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HomeMy WebLinkAboutO-1976-1050 . . ORDINANeE NO. 1050 la, .- AN ORDINANeE INeREASING THE FIREMEN'S PENSION BENEFITS; APPROVING AN ACTUARIAL STUDY AND VALUATION; MAKING APPRO- PRIATIONS THEREFOR; AND PROVIDING AN EFFEeTlVE DATE HEREOF. BE IT ORDAINED BY THE eITY eOMMISSION OF THE CITY OF LA PORTE: Section 1. PurSuant to the Firemen's Relief and Retirement Law, known as Article 6243e, Vernon's eivil Statutes of Texas, as amended, the eity eommission of the eity of La Porte hereby increases the Firemen's Pension Benefits as follows, to-wit: 1. All participating members shall receive an increase in service retirement benefits (Section 6) and on-duty dis- ability benefits (Section 7) from $25 per month to $50 per month. 2. All participating members shall receive a 200 per . I, " - cent increase in death benefits (Section 12) for widows from $16.66 per month to $50.00 per month, and a 100 per cent increase in death benefits (Section 12) for children from $6.00 per month to $12.00 per month where a'widow is receiv- ing a benefit or from $12.00 per month to $24.00 per month where no widow is ,receiving a benefit. These benefits shall be paid where death is a result of performance of duty, or occurs after service,or disability retirement, or results from any cause after qualification for a 'pension certificate. 3. All people receiving pensions (retired volunteer -- firemen, widows'of deceased volunteer firemen and children of deceased volunteer firemen) shall receive an increase in their pensions as follows: a. Retired volunteer firemen - 100 per cent increase from $25 per month to $50 per month. b. Widows of deceased volunteer firemen - 200 per cent increase from $16.66 per month to $50.00 per month. c. ehildren of deceased volunteer firemen - 100 per cent increase from $6.00 per month to $12.00 per month where the widow is receiving .. ~-'. . . Ordinance No. 1050 , Page 2. . a benefit and from $12.00 per month to $24.00 per month where no widow is re- ceiving a benefit. Section 2. The eity eommission of the eity of La Porte hereby approves the ,actuarial study and valuation by Rudd and Wisdom, eonsulting Actuaries, dated August 20, 1976, a true and correct copy of which is attached hereto as Exhibit "A", incorporated by reference herein, and made a part hereof for all purposes. Section 3. The eity eommission of the City of La Porte hereby approves notification to Firemen's Pension eommissioner, Mr. Hal Hood, of benefit and eligibility requirement changes permitted tinder Section 7F of the Firemen's Relief and Retirement Law, a copy of which is attached hereto as Exhibit "B", incorporated by'reference herein, and made a part hereof for all purposes. Section 4. The eity eommission of the eity of La Porte hereby appropriates from the General Funds of the City of La Porte, to the Firemen's Pension Fund of the eity of La Porte, and hereby agrees to make the following annual contributions: a. $58 per member (active volunteer firemen con- tributing to fund and inactive volunteer firemen with 20-year certificates), and b. $10,429 per year for the 20-year period beginning October 1, 1976, and ending September 30, 1996. Such appropriations to supplement other funds available to said Firemen's Pension Fund. Section 5. This Ordinance shall be in full force and effect immediately upon its passage and approval. The increased pensions and benefits authorized hereunder shall be effective as of October 1, 1976. {. .~ . . Ordinance No. 1050 . , Page 3. PASSED AND APPROVED, this the 20th day of September, . A.D. 1976. ATTEST: o~ ~A: ' U!-x) eity Cl~ ' . APEZ uJ d;; City Attorney . e eITY OF LA PORTE ~~~ J. J: ~:a: Ma or .. .) ", -;.., i ~~. .....,- , . . RUDD AND WISDOM CONSULTING ACTUARIES JOHN S. RUDD. JR. ".L"'OW. COM......Ne. OF AC'I'UAR... EUGENE WISDOM "IELLOW. aOC'IETV OF' ACTUARI.. 402 PERRY. BROOKS BUILD'NG AUSTIN, TEXAS 78701 1112/477.11721 ROBERT M. MAY P'I!:L.L.OW. .oeIETY 0" ACTUARI.. e-' DAVID HUFF ".I:'-"'OW. aOCI.TY OF ACTUARI.. PHILIP S. DIAL ".LLOW. aOC'.TV 0" ACTUARI.. MARK R. FENLAW "..GCIATIE. aOCI.TV OF' ACTUARI.. KRISS CLONINGER. III ".LLOW. aOC'ETY 0.. ACTUA.,.. August 20, 1976 La Porte Fire Department eity of La Porte La Porte, Texas 77571 SEeT I ON 1. seOPE OF THIS REPORT In accordance with a directive of March 8, 1976, from Ms. Margie Goyen, eity elerk of the eity of La Porte, an actuarial valuation and ,special study was made of the Firemen's Relief and Retirement Fund'of La Porte, - Texas as of December 31, 1975. Before making the actuarial valuation and special study it was neces- sary to adopt appropriate assumptions with respect to rates of with- drawal, death, disability, and service retirement. The assumptions adopted are shown in Exhibits 1 and 2. The disability and service retirement rates were developed from our 1960 investigation of the State Firemen's Pension System. The death and withdrawal rates were developed from more recent experience of several cities within t~e State system as well as from other public retirement systems. The death rates are signficantly lower than those adopted in the 1960 . investigation, and the withdrawal rates for firemen who enter service before age 30 are signficantly higher. The assumptions adopted were, then applied. to the benefits and contri- bution rates in effect on December 31, 1975, to make the actuarial valuation and special study. ,,~ .. - . . . -( "'" e SEeTION II. . AeTUARIAL VALUATION e .. On the basis of these assumptions, the actuarially valued assets and liabilities of the fund as of December 31, 1975, were determined to be as follows: VALUATION BALANeE SHEET December 31, 1975 LIABILITIES: 1. Present valu~ of future benefits payable on account of those now receiving benefits: (a) Service retired members (b) Widows 2. Present value of future benefits payable to present active firemen: (a) Standard service retirement (firemen and dependents) (b) Death (c) Disability (firemen and dependents), 3. Total Liabilities ASSETS: 4. Tangible assets of Pension Fund, December 31, 1975 5. Present value of future contibutions made on behalf of firemen ($5 per fireman per year) 6. Present value of future state contibu- tions (excluding Emergency Reserve Fund Warrants) of $358.57 per year (1971-1975 average) 7. Total Assets 8. Unfunded Liability 9. Total Assets and Unfunded Liability - 2 - $ 21,560 15,328 $ 36,888 $ 24,554 856 5,374 30,784 $ 67,672 $ o 1,946 7,171 $ 9,117 58,555 $ 67,672 <. . 'j' :Jo'; e e In presenting the Valuation Balance Sheet, assets and liabilities are " shown in the manner customary to pension valuation reporting. Where- ever used, the term "present value" means the dollar value as of the tit valuat~on date (December 31, 1975) of amounts to be received or paid thereafter according to the rates and tables adopted, and discounted at 5% interest. The valuation was made with respect to future contrib- utions receivable on behalf of the firemen from the firemen; city and state and future benefits payable to members and'their beneficiaries as of the valuation date. In calculating liabilities, the provisions of the Firemen's Relief and Retirement Law and schedules of benefits in effect on December 31, 1975, were assumed to govern benefits payable to members and their benefi- ciaries in the Iuture. e In calculating assets, it was assumed that the amount of annual contributions payable on behalf of each member would rem~in $5 annually in the future. Information concerning the membership of the Department was obtained from Ms. Goyen. Item B of the Valuation Balance Sheet shows that the plan has an unfunded liability (excess of liabilities over assets) of $58,555. In order to enhance the security of benefit rights of both the plan par- ticipants now receiving benefits as well as those who will be entitled to receive benefits in the future, we consider it to be important that . you set aside funds for each participant in advance of his date of retirement. For the plan to be fully funded in advance of each partic- ipant's retirement, the unfunded liability described above should be eliminated. - 3 - ~ e' . We have determined that the normal cost of present benefits for each plan participant is $27 per year. The normal cost is the dollar amount required to be paid on behalf of each fireman from his date of tit employment to his retirement date in order to accumulate the amount needed to provide the plan benefits. e - Since the $5 contributed on behalf of each fireman is much less than his $27 normal cost, the deficit is causing the plan"s unfunded liabil- ity to increase. As a result, it' is impossible to pay full pensions to those firemep and widows currently entitled to receive benefits without relying on both the Emergency Reserve Fund warrant from the State of Texas ($300.00 in 1975) and the special city contribution ($3,054.94 in 1975). In order for the plan to be considered actuarially sound, we feel that annual contributions should be made that are adequate to satisfy the following two obje~tives: 1. pay for the plan's normal cost and amortize the plan's unfunded liability within a reasonable period (20 years or less), and 2. pay the full amount due to current pensioners and the full amount that will be due to firemen who retire in future years. Since the contributions you are now paying of $5 per firman per year are not adequate to meet either of the above two objectives, we con- sider your plan, based on present levels of benefits and contributions, to be actuarially unsound. In order to place the fund in an actuar- ially sound position, we recommen~ that a contribution of $27 for each - 4 - { - e . 1 ~, . e e fireman not yet retired plus an additional $4,017 be made annually for the next 20 years through 1995. eontributions of this level should satisfy both of the above criteria. SEeTION III. SPEeIAL STUDIES We have been asked to determine the level of contributions required for you to increase benefits under the plan. We have made such a determination for a plan that provides for an increase in the standard benefits for service and disability retirement from $25 per month to $50 per month for active volunteers, inactive volunteers with 20 year certificates and retired volunteers. Further, death benefits payable to current and future widows will be increased from $16.66 per month to $50 per month. These benefit provisions and their costs are summarized below. For the proposed plan, we have developed the total ~nnual contribution as an amount for each pa~ticipant not yet retired (i.e., for each act~ve fireman and for each .terminated fireman with a 20 year certificate) plus a flat additional amount required to insure the adequacy of the funding of the plan. Present Plan Proposed Plan Standard benefits to participants not yet retired $ $ 25 50 Increase in benefits to retired firemen 0% 100% Increase in benefits to widows 0% 200% Annual eontributions eontributions for each participant not yet retired $ $ 27 58 Flat additional amount 4,017 10,429 Total contributions based on current membership (42 participants not currently retired) 5,151 12,865 - 5 - -- - . '" e . The flat additional amount of $10,429 for the proposed plan will be required each year during the 20 year period 1976 through 1995 regard- less of the number of volunteer firemen who are serving the city. In F.YhiQit 3, the position of your fund is projected over the next 10 years assuming your contributions are increased to the $5,151 above plus regular state contributions of $359 per year, the fund earns 5% interest each year and retirements occur at the dates the firemenuare f~rst eligible to retire. Under this projection, the fund will grow from its current level of $0 to $14,711 ~t the end of 1985, and would continue to grow after 1985. The accumulation of money within the fund and its continued growth after 1985 will provide adequate security for those now receiving benefits and those who will receive benefits in the future. Exhibit 4 projects the fund over the same period of time but provides for standard benefits of $50 per month, a 100% increase in benefits to retired firemen" a 200% increase to widows, and contributions of $12,865 per year by the city and firemen plus state contributions of $359 per year. The fund also increases but at a rate somewhat faster than in Exhibit 3. This is necessary in order to provide adequate security to meet the increased level of both current and 'future benefit payments. Exhibit 5 has been developed to compare the actuarial condition of your fund with present benefits and the recommended level of contribu- tions with its condition if you increase benefits under the proposed plan as described above. The contributions shown above for the present plan and the proposed plan are sufficient to pay the normal cost and amortize the unfunded - 6 - .., e . liability (shown in Item 8 of Exhibit 5) over a period of 20 years or less. Also, we feel that these annual contributions will provide the funds necessary to pay the full amount of all pensions which become e payable in the future on behalf of both current and future pensioners. As a result, we feel that each of the above plans is actuarially sound and that the proposed plan meets the actuarial approval requirements of Section 7F of the Law. Respectfully submitted, RUDD AND WISDOM ~)rl~ Robert M. May , Fellow of the Society of Actuaries Member of the American Academy of Actuaries e . - 7 - EXHIBIT 1 - ", ALL RATES ARE . 1,000 MDABERS AT THE ATTAmAGE SHOWN Attained DEATH RATE DISABILITY RATE AEl.e On-Duty Off-DutY* On-Duty Off -DutY* 2.5 1. 0.5 1.27 1.01 0.17 26 1.01 1.29 1.0.5 ' .18 e 27 0.97 1.30 1.09 .18 28 .94' 1. :3.3 1.13 .19 29 .91 1.37 1.21 .20 30 .88 1.41 1.28 .21 31 .86 1.47 1.36 .23 32 .84 1. .53 1. 43 .24 33 .83 1..58 1..51 .2.5 34 ,.82 1. 6.5 1.64 .27 3.5 .81 1.7.5 1.76 .29 36 .81 1.88 1.90 .32 37 .81 2.04 2.02 .34 38 .81 2.23 2.1.5 .36 39 .82 2.48 2.41 .40 40 .82 2.77 2.67 .44 41 .82 3.09 2.93 .49 42 .83 3.46 3.19 . .53 43 .84 3.86 3.4.5 ..58 44 .8.5 4.33 3.92 .6.5 4.5 .8.5 4.83 4.40 .73 e 46 .86 .5.39 4.88 .81 47 .87 ,6.02 .5.36 .89 48 .88 6.72 .5.83 .97 49 .89 7.49 6.92 1.1.5 .50 .90 8.33 8.00 1. 33 .51 .91 9.24 9.10 1..52 .52 .93 10.22 10.18 1.70 .53 .9.5 11.27 11.27 1.88 .54 .97 12.39 14.34 2.39 .5.5 .99 1.3..58 .56 1.02 14.84 .57 1. 0.5 16.17 .58 1.09 17.64 .59 1.13 19.32 60 1.17 21.28 61 ;1..22 23..52 62 1.27 26.04 63 1.32 28.84 64 1.37 31.92 . 6.5 1.43 3.5.28 66 1. .53 38.92 67 1. 63 42.84 68 1.74 47.04 69 1.8.5 51.52 * For cities with no off'-duty coverage, the of'f-:-duty deaths and disabilities during the first 20 years of service were treated the same as withdrawals, i.e., no bene- fits payable. For all cities (whether they have off-:-duty coverage or not), after 20 years of service, the off'-duty deaths and disabilities were treated as though they were on-duty deaths and disabilities, since the benefits provided are identical. - 8 - EXHIBIT 2 .. WInAAL RATES AND SERVICE RET~ RATES PER 1,000 MEMBERS AT THE YEARS OF SERVICE SHOWN MEAN ENTRY AGE 25 MEAN ENTRY AGE 34 Service Service Years of Withdrawal Retirement Withdrawal Retirement Service Rate Rate Rate Rate e 0 163 0 163 0 1 146 0 146 0 2 130 0 130 0 3 115 0 115 0 4 100 0 100 0 5 86 0 86 0 6 74 0 74 0 7 65 0 65 0 8 58 0 58 0 9 52 0 52 0 10 45 0 45 0 11 38 0 38 0 12 32 0 32 0 13 29 0 29 0 14 26 0 26 0 15 25 0 25 0 16 24 0 24 0 17 22 0 22 0 18 21 0 21 0 -- 19 20 0 20 0 20 0 0 0 79 21 0 0 0 77 22 0 0 0 75 23 0 0 0 73 24 0 0 0 71 25 0 0 0 70 26 0 26 0 70 27 0 22 0 72 28 0 18 0 77 29 0 14 0 83 30 0 12 0 92 31 0 11 0 . 107 32 0 11 0 132 33 0 12 0 170 34 ' 0 17 0 235 35 0 25 0 375 36 0 37 0 1000 e 37 0 52 38 0 74 39 0 103 40 0 144 41 0 206 42 0 305 43 0 507 44 0 760 45 0 1000 - 9 - . Year 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 ~984 .985 '\ e . EXHIBIT 3 LA PORTE fIREMEN'S RELIEF AND RETIREMENT FUND eash Flow Model - Present Plan Fund at Contributions Payments Fund at Beginning by eity, Investment from End of of Year Firemen & State Income Fund Year ,$ 0 $ 3,941 $ 0 $ 3,941 $ 0 0 3,924 0 3,924 0 0 4,024 0 4,024 0 0 4,179 0 4,141 38 38 3,878 0 3,916 0 0 5,510 4,6 3,688 1,868 1,868 5,510 121 4,387 3,112 3,112 5,510 181 4,522 4,281 4,281 5,510 237 4,586 5,442 5,442 5,510 296 4,545 6,703 6,703 5,510 363 4,409 8,167 8,167 5,510 436 4,377 9,736 ,9,736 5,510 514 4,440 11,320 11,320 5,510 595 4,~57 13,068., 13,068 5.510 677 4,544 14,711 I. Data for years 1971 through 1975 based on the annual reports for those years. II. Assumptions for years 1976 through 1985: . eontributions - by the eity, a level amount of $5,151 per year and by the State, a level am~unt of $359 per year. Investment Income - is 5% per year on the average fund balance in each year. Mortality Rate - is 3% per year. Retirement Benefits - granted at age first eligible based on a service retirement benefit of $25 per month. - 10 - ~ . Year 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 .984 985 e . EXHIBIT 4 LA PORTE FIREMEN'S RELIEF AND RETIREMENT FUND eash Flow Model - Proposed Plan Fund at eontributions Payments Fund 'at Beginning by City, Investment from End of of Year Firemen & State Income Fund Year $ 0 $ 3,941 $ 0 $ 3,941 $ 0 0 3,924 0 3,924 0 0 4,024 0 4,024 0 0 4,179 0 4,141 38 38 3,878 0 3,916 0 0 13,224 107 8,930 4,401 4,401 13,224 294 10,282 7,637 7,637 13,224 450 10,507 10,804 10,804 13,224 606 10,592 14,042 14,042 13,224 771 10,468 17,569 17,569 13,224 955 10,154 21,594 21,594 13,224 1,159 10,049 25,928 25,928 13,224 1,373 10,136 30,389 30,389 13,224 1,601 9,932 35,282 35,282 13,224 1,838 10,269 40,075 I. Data for years 1971 through 1975 based on the annual reports for those years. II. Assumptions for years 1976 through 1985: . eontributions - by the eity, a level amount of $12,865 per year and by the State, a level amount of $359 per year. Investment Income - is 5% per year on the average fund balance in each year. Mortality Rate - is 3% per year. Retirement Benefits - granted at age first eligible based on a service retirement benefit of $50 per month. Previously retired firemen are granted an increase from $25 per month to $50 per month and widows are granted an increase from $16.66 to $50 per month. - 11 - el . -. .. . Present Proposed Plan Plan $ 25 $ 50 0% 100% 0% 200% e $ 36,888 $ 9~,118 24,554 53,378 856 2,568 5,374 10,748 $ 67,672 $ 159,812 $ 0 $ 0 10,437 22,676 7,171 7,171 $ l7,60~ $ 29,847 e, 50,064 129,965 ~ 67,672 ~ 159,812 - $ 27 $ 58 $ 1,134 $ 2,436 $ 4,017 $ 10,429 $ 5,151 $ 12,865 20 20 _1 . EXHIBIT 5 PLAN Maximum Standard Benefits Increase to Retired Firemen Increase to Widows LIABILITIES l. Present value of future benefits - pensioners 2. Present value of future benefits - activeparticipants* a. Standard service retirement b. Death I c. Disability retirement .... '" 3. Total Liabilities I ASSETS 4. Tangible assets 5. Present value of future normal cost contributions 6. Present value of future state contributions of $359 per year (1971-1975) average 7. Total Assets 8. Unfunded Liabilities 9. Total Assets and Unfunded Liabilities 10. Normal cost per participant 11. Total normal cost for current membership* 12. Additional annual contribution 13. Total contribution for current membership* 14. Years to amortize unfunded liability * Our study was based on 42 volunteer firemen , '- .- e e .;,J. of . ~ .. LA PORTE FIREMEN'S RELIEF AND RETIREMENT FUND , . N~tification to Firemen's ,Pension Commissioner, Mr, Hal Hood, of Benefit and Eligibility Requirement changes permitted under Section 7F of the Firemen's Relief and Retirement Law The ~ participating members of the La Porte Firemen's Relief and Retirement Fund held a secret ballot as required under Section 7F of the Law on September 7, 1976. ,40 voted in favor of the changes de- scribed below and o voted against these changes. The number voting in favor represent a majority of the participating members. The changes to be made are: 1. All participating members shall receive an increase in service retirement benefits (Section 6) and on-duty disability benefits (Section 7) from $25 per month to $50 per month. 2. All participating members shall receive a 200 percent increase 4It' in death benefits (Section 12) for widows from $16,66 per month to $50,00 per month, and a 100 percent increase in death benefits (Section 12) for children from $6.00 per month to $12.00 per month where a widow is re- ceiving a benefit or from $12,00 per month to $24.00 per month where no widow is receiving a benefit. These benefits shall be paid where death is a result of performance of duty, or occurs after service or disability retirement, or results from any cause after qualification for a pension certificate. 3. All people receiving pensions (retired volunteer firemen, widows of deceased volunteer firemen and children of deceased volunteer firemen) .' shall receive an increase in their pensions as follows: a. Retired volunteer firemen - 100 percent increase from $25 per month to $50 per month. b, Widows of deceased volunteer firemen - 200 percent increase from $16.66 per month to $50,00 per month, - 1 - EXHIBIT,"B" f ." - ~ .....1 ~ .. l .'... ... .. e e .;; c, Children of deceased volunteer firemen - 100 percent increase from $6.00 per mon~h to $12.00 per month where the widow is receiving a benefit and from $12,00 per month to $24,00 per . month where no widow is receiving a benefit, 4. The City of La Porte will make the following annual contributions: a. $58 per member (active volunteer firemen contributing to fund and inactive volunteer firemen with 20 year certificates), and b. $10,429 per year for the 20 yea~ period beginning October 1, 1976 and ending September 30, 1996, These changes will become effective October 1, 1976. e- ~ ~\.l .) seC~rY-T~ Board of Trustees La Porte Firemen's Relief And Retirement Fund e- -2- EXHIBIT "B"