The actuarial analysis by Dallas Police and Fire Pension System (DPFP) shows that the bill would fully fund DPFP within 30 years. The analysis provided by the City of Dallas (COD) includes a 30-year projection of assets and liabilities that demonstrates how the bill would be expected to fully fund the DPFP liabilities by 2055.
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. The actuarial review notes that based on a funding period of 82 years as of January 1, 2023, DPFP is currently subject to the FSRP requirement. The FSRP is due by September 1, 2025. The bill would bring the funding period to within 30 years and satisfy both the Pension Funding Guidelines and the FSRP requirement.
Contributions would be fixed for fiscal years ending 2025 through 2029. In the fiscal year ending 2030, any actuarial gains/losses occurring from 2023 through 2028 would be amortized until 2053. Future annual gains/losses would be amortized one at a time. The normal costs and actuarial gains/losses would be subject to a minimum and maximum corridor. Should that corridor cause the funding period to exceed 30 years in any given year, the Dallas City Council would have the option to waive the corridor.
Going forward both the City of Dallas and DPFP would have to approve any lawsuit settlements, benefit increases, or assumption changes that would result in a liability increase.
FINDINGS AND CONCLUSIONS
The actuarial analysis provided by DPFP notes certain concerns about the approach for achieving full funding. For example, one concern is that the bill would set contribution maximums for the initial five-year step-up period before using an ADC calculation. However, the actuarial review notes a contribution made earlier or a contribution made later that accounts for accumulated interest would not affect the payoff period.
Another concern raised in the actuarial analysis is that the funding approach does not sufficiently consider future assumption changes or differences in liability amounts calculated by the independent actuary and the system's actuary. However, the actuarial review notes the bill sufficiently accounts for any potential actuarial losses occurring after 2023. Whether due to experience different than assumed or due to assumption changes, such losses would begin to be amortized in 2030.
An additional concern raised in the system's actuarial analysis is related to potential governance issues caused by requiring the plan sponsor, the City of Dallas, to agree with the system on certain actions affecting pension liabilities. According to DPFP, this could increase liabilities due to assumption changes. However, the actuarial review notes this provision of the bill would not impact the bill analysis from an actuarial soundness standpoint, with such analysis based on current assumptions projected forward unchanged.
METHODOLOGY AND STANDARDS
The DPFP analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the DPFP actuarial valuations for January 1, 2024. According to the PRB staff actuary, the actuarial assumptions, methods and procedures 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 DPFP 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
DPFP Actuarial Analysis by Jeffrey Williams, FCA, ASA, EA, MAAA, Caitlin Grice, FCA, ASA, MAAA, EA, Segal, March 17, 2025.
City of Dallas Actuarial Analysis by Cheiron, March 14, 2025.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, March 17, 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.