BACKGROUND:

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.  Each of the 837 participating cities chooses a plan of benefits from the various options available under TMRS.  The plan of benefits selected is then funded separately for each city through a combination of employee contributions as a set percentage of compensation and employer contributions determined annually utilizing generally accepted actuarial principles and practices within the parameters established by the TMRS Act. These funding requirements are the responsibility of the individual member cities of TMRS.

ACTUARIAL EFFECTS:

The provisions of SB 812 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 twelve (12) months of retirement, to earn an additional benefit during the time of re-employment. Current law requires that the annuity of a retiree be suspended if the retiree returns to work for the city from which he or she retired and that a new member account be created with TMRS for the period of re-employment. This is required regardless of the time period between the date the person retires and the date of their re-employment.  

According to the actuarial analysis, the cost impact would be similar to a TMRS city hiring a new (but much older and eligible to retire) employee from another TMRS city. Since SB 812 would provide an additional benefit to the re-employed member, there would be a slight cost impact to the individual re-employing city, but not the System, as a whole. However, because of the requirement that the individual have at least a twelve-month break from service, as stipulated under SB 812, and would need to return to work to the same municipality, the actuarial analysis does not expect any significant anti-selection issues that would affect the TMRS municipality’s current retirement patterns and current retirement assumptions.

The funding requirements and cost impact are the responsibility of the member cities of TMRS; therefore, the changes under SB 812 are not expected to have an actuarial impact on TMRS as a system. In addition, the changes proposed by SB 812 are not expected to have any material effect on the actuarial status of TMRS; nor is there any material long-term actuarial impact expected on any TMRS municipality or on TMRS in total.   

SYNOPSIS OF PROVISIONS:

SB 812, 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 twelve (12) months of retirement, would earn an additional benefit during the time of re-employment.

FINDINGS AND CONCLUSIONS:

The provisions of the bill, if enacted, would allow an individual who has retired from a TMRS city, and who becomes re-employed by that same city after at least twelve (12) months of retirement, to earn an additional benefit during the time of re-employment. Current law requires that the annuity of a retiree be suspended if the retiree returns to work for the city from which he or she retired and that a new member account be created with TMRS for the period of re-employment. This is required regardless of the time period between the date the person retires and the date of their re-employment.

The bill would apply to retirees currently in a return-to-work situation or to retirees who return to work in the future. Any annuity payments received by the retiree during their period of retirement before returning to work at the re-employing municipality would be deducted before recalculating the member’s annuity. The returning retiree’s annuity would still be suspended for the duration of the re-employment, the individual’s member account(s) would be “reactivated”, and the returning retiree would be required to elect whether or not to contribute to their reactivated account. A person who resumed making contributions would earn additional service credit.  Based upon this election, and upon re-retiring from the municipality, the member’s annuity would be recalculated to include:

*        Any contributions made to TMRS during the reemployment period, and

*        Interest earned on the accumulated contributions during the re-employment period, and

*       Additional service credit earned during the term of the member’s re-employment, and

*        An amount paid by the city equal to the “city match,” regardless of whether or not the member elected to make contributions, and

• Any COLAs that have been granted during the period the benefit was suspended.

An eligible person returning to work could choose to terminate their re-employment with the municipality and resume their suspended annuity payments without having their annuity recalculated except for any COLAs that have been granted during the period the benefit was suspended, and the member could elect to receive either:

1.     A refund of any employee contributions made to TMRS during re-employment, plus any interest accrued thereon during the re-employment period; or

2.    A basic annuity based on the sum of any employee contributions made to TMRS during re-employment and any interest accrued thereon during the re-employment period, plus appropriate matching funds.

According to the actuarial analysis, the cost impact would be similar to a TMRS city hiring a new (but much older and eligible to retire) employee from another TMRS city. Since SB 812 would provide an additional benefit to the re-employed member, there would be a slight cost impact to the individual re-employing city (not the System, as a whole). However, because of the requirement that the individual have at least a twelve-month break from service and would need to return to work to the same municipality, the actuarial analysis does not expect any significant anti-selection issues that would affect the TMRS municipality’s current retirement patterns and current retirement assumptions.

The funding requirements and cost impact are the responsibility of the member cities of TMRS; therefore, the changes under SB 812 are not expected to have an actuarial impact on TMRS as a system. In addition, the changes proposed by SB 812 are not expected to have any material effect on the actuarial status of TMRS; nor is there any material long-term actuarial impact expected on any TMRS municipality or on TMRS in total.  

METHODOLOGY AND STANDARDS:

The analysis assumes no further changes are made to (fund) 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 9, 2011.

Actuarial Review by Mr. Daniel P. Moore, Actuary, Pension Review Board, April 14, 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 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 II benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.