A Retirement System For Texas

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A Retirement System For Texas
TMRS
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Texas Government

• Local Control
• Limited Central Authority

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Public Retirement SystemsBorn in the Great
Depression

• Social Security1935
• Texas Teacher Retirement System1937

World War II interrupted trend
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Postwar Prosperity
and planningfor the future
City of Dallas Employees---1944Employees
Retirement System of Texas---------------1947Te
xas Municipal Retirement System-----------1948

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TMRS

• Emphasized local control
• Reflected emphasis on planning

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The Early Years
TMRS
Gaynor Kendall
Dean Gorham
Nine cities in the first year
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grew one cityat a time
TMRS

• Over 100 cities by 1958
• Most growth from 1970 to 1991
• 811 today

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How TMRS Works
Hybrid systemMoney purchase plan with Defined
Benefit features

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Cities choose

• Employee deposit rate
• Matching ratio
• Vesting
• Retirement eligibility
• Service credit

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Updated Service Credit

Plan feature that can be adopted by
cities Protects value of employees benefit
over time
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Cities Control

• Benefit structure for employees
• Cost

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How are benefits funded?

• Member deposits
• City contributions
• Investment earnings

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How are costs determined?

Each citys cost is determined independently,
based on its chosen plan.
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Some costs are set when city joins

• Deposit rate
• Prior Service Costs

City is always told costs before joining. Other
costs accrue over time.
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Why do costs change?

Plan experience, including turnover, retirement
rates, and other factors City changes plan
provisions Sometimes actuarial assumptions
change
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Annual Actuarial Valuation

• Actuary examines each city
• Compares assumptions to experience
• Sets rate for new year

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City Rate Letter

Sent each year as early as possible (usually
April) Shows rate for new year, changes in
rate, and reasons for change
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Actuarial Experience Studies

Performed every five years by TMRS Actuary
examines assumptions and adjusts them When
assumptions change, costs can change too
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Historically, when actuarial changesincrease
rates, TMRS allows cities to phase in the
increaseover several years.

• Year 3
• Year 2
• Year 1

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Limiting costs

• 1948 Law set Maximum Contribution Rate Limits
• When rate is at limit
• City cannot incur further liability
• No benefit increases, COLAs, or USC

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Limits tied to Citys Deposit Rate and Match
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Cities can increase Max or waive it.Cities
joining since 1996 not subject to limits


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Issues for small cities
Volatility from experience Example With
three employees, one unplanned retirement can
dramatically affect the rate

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Actuarial adjustmentsfor small cities
Turnover assumptions Conservative amortization
schedule

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Funding Benefits
TMRS invests in bonds Investments match plan
design Predictable income stream

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TMRS
2005
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National Pension Debate
Recent trends

Public policy less protective of
workers Concern over uncontrolled pension
costs Mistrust of government solutions
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TMRS

Costs controllable by city choice Less sensitive
to markets than Defined Benefit plans Still
emphasizes local choice
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What about the future?

Lower interest rates, but Rates should rise
when economy changes Mortality table
adjustments for longer lives, but Longer
expected careers
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TMRS
Made in Texas in 1948 and built to last!