The Texas Municipal Retirement System (TMRS) is the statewide system, which administers retirement, disability, and death benefits for employees of those Texas cities which voluntarily elect to participate in the system. The plan of each of the 770 participating cities is separately funded; funding is provided by employee contributions at a percentage of compensation selected by the city, and by employer contributions actuarially determined as necessary to provide the level of benefits selected. No state funds are expended.

Sections of HB1822 relating to administrative, technical or clarifying issues are not expected to have a significant actuarial impact on TMRS. The increase in the supplemental death benefit is funded out of a reserve and will not require a contribution increase. The TMRS actuary anticipates no material financial impact on TMRS or participant cities will result from this bill.

The total actuarial accrued liability for all entries and system-wide reserves is $10.876 billion. The difference between the actuarial value of $9.237 billion for the fund, and the market value of $8.635 billion for the fund, is $601.3 million.

HB1822, to be effective September 1, 2003, would provide the following changes:

• Increases supplemental death benefit by $2,500 from $5,000 to $7,500.
• Adds exclusive benefit rule
• Allows for rollover distribution
• Brings about compliance with the Federal Medical Leave Act (FMLA)
• Changes existing rules regarding military credit
• Expands list of permissible investments
• Expands rules on restricted prior service credit for other governmental service
• Increases limit on compensation from $150,000 to $200,000 indexed

According to the Pension Review Board (PRB) actuary, the FMLA compliance feature may minimally reduce future actuarial gains (or increase losses) from turnover.

Changing the existing rules regarding the crediting of military and other governmental service may result in some acceleration of benefit eligibility. To the extent not recognized in the actuarially determined contribution rates, minimal actuarial losses may result.

The policy changes should only affect the administration of TMRS, and not have an effect on normal cost, actuarial accrued liability, or gains and losses.

Increasing the limit on compensation from $150,000 indexed to $200,000 indexed would affect actuarially determined contribution rates for entities that employ highly compensated members. Increasing the retiree supplemental death benefit from $5,000 to $7,500 is expected to increase the municipality supplemental death benefits contributions.

Standard investment theory would suggest that allowing the fund to invest in a greater variety of corporate stocks would tend to increase the average rate of return, though it would also increase volatility. To the extent that the rate of return was higher, there would be actuarial gains to the cities. If returns were lower, some actuarial losses could occur. 

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the December 31, 2001 actuarial valuation of TMRS. According to the PRB actuary, the actuarial assumptions and methods appear to be reasonable, except as otherwise noted. All actuarial projections have a degree of uncertainty because they are based on the probability of occurrence of future contingent events. Accordingly, actual results will be different from the results contained in the analysis to the extent actual future experience varies from the experience implied by the assumptions.

Actuarial Analysis by Mr. Leon F. Joyner, Actuary, The Segal Company, March 12, 2003

Actuarial Review by Mr. Richard E. White, Actuary, Milliman USA, Inc., March 13, 2003

Normal Cost-- the current cost as a percentage of payroll that is necessary to pre-fund pension benefits adequately during the course of an employee's career.

Unfunded Liability-- the amount of total liabilities that are not covered by the total assets of a retirement system. Both liabilities and assets are measured on an actuarial basis using certain assumptions including average annual salary increases, the investment return of the retirement fund, and the demographics of retirement system members.

Amortization Period-- the number of years required to pay-off the unfunded liability. Public retirement systems have found that amortization periods ranging from 20 to 40 years are acceptable. State law prohibits changes in TRS, ERS, or JRS-2 benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.