Item 6ACITY OF
SOUTH LAKE
MEMORANDUM
November 18, 2009
TO: Shana Yelverton, City Manager
FROM: Kevin Hugman, Director of Human Resources
SUBJECT: Ordinance No. 965, 2 nd 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.
This ordinance was approved by City Council on 1" reading on
November 17, 2009.
( 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. Whiie
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 18, 2009
Page 2 of 3
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
USC, 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 TMRS 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 FY 2010.
With the adoption of the proposed ordinance, the TMRS required
contribution rate for calendar year 2010 will 12.83 %, reducing the
Shana Yelverton, City Manager
November 18, 2009
Page 3 of 3
Unfunded Actuarial Liability from $12,081,724 to $9,471,803 over a 29
year period. This results in a total cost savings of approximately
$321,737 in FY 2010.
Citizen Input/
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 (TMRS) benefits for employees and retirees
• TMRS Plan Change Study
Staff
Recommendation: City Council approve Ordinance No. 965.
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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 7MRS 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 854.243 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.
Passed and approved this the day of , 200
ATTEST:
City Secretary or Clerk
APPROVED:
Mayor
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