Pension Plans

TransparencyStar_PP

The City’s Pension Plans

Texas Municipal Retirement System (TMRS)
Overview and Plan Provisions

The City’s primary pension mechanism is through the Texas Municipal Retirement System (TMRS), a statewide, multiple employer agent plan. Through this type of plan, each participating municipality’s pension is centrally administered and governed by state statutes but the assets and related pension liabilities for each municipality are accounted for separately and any unfunded liabilities are solely the obligation of that municipality. The City of Plano has chosen the following benefits that are authorized under the TMRS statute:

Employee Contributions 7% of pay
City Matching Ratio  2 – 1
Updated Service Credit Rate  100%
Cost of Living Adjustments  70% of CPI (maximum allowable)
Vesting Requirements  5 years
Service Retirement Eligibility  5 years, age 60; 20 years, any age
Death Benefits None

Upon retirement the employee account balance including interest is combined with the employer match to price a lifetime annuity based upon the employee’s age at retirement.

Retirement Security Plan Overview and Plan Provisions

The City of Plano also has a Social Security replacement plan, the Retirement Security Plan (RSP), as it withdrew from the Social Security system in 1983. The RSP is a single employer defined benefit pension plan.

Vesting Requirements 5 years
Service Retirement Eligibility  5 years, age 60; 20 years (TMRS credited service), any age
Normal Retirement Age  65
Normal Retirement Calculation   .7% X City service years (max of 25) X avg. monthly salary
Cost of Living Adjustments  Change in CPI (not to exceed 4%)

Pension Plans Summary

TMRS Summary

The funded status represents the ratio of a pension’s assets to its liabilities or obligations. A funded status of 100% means that an entity has exactly enough assets set aside to pay for its future pension obligations at that particular point in time. TMRS employs two separate actuarial valuations under which the funded status is measured – the funding valuation and the Governmental Accounting Standards Board (GASB) 68 valuation. The primary difference between the two calculations is that the assets for purposes of the funding valuation are “smoothed” to lessen the volatility of market fluctuations of investments while the GASB 68 valuation captures the asset market value of a particular moment in time. Over time, the City is working towards a funded status of 100%. As of December 31, 2016, the City is funded as follows as it relates to the TMRS plan:

Funded ratio (Funding Valuation)  89.6%
Funded ratio (GASB 68 Valuation)   93.37%
Amortization Period  16.1 years
Unfunded Amount as a percentage of Covered Payroll 64.4%

Actuarial losses (which arise from changes in actuarial assumptions) are amortized over a 25 year period. New gains (including lump sum contributions) are offset against and amortized over the same period as the largest outstanding loss base to reduce contribution rate volatility. 

Rate of Return

TMRSRateofReturnThe rate of return (discount rate) factors heavily into the calculation of the actuarial accrued pension liability. If TMRS does not earn its projected rate of return, assets will be less than expected and the City will have to make additional contributions to fund the shortfall.

Comparison of Actuarially Determined Contributions to Actual Contributions
EmployerContributions

TMRS Employer Contributions as Percent of Payroll Compared to TMRS Required Contribution

The TMRS actuary develops an Actuarially Determined Contribution rate through the annual valuation process for each city. As required by state statute, each City is legally obligated to contribute at least the Actuarially Determined Contribution which is synonymous with the TMRS Required Minimum Contribution Rate. As you can see from the charts, the City of Plano not only made the TMRS Required Minimum Contribution Rate, but in the past three years, the City has contributed in excess of these contributions as this eliminates future interest costs, improves funding percentages, and provides a cushion of protection for budgetary purposes against rate volatility.

Please note that due to changes in actuarial assumptions, TMRS allowed cities that experienced more than a 0.5% increase to phase in the increase over an 8-year period, which is why the City contributed less than the full rate in 2013.

Actuarial Value of Assets vs. Liabilities and Funded Ratio
AssetsvLiabilities

Funded Ratio

TMRS Actuarial Accrued Liability, Actuarial Value of Assets and Funded Ratio

The Actuarial Accrued Liability represents the present value of the obligation of the pension to its members whereas the Actuarial Value of Assets represents the funds in trust set aside to meet that obligation. The difference in these values represents the Unfunded Actuarial Accrued Liability and the ratio of assets to liabilities determines the plan’s Funded Ratio.

As denoted from the information above, both the City’s assets and liabilities continue to grow as there is corresponding growth with additional members, however, the City has also demonstrated a continual improvement in its funded ratio over time as it moves towards a fully funded status.

TMRS Changes in Fiduciary Net Position
TMRS Actuarial Value of Assets, Liabilities and Funded Ratio

Retirement Security Plan (RSP) Summary

The funded status represents the ratio of a pension’s assets to its liabilities or obligations. A funded status of 100% means that an entity has exactly enough assets set aside to pay for its future pension obligations at that particular point in time. The City receives two separate actuarial valuations for the Retirement Security Plan under which the funded status is measured – the funding valuation and the Governmental Accounting Standards Board (GASB) 68 valuation. The primary difference between the two calculations is that the assets for purposes of the funding valuation are “smoothed” to lessen the volatility of market fluctuations of investments while the GASB 68 valuation captures the asset market value of a particular moment in time. The City’s funded is near 100% and fluctuates both above and below that status due to volatility in the assets of the plan. As of December 31, 2017 the RSP is funded as follows:

Funded ratio (Funding Valuation)  100.8%
Funded ratio (GASB 68 Valuation)  103.92%
Amortization Period  17 years
Unfunded Amount as a Percentage of Covered Payroll (-0.8%)

Actuarial gains or losses (which arise from changes in actuarial assumptions) are amortized over an 17 year period.

Rate of Return

RSP Rate of ReturnThe rate of return (discount rate) factors heavily into the calculation of the actuarial accrued pension liability. If the City does not earn its projected rate of return, assets will be less than expected and the City will have to make additional contributions to fund the shortfall.

Comparison of Actuarially Determined Contributions to Actual ContributionsRSP Actual Contribution Rate

The City’s actuarial firm develops an Actuarially Determined Contribution rate through the biennial valuation process. The City’s actual contributions have equaled the Actuarially Determined Contributions each year. As the City is near 100% funded, the City has only contributed the Actuarially Determined Contribution as compared to TMRS where the City has made contributions in excess of the Actuarially Determined Rate.

RSP Actual Contribution Rate Compared to Actuarially Determined Rate 

Actuarial Value of Assets vs. Liabilities and Funded Ratio

RSP Actuarial Accrued

RSP Actuarially Determined Contribution ChartRSP Actuarial Accrued Liabilities Assets and Funded Ratio

RSP Rollforward of Fiduciary Net Position
RSP Actuarial Accrued Liabilities, Actuarial Value of Assets, and Funded Ratio

The Actuarial Accrued Liability represents the present value of the obligation of the pension to its members whereas the Actuarial Value of Assets represents the funds in trust set aside to meet that obligation. The difference in these values represents the Unfunded Actuarial Accrued Liability and the ratio of assets to liabilities determines the plan’s Funded Ratio.

As denoted from the information above, the City’s funded ratio hovers around 100% as it is primarily impacted by the fluctuation in the market value of the investments.

TMRS & RSP Reports

  1. RSP Actuarial Audit of 12-31-2017 Valuation Report
  2. RSP 2016 Actuarial Experience Study Report
  3. RSP 2017 Actuarial Valuation Report
  4. RSP 2015 Actuarial Valuation Report
  5. RSP 2013 Actuarial Valuation Report
  6. RSP 2011 Actuarial Valuation Report
  7. RSP 2009 Actuarial Valuation Report
  8. RSP 2007 Actuarial Valuation Report
  9. RSP 12-31-2018 and 2017 Audit Report
  10. RSP 12-31-2017 and 2016 Audit Report
  11. RSP 12-31-2016 and 2015 Audit Report
  12. RSP 12-31-2015 and 2014 Audit Report
  13. RSP 12-31-2014 and 2013 Audit Report
  14. RSP 12-31-2013 and 2012 Audit Report
  15. RSP 12-31-2012 and 2011 Audit Report
  16. RSP Investment Policy Statement
  17. RSP Investment Returns and Assumptions Report
  18. RSP Summary Plan Document

Additional Documents and References

TMRS 2017 Comprehensive Annual Financial Report
Schedule of Changes in Fiduciary Net Position - 2017
TMRS 2016 Comprehensive Annual Financial Report
Schedule of Changes in Fiduciary Net Position - 2016
TMRS Actuarial Valuation Report - 2017
TMRS Actuarial Valuation Report - 2016
TMRS Actuarial Valuation Report - 2015
TMRS Actuarial Valuation Report - 2014
TMRS Actuarial Valuation Report - 2013
TMRS GASB 68 Valuation for Plano
Public Pension Search Tool