Established in 1947, 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 837 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. 

ACTUARIAL EFFECTS:

The provisions of HB 159 would, if enacted, allow an individual who has retired from a TMRS city, and who becomes re-employed by that same city after at least five years since the date of retirement to receive an additional benefit on top of the existing employer match equal tothe amount of deposits and interest that were credited during the time of re-employment.

According to the Actuarial Analysis, the bill, if enacted, will likely affect a small number of members, which would be a slight cost to the re-employing cities. The funding requirements and cost impact are the responsibility of the member cities of TMRS; therefore, the changes under HB 159 are not expected to have an actuarial impact on TMRS as a system. In addition, the changes proposed by HB 159 are not expected to have any material effect on the actuarial status of TMRS; nor is there any long-term actuarial impact expected on any TMRS municipality or on TMRS in total.

SYNOPSIS OF PROVISIONS:

HB 159, to be effective immediately if receiving required votes or if not, September 1, 2011, would provide the following changes: 

• An individual who has retired from a TMRS city, and who becomes re-employed by that same city after at least five years since the date of retirement would be able to receive an additional benefit on top of the existing employer match equal to the amount of deposits and interest that were credited during the time of re-employment.

HB 159 would apply only to a member of TMRS who terminates employment with the person’s re-employing municipality on or after the effective date of HB 159.

FINDINGS AND CONCLUSIONS:

Currently,TMRS retirement benefits are suspended upon full-time retiree re-employment with the same employer, with an additional benefit accruing during their employment period based only on the member’s contributions made during the period. The provisions of HB 159 would, if enacted, allow an individual who has retired from a TMRS city, and who becomes re-employed by that same city after at least five years since the date of retirement to receive an additional benefit on top of the existing employer match equal to the amount of deposits and interest that were credited during the time of re-employment. Essentially,the bill changes what is currently zero matching to a municipal one-to-one match on member contributions made during the period of re-employment for certain members.

The funding requirements and cost impact are the responsibility of the member cities of TMRS; therefore, the changes under HB159 would not be expected to have an actuarial impact on TMRS as a system. In addition, the changes proposed by HB 159 are not expected to have any material effect on the actuarial status of TMRS; nor is there any long-term actuarial impact expected on any TMRS municipality or on TMRS in total. At this point in time, there are only 14 members who have retired and returned to work after 60 or more months, in comparison with the 100,000 active members of TMRS.

HB 159 would only apply only to amember of TMRS who terminates employment with the person’s re-employing municipality on or after the effective date of HB 159. The bill does not specify whether the termination of employment refers to the original retirement, or the second retirement after the period of re-employment.

METHODOLOGY AND STANDARDS:

The analyses rely on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the December 31, 2009 actuarial valuation of TMRS. The analysis assumes no further changes are made to TMRS and cautions that the combined economic impact of several proposals can exceed the effect of each proposal considered individually. According to the PRB actuary,the actuarial assumptions, methods and procedures appear to be reasonable.  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.

SOURCES:

Actuarial Analysis by Mr. Mark R. Randall, Executive Vice-President, and Mr. Joseph P. Newton, Senior Consultant, Gabriel, Roeder,Smith & Company, March 4, 2011.

Actuarial Review by Mr. Daniel P. Moore, Staff Actuary, Pension Review Board, April 4, 2011.

GLOSSARY OF ACTUARIAL TERMS:

Normal Cost--the current annual 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 liabilitiesthat 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 II benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.