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Item 7ACITY OF SOUTHLAKE MEMORANDUM November 6, 2009 TO: Shana Yelverton, City Manager FROM: Kevin Hugman, Director of Human Resources SUBJECT: Ordinance No. 965, 1 st reading, Amend certain Texas Municipal Retirement System (TMRS) benefits for employees and retirees Action Requested: City Council approval of Ordinance No. 965, amending certain provisions related to Updated Service Credits (USC) for current employees, and changing the percentage multiplier related to cost -of- living annuity increases for retirees. ( NOTE : The proposed Ordinance has been provided by TMRS and contains standard language required by law. The ordinance caption is somewhat misleading in that: (1) Updated Service Credit is already provided — this ordinance change removes a specific provision of that feature; and (2) the "increase" in prior and current service annuities is already provided for — this ordinance change provides for a reduction in the factor used to calculate increased annuities due to cost -of- living.) Background Information: Beginning with calendar year 2009 (reflected in the FY 2009 budget), TMRS made significant changes in the actuarial cost method and actuarial assumptions used to determine City contribution rates. While the TMRS system remains financially sound, these changes were incorporated to ensure the City's contribution rates remain relatively stable over the long term and provide more actuarially accurate funding for the City's retirement benefits. Additional changes were approved by the TMRS Board of Trustees this year which has contributed to another increase in the City rate for calendar year 2010 and forward. To manage this rate increase, staff has reviewed the City's level of benefits, and determined that certain changes could be made which would lower the City's contribution rate with minor impact to current employees and retirees. It should be noted that neither of these changes will reduce the current level of retirement benefits for active employees or retirees. If approved, this ordinance will take effect January 1, 2010. Shana Yelverton, City Manager November 6, 2009 Page 2of3 The proposed changes are: (1) Removal of Transfer provision of Updated Service Credit (USC) — USC was originally established to help keep retirement benefits from being eroded over time due to inflation. When calculating USG, TMRS actuaries look at the changes in an employee's salary during his or her career, as well as any changes the City has made to its TMRS plan. This will increase the monthly retirement benefit an employee may receive. The Transfer provision allows for an employee's service with other TMRS cities to also be included in the USC calculation. Southlake is required to provide the financial contribution to an employee's TMRS account to cover this increase. Removal of the Transfer provision will not affect the USC calculation for an employee's service in Southlake, nor will it affect the USC calculation an employee may have received in another city while working at that city. Those credits will remain in effect. The proposed ordinance removes the Transfer provision by exclusion of the language that allows this. Ordinance No. 748, approved June 1, 1999 includes the Transfer language — this ordinance will replace the USC provisions approved then, and make the new provisions effective January 1, 2010 and forward. (2) Reduction of the Annuity Increase provision — retirees are eligible for an annuity increase (commonly referred to as a COLA increase) each year that is based on a percentage of the Consumer Price Index. Southlake currently uses a factor of 70% of the CPI in calculating the annuity increase. The proposed ordinance will reduce the percentage multiplier from 70% to 50% of the CPI. Retirees will see little to no effect immediately as a result of this change. The 2010 COLA is based on the 2008 CPI change —which was only 0.1 % (as reported by TNIRS E- Bulletin dated September 30, 2009). Therefore, even assuming a 70% multiplier, a retiree would see only a 0.07% increase in monthly benefits — a 70¢ increase on a $1000 monthly benefit. Financial Considerations: With no changes to the current level of benefits, the City's contribution rate for 2010 would increase to 14.84 %, up from the 2009 rate of 14.06 %. This increase would cost approximately $124,853 in 1=Y 2010. With the adoption of the proposed ordinance, the TMRS required contribution rate for calendar year 2010 will 12.83 %, reducing the Unfunded Actuarial Liability from $12,081,724 to $9,471,803 over a 29 Shana Yelverton, City Manager November 6, 2009 Page 3 of 3 year period. This results in a total cost savings of approximately $321,737 in FY 2010. Citizen Inputt Board Review: NIA Legal Review: The proposed ordinance has been provided by TMRS and meets statutory requirements. The City Attorney has also reviewed the proposed ordinance. Alternatives: Changes as may be desired by City Council. Supporting Documents: • Ordinance No. 965, Amending certain Texas Municipal Retirement System JMRS) benefits for employees and retirees • TMRS Plan Change Study Staff Recommendation: City Council approve Ordinance No. 965. G�Qpt Re F �� AU5Y5K ORDINANCE No. 965 TEXAS MUNICIPAL RETIREMENT SYSTEM TMRS -USC CPI R AN ORDINANCE AUTHORIZING AND ALLOWING, UNDER THE ACT GOVERNING THE TEXAS MUNICIPAL RETIREMENT SYSTEM, "UPDATED SERVICE CREDITS" IN SAID SYSTEM FOR SERVICE PERFORMED BY QUALIFYING MEMBERS OF SUCH SYSTEM WHO PRESENTLY ARE MEMBERS OF THE CITY OF SOUTHLAKE; PROVIDING FOR INCREASED PRIOR AND CURRENT SERVICE ANNUITIES FOR RETIREES AND BENEFICIARIES OF DECEASED RETIREES OF THE CITY; AND ESTABLISHING AN EFFECTIVE DATE FOR SUCH ACTIONS. BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF SOUTHLAKE, TEXAS: Section 1. Authorization of Updated Service Credits. (a) On the terms and conditions set out in Sections 853.401 through 853.403 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 1st 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 said title) in an amount that is 100% of the "base Updated Service Credit" of the member (calculated as provided in subsection (c) of Section 853.402 of said title). The Updated Service Credit hereby allowed 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. (b) In accordance with the provisions of subsection (d) of Section 853.401 of said title, 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 date aforesaid on the full amount of such person's earnings as an employee of the City. Section 2. Increase in Retirement Annuities. (a) On terms and conditions set out in Section 854.203 of Subtitle G of Title 8, Government Code, as amended, the City hereby elects to allow 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 this 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 annuities on the effective date of retirement of the person on whose service the annuities are based, multiplied by 50% 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. Page 2. (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 hereby. (e) The amount by which an increase under this Section exceeds all previously granted increases to an annuitant is an obligation of this 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, 2010, 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. 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