuities for the effects of inflation.
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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.
PAGE 2 - EXPLANATION OF RECoAIATION
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2. CHANGE DUE TO PAYROLL EXPERIENCE:
The prior service contribution rate is closely linked to the city's payroll. An increase in payroll above the actuarial
assumption reduces the contribution rate. An increase in payroll of less than the actuarial assumption, or a
decrease in the payroll, will cause an increase in the contribution rate. The actuarial assumptions are based on
the historical trends in the city itself, and allow the actuary to project future contributions to the retirement system.
3. CHANGE DUE TO ACTUARIAL GAINS, INCONSISTENT CONTRIBUTIONS, OR OTHER ACTUARIAL FACTORS
This is a broad category and includes changes in three areas. The first area is actuarial gain. The
assumptions used in the actuarial valuation process enable the actuary to project the value of the Unfunded
Actuarial Liability (UAL) from the previous actuarial valuation to the current actuarial valuation. The difference
between the projected UAL and the actual UAL is called an actuarial gain (a negative difference is an actuarial
loss). This gain, or loss, takes into account the differences between events (investment return, deaths,
retirements, disabilities, and withdrawal of member contributions) assumed on the basis of the actuarial
assumptions and the corresponding real-life events that occurred between the preceding actuarial valuation
and the current one. An actuarial gain reduces the prior service contribution rate, and a loss increases it.
.
The second area in this category is inconsistent contributions. This refers to timing of the valuation and when
contribution rates actually take effect. A city's 2004 contribution rate is based on the valuation for the year
ended December 31,2002. There is, therefore, a one-year period from the time the actuarial experience is
recognized and the time the contribution rate is changed to reflect the actuarial experience. During this one-
year lag time, 2003 in this case, the city may be contributing too little or too much as a result of the actuarial
experience for the year ended December 31,2002. Therefore, the contribution rate must be adjusted to
account for this one-year lag time. If actuarial experience is better than assumed, the contribution rate can be
reduced. Likewise, if actuarial experience is worse than assumed, the contribution rate will be increased.
The third area includes adjustments for other actuarial factors. This is usually just the effect of rounding in the
actuarial valuation process.
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
assumptions.
5. CHANGE DUE TO EFFECTS OF CONSERVATIVE FUNDING:
This item is the effect of conservative funding formulas used to calculate the prior service contribution rate for
cities with fewer than three contributing members. These conservative funding formulas provide for funding the
prior service benefits over the remaining expected working life of the contributing members.
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SURROUNDING CITIES TMRS INFORMATION
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REQUEST FOR CITY COUNCIL AGENDA ITEM
Appropriation
Requested By:
Source of Funds: Various
Department: Human Resources
Account Number: Various
Report:
Resolution:
Ordinance: X
Amount Budgeted:
Ordinance
Amount Requested: $56.000
Exhibits:
Exhibits:
TMRS supportine: documentation
Budgeted Item: YES
Exhibits:
Survey of core citie!ii
SUMMARY & RECOMMENDATION
The Texas Municipal Retirement System Act (TMRS) enables member cities to adopt Updated Service
Credits and Increased Annuities, providing cities the opportunity to upgrade retirement benefits for active
employees and for retirees who currently receive a monthly annuity from TMRS.
By adopting Updated Service Credits at 100% for the year 2004, Council allows a member's retirement
benefit to be recalculated based on the member's average monthly salary for the three (3) year period
ending December 31, 2002. The member's retirement benefit is "updated" to reflect higher wages that
were earned for those three (3) years.
By including Increased Annuities, Council allows an increase for monthly annuities paid to City of
La Porte retirees. The increased calculation is based on a maximum of 70% of the change in the
Consumer Price Index, less any previously granted increases.
This ordinance becomes effective January 1,2004, and is repeating. Council has the option to repeal the
repeating provision. Adopting this ordinance will increase the City's contributions from 11.6% to
12.09% of payroll for 2004 at an estimated cost of$56,000.
Funds have been budgeted for updated service credits and increased annuities.
Staff Recommendation
Approve the ordinance authorizing Updated Service Credits and Increased Annuities on an annual
repeating basis
Action Required bv Council:
Adopt an ordinance authorizing Updated Service Credits and Increased Annuities on an annual repeating
basis
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Date