texas municipal retirement system actuarial valuation report as of

173 Pages·2012·3.67 MB·English

TEXAS MUNICIPAL RETIREMENT SYSTEM
ACTUARIAL VALUATION REPORT
AS OF DECEMBER 31, 2011
May 4, 2012
Board of Trustees
Texas Municipal Retirement System
Austin, Texas

Dear Members of the Board:

Subject: Actuarial Valuation Report (“our Report”) of the Texas Municipal
Retirement System (“TMRS”) as of December 31, 2011
This is the December 31, 2011 actuarial valuation of the Texas Municipal Retirement System
(“TMRS” or the “System”) which determines the contribution rates for the calendar year
beginning January 1, 2013. This report describes the current actuarial condition of TMRS,
determines recommended employer contribution rates, and analyzes changes in these
contribution rates. This report reflects the benefit provisions and contribution rates in effect for
each of the 847 separate employer plans participating in TMRS. Separate liabilities and
contribution rates are determined for each of the member cities. Valuations are prepared
annually as of December 31st, the last day of the plan year.
The employer contribution rates for the units participating in TMRS are certified annually by the
Board of Trustees (the “Board”). These rates are determined actuarially, based on the plan
provisions in effect as of the valuation date and the actuarial assumptions and methodology
adopted by the Board. The Board’s current policy is that the contribution rates determined by a
given actuarial valuation become effective one (1) year after the valuation date. For example,
the rates determined by this December 31, 2011 actuarial valuation will be applicable for the
calendar year beginning January 1, 2013 and ending December 31, 2013.
Financing objectives and funding policy
The actuarial cost method and the amortization periods are set by Board policy. Contribution rates
and liabilities are computed using the Projected Unit Credit actuarial cost method. This method was
adopted effective December 31, 2007. In TMRS, a city’s actuarially determined contribution rate
consists of two components: the employer normal cost contribution rate and the prior service
contribution rate. Both rates are determined as a percentage of pay. In addition, a supplemental
death benefit rate is determined annually for each participating employer, if applicable. These
supplemental death benefit rates are listed in Section 5 of our Report.
Members of the Board
May 4, 2012
Page 2

Progress toward realization of financing objectives
The funded ratio (the ratio of the value of assets to the actuarial accrued liability) is a standard
measure of a plan’s funded status. In the absence of benefit improvements, it should increase
over time, until it reaches 100%. The funded ratio of TMRS as a whole is 85.1% and increased
from 82.9% in the prior valuation. Sources of gains included salaries which increased less than
assumed, cost of living adjustments being smaller than assumed, the lag in contribution rates,
investment performance, and changes in benefit provisions by some municipalities. (Please note
that each city is responsible for its own assets and liabilities and will have its own funded ratio.)
Benefit provisions and changes
The benefit provisions reflected in this valuation are those which were in effect as of March 1,
2012. In addition to the 842 plans that are actively participating in TMRS, there are another five
(5) plans that are in inactive status. No new plan provisions occurred during 2011 that impacted
the valuation results, other than individual changes adopted by the various municipalities.
Of the 842 active cities, 573 (68%) have adopted annually repeating updated service credits. In
addition, 454 (54%) of the cities have adopted annually repeating annuity increases.
However, the larger participating employers have almost all adopted annually repeating benefits.
Therefore, of the 101,151 actively contributing members, 84% are covered under an annually
repeating updated service credit benefit structure and 67% are covered under an annually
repeating annuity increase structure.
There were 65 cities which modified their pension benefit provisions since the prior valuation.
Of these municipalities, 53 adopted changes which increased their Unfunded Actuarial Accrued
Liability (UAAL), while 12 cities adopted changes which decreased their liabilities. The
aggregate benefit changes decreased the overall liability of the System by $51.0 million. A
summary of these changes is provided in Section 7 of our Report, and the impact on each city’s
calculated retirement rate is shown in Section 3.
Five municipalities began participation in the System during 2011. Exhibit V in Section 1 of our
Report shows these cities, the number of contributing members, total payroll, and the 2013
retirement rates.
Assumptions and methods
All actuarial assumptions and methods are described under Section 6 of our Report. The current
actuarial assumptions were developed from the actuarial investigation of the experience of
TMRS over the four year period from January 1, 2006 to December 31, 2009. These
assumptions were adopted in 2011 and were first used in the December 31, 2010 valuation.

The results of the actuarial valuation are dependent on the actuarial assumptions used. Actual
results can and almost certainly will differ, as actual experience deviates from the assumptions.
Members of the Board
May 4, 2012
Page 3

Even seemingly minor changes in the assumptions can materially change the liabilities,
calculated contribution rates and funding periods. The actuarial calculations presented in our
Report are intended to provide information for rational decision making.
The actuarial assumptions and methods used in our Report comply with the parameters for
disclosure that appear in Governmental Accounting Standards Board Statement Number 25.
Data
The TMRS staff supplied data for retired, active and inactive members as of December 31, 2011.
We did not audit this data, but we did apply a number of tests to the data, and we concluded that
it was reasonable and consistent with the prior year's data. The TMRS staff also supplied asset
and financial information as of December 31, 2011.
Actuarial Certification
This report is a summary of the actuarial valuation results. Additional detailed results are
provided in the TMRS Comprehensive Annual Financial Report (CAFR). All of our work
conforms with generally accepted actuarial principles and practices, and with the Actuarial
Standards of Practice issued by the Actuarial Standards Board. In our opinion, our calculations
also comply with the requirements of the TMRS Act and, where applicable, the Internal Revenue
Code and the Statements of the Governmental Accounting Standards Board.
The undersigned are independent actuaries. They are Members of the American Academy of
Actuaries, meet the Qualification Standards of the American Academy of Actuaries, and are
experienced in performing valuations for large public retirement systems.
Respectfully submitted,
Gabriel, Roeder, Smith & Company

Mark R. Randall, MAAA, FCA, EA
Executive Vice President

Joseph P. Newton, MAAA, FSA, EA
Senior Consultant

Brad Stewart, MAAA, ASA, EA
Consultant
Texas Municipal Retirement System
Actuarial Valuation as of December 31, 2011 Table of Contents

Table of Contents

Section 1 Executive Summary
Section 2 2013 Contribution Rates, Including a Comparison with 2012 Rates
Section 3 Reconciliation of Full Contribution Rates from Prior Valuation Report
Section 4 Comparison of Expected City Contribution Dollar Amounts for 2012 and 2013

Section 5 Supplemental Death Rates

Section 6 Summary of Actuarial Assumptions and Methods

Section 7 Summary of Benefit Provisions

Section 8 Individual City Reports
SECTION 1
EXECUTIVE SUMMARY
Texas Municipal Retirement System
Actuarial Valuation as of December 31, 2011 Section 1

Executive Summary
Pension Trust
Item 2011 2010
Membership
• Member cities 847 842
• Number of
- Active members 101,151 101,240
- Retirees and beneficiaries 44,067 41,459
- Inactive members 40,381 40,132
- Total 185,599 182,831
• Valuation Payroll (Projected next year) $ 5.058 billion $ 4.970 billion
• Prior Year Payroll $ 4.853 billion $ 4.798 billion
Minimum Contribution Rates FY 2013 FY 2012
• Straight average 8.20% 8.04%
• Dollar weighted average 12.94% 12.92%
Assets
• Market value $ 18.571 billion $ 17.992 billion
• Estimated yield on market value 2.3% 9.0%
• Member contributions $ 319.0 million $ 315.6 million
• Employer contributions 703.8 million 679.3 million
• Benefit, refund, and expense payments 878.8 million 804.5 million
• Net external cash flow 144.0 million 190.5 million
Actuarial Information - Pension Trust
• Actuarial accrued liability (AAL) $ 21.563 billion $ 20.481 billion
• Unfunded actuarial accrued liability (UAAL) $ 3.216 billion $ 3.495 billion
• UAAL as % of pay 66.3% 72.9%
• Funded ratio 85.1% 82.9%
• Employer normal cost % - Aggregate 9.27% 9.06%
• GASB Annual Required Contribution - Aggregate 13.22% 13.31%
Number of Member Cities with:
• Increase in Full Rate 459 43
• Decrease in Full Rate 348 784
• No change in Full Rate 30 5
• New cities 5 5
• Benefit changes (retirement only) 65 45
Changes in the UAAL
• Interest $ 2 59.5 million $ 361.8 million
• Amortization payments ( 233.3) million (301.1) million
• Asset experience ( 24.9) million (111.8) million
• Assumption changes/Legislative changes 0 .0 million ( 1,390.7) million
• Liability experience ( 198.5) million (78.0) million
• Benefit modifications ( 36.1) million (293.2) million
• Contributions different than actuarially calculated ( 45.9) million 89.0 million
• Total $ ( 279.2) million $ (1724.0) million
Texas Municipal Retirement System
Actuarial Valuation as of December 31, 2011 Section 1

Executive Summary
Supplemental Death Trust
Item 2011 2010
Membership (TMRS Active Cities)
• Cities with only active coverage 3 3
- Number of members with active only coverage 423 458
• Cities with active and retiree coverage 725 722
- Number of members covered
- Active members 65,797 66,109
- Retirees 19,952 18,789
- Inactive members 6,225 5,973
- Total 91,974 90,871
- Valuation Payroll (Projected next year) $ 3.264 billion $ 3.216 billion
- Prior Year Payroll $ 3.129 billion $ 3.104 billion
Average Contribution Rates For Participating Cities FY 2013 FY 2012
• Straight Average
- Active coverage 0.16% 0.15%
- Retiree coverage 0.05% 0.05%
• Dollar Weighted Average
- Active coverage 0.13% 0.13%
- Retiree coverage 0.04% 0.03%
Actuarial Information - OPEB Trust
• Actuarial accrued liability (AAL) $ 139.2 million $ 147.7 million
• Market value of assets 27.7 million 27.1 million
• Unfunded actuarial accrued liability (UAAL) $ 111.5 million $ 120.6 million
• UAAL as % of pay 3.6% 3.9%
• Funded ratio 19.9% 18.3%
• Employer normal cost $ 5.0 million $ 4.8 million
• GASB Annual Required Contribution $ $ 10.3 million $ 10.5 million
• GASB Annual Required Contribution % of Payroll 0.31% 0.33%
Texas Municipal Retirement System
Actuarial Valuation as of December 31, 2011 Section 1

Exhibit I
Summary of Systemwide Actuarial Valuation Results
December 31, 2011 December 31, 2010
I. Valuation Results for Employer Plans
1. Actuarial accrued liability (AAL)
a. Contributing Members $ 11,518,996,019 $ 1 1,126,845,568
b. Noncontributing Members 1,855,571,527 1 ,755,198,510
c. Annuitants 8,187,959,390 7 ,598,609,761
d. Total AAL $ 21,562,526,936 $ 2 0,480,653,839
2. Actuarial value of assets (AVA)
a. Benefit Accumulation Fund (Smoothed) $ 18,223,415,972 $ 1 6,862,017,835
b. Interest Reserve Account 100,000,000 1 00,000,000
c. Perpetual Endowment 10,041,729 9 ,282,646
d. Expense Fund 12,756,458 1 3,856,215
e. Total AVA $ 18,346,214,159 $ 1 6,985,156,696
3. Total unfunded actuarial accrued liability (UAAL)
[1d - 2e] $ 3,216,312,777 $ 3 ,495,497,143
4. Funded Ratio [2 / 1] 85.1% 82.9%
II. Valuation Results for Pooled Benefits
1. Actuarial present value of future benefits from the
Supplemental Disability Benefits Fund for
annuities in effect $ 792,776 $ 8 12,242
2. Actuarial value of assets of the Supplemental
Disability Benefits Fund $ 749,603 $ 8 13,060
3. Unfunded/overfunded actuarial accrued liability
(UAAL/OAAL) in Supplemental Disability $ 43,173 $ (818)
Benefits Fund [1 - 2]
4. Funded Ratio [2 / 1] 94.6% 100.1%
Texas Municipal Retirement System
Actuarial Valuation as of December 31, 2011 Section 1

Exhibit II
Plan Net Assets - Pension Trust
(Assets at Market Value)
Valuation of
December 31, 2011 December 31, 2010
(1) (2)
1. Market value of assets at beginning of year $ 17,992,493,870 $ 16,305,675,643
2. Revenue for the year
a. Contributions
i. Employee $ 318,986,168 $ 315,643,308
ii. Employer 703,778,739 679,270,766
iii. Total Contributions $ 1 ,022,764,907 $ 994,914,074
b. Net investment income
i. Interest and dividends $ 431,472,930 $ 466,697,598
ii. Net apprec/(deprec) in fair value of investments 1 0,362,765 1 ,001,627,620
iii. Net securities lending income 9,150,825 4 0,366,670
iv. Investment expenses (16,220,867) (12,363,868)
v. Net investment income $ 434,765,653 $ 1 ,496,328,020
c. Miscellaneous $ 24,289 $ 32,109
d. Total revenue $ 1 ,457,554,849 $ 2 ,491,274,203
3. Expenditures for the year
a. Benefit payments
i. Retirement benefits $ (675,504,722) $ (619,236,211)
ii. Disability benefits ( 15,923,372) ( 15,469,400)
iii. Partial lump sum payments ( 118,889,171) ( 108,761,489)
iv. Total benefit payments $ (810,317,265) $ (743,467,100)
b. Refund of contributions $ ( 55,666,288) $ ( 49,041,627)
c. Administrative expenses (11,439,672) (10,634,956)
d. Allocation to supplemental death benefits fund (1,331,570) (1,312,293)
e. Miscellaneous expenses - -
f. Total expenditures $ (878,754,795) $ (804,455,976)
4. Increase in net assets (Item 2d + Item 3f) $ 578,800,054 $ 1 ,686,818,227
5. Market value of assets at end of year (Item 1 + Item 4) $ 18,571,293,924 $ 17,992,493,870