Austin Firefighters Retirement Fund (AFRF)	Current	Proposed	Difference
Employer Contribution	22.05%	30.00%	7.95%
Employee Contribution	18.70%	18.70%	0.00%
Total Contribution	40.75%	48.70%	7.95%
Unfunded Actuarial Accrued Liability (millions)	$308.30	$323.20	$14.90
Normal Cost (% of payroll)	31.20%	24.60%	(6.6%)
Amortization Period (years)	Infinite	30	N/A

ACTUARIAL EFFECTS
The bill would change the employer portion of the Austin Firefighters Retirement Fund (AFRF) financing from a fixed rate to an actuarially determined contribution (ADC) subject to a corridor. According to the actuarial analysis, the funding period would decrease from infinite to 30 years.  The actuarial review states under the current Pension Review Board (PRB) Pension Funding Guidelines, funding should be adequate to amortize the unfunded actuarial accrued liability (UAAL) over a period which should not exceed 30 years as of September 1, 2025, and not to exceed 15 years after September 1, 2040. Under state law, systems with funding periods over 30 years for too long are required to prepare a Funding Soundness Restoration Plan (FSRP) to make changes to the pension plan to put the system on a path to eventually achieve full funding.

Because 2022 and 2023 actuarial valuation reports showed funding periods above 30 years, AFRF will become subject to FSRP if the December 31, 2024, funding period is also above 30 years. It is projected to be infinite if the current statute relating to AFRF is not changed.  If the bill is passed, the funding period would be projected to decrease to 30 years, meeting the PRB Pension Funding Guidelines as well as statutory funding requirements under Section 802.2015 of the Texas Government Code.
 
SYNOPSIS OF PROVISIONS
The bill would make significant changes to Article 6243e.1 of Vernon's Texas Civil Statutes updating the board, administration, and governance aspects of AFRF. The bill would make changes so that AFRF would no longer be able to increase the benefit multiplier without approval from the City of Austin. AFRF could only provide ad hoc cost-of-living adjustments (COLAs) over the next 30 years if funding is ahead of schedule at the time the COLA is issued. After 30 years, ad hoc COLAs would be permitted only if the system would remain 100 percent funded.

 
The bill would create a second benefit tier (Group B) for new hires beginning January 1, 2026. Group B proposed by the bill would have reduced benefits compared to Group A, such as a lower benefit multiplier, no retroactive deferred retirement option plan (DROP), and a lower DROP interest rate.  The bill would establish a statutory funding policy for AFRF consisting of fixed contributions for employees and a variable contribution rate for the City of Austin. The city contribution rate would consist of a payment designed to amortize the UAAL as of December 31, 2024, the legacy liability, over a period of 30 years beginning January 1, 2026, and establish a minimum and maximum contribution rate (corridor) to fund future benefit accruals while preventing large swings in the city contribution associated with unanticipated gains and losses. The bill would also add statutory guidelines for updating actuarial assumptions including reconciliation steps for any potential assumption disagreements between AFRF and the city.

Additionally, the bill would make updates to the board composition. The mayor would be able to designate a city council member to serve in place of the mayor position. The city treasurer would no longer be a board member, replaced instead by the chief financial officer or a person designated by the chief financial officer. There would be two additional board member positions appointed by the city council, both 5-year city residents with financial or pension experience. Board member terms would increase from three years to four years, and the board would elect the board chair rather than the mayor serving as ex-officio chair.
 
FINDINGS AND CONCLUSIONS
The actuarial analysis notes the bill would make AFRF more actuarially sound by strengthening the funding policy from a fixed City of Austin contribution rate of 22.05 percent to an ADC. The bill would also mitigate the risks to AFRF associated with the current statutory COLA structure by strengthening the financial stability tests, delaying the eligibility for the COLA to the later of age 67 and five years after retirement, limiting the COLA to 1.5 percent per year, and reflecting a COLA assumption that incorporates the cost of the COLA in the liability and the ADC. The actuarial review states that the employer contributions would be projected to increase by 7.95 percent under the bill.
 
METHODOLOGY AND STANDARDS
The AFRF analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the AFRF actuarial valuation for December 31, 2023, projected to December 31, 2024, with the exception of one assumption and one method, both prescribed in the proposed bill. The new assumption would be a 0.25 percent COLA assumption, and the new method would be using market value of assets rather than a smoothed actuarial value of assets. The actuary also selected one percent as the assumed COLA for the new Group B members. According to the PRB actuary, the assumptions and methods are reasonable for the purpose of this analysis.
 
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. This analysis is based on the assumption that no other legislative changes affecting the funding or benefits of AFRF will be adopted. It should be noted that when several proposals are adopted, the effect of each may be compounded, resulting in a cost that is greater (or less) than the sum of each proposal considered independently.
 
SOURCES
Actuarial Analysis by Elizabeth Wiley, FSA, EA, MAAA, FCA and Heath Merlak, FSA, EA, MAAA, FCA, Cheiron, April 25, 2025.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, April 26, 2025.
 
GLOSSARY
Actuarial Accrued Liability (AAL) - The current value of benefits attributed to past years.
Actuarial Value of Assets (AVA) - The value of assets used for the actuarial valuation. The AVA can be either the market value (MVA) or a smoothed value of assets.
Amortization Payments - The portion of the total contribution used to reduce the unfunded actuarial accrued liability (UAAL).
Amortization Period - The specified length of time used when calculating the amortization payment portion of an actuarially determined contribution, or as the time it would theoretically take to fully fund the UAAL or fully recognize a surplus. The State Pension Review Board recommends that funding be adequate to amortize the UAAL over a period which should not exceed 30 years as of September 1, 2025, and not to exceed 15 years after September 1, 2040.
Actuarial Cost Method -An actuarial cost method is a way to allocate pieces of a participant's total expected benefit to each year of their working career. In other words, it is a technique to determine how much of the present value of future benefits (PVFB) to assign to past service (AAL) vs. future service (present value of future normal costs, or PVFNC).
Funded Ratio (FR) - The ratio of actuarial assets to the actuarial accrued liabilities.
Market Value of Assets (MVA) - The fair market value of the system's assets.
Normal Cost (NC) - Computed differently under different actuarial cost methods, the normal cost generally represents the current value of benefits attributed to the present year. The employer normal cost equals the total normal cost of the plan reduced by employee contributions.
Present Value of Future Benefits (PVFB) - The current value of all benefits expected to be paid from the plan to current plan participants.
Present Value of Future Normal Costs (PVFNC) - The current value of benefits attributed to the present year and all future years (includes the normal cost as the first year).
Unfunded Actuarial Accrued Liability (UAAL) - The difference between the actuarial accrued liability and the actuarial value of assets; therefore, the UAAL is the amount that is still owed to the fund for past obligations.