title
Consider/Discuss/Act on an Ordinance Removing the Statutory Maximum Contribution Rate Limit Regarding TMRS Benefits
Summary
MEETING DATE: November 4, 2014
DEPARTMENT: City Manager
Human Resources
CONTACT: Tom Muehlenbeck, Interim City Manager
Kathryn Usrey, Interim Human Resources Director
RECOMMENDED CITY COUNCIL ACTION: Approve Ordinance
ITEM SUMMARY:
· According to TMRS, the City of McKinney joined TMRS in 1948 with a deposit rate set at 5%.
· Over the years, the Council has adopted changes to this plan taking vesting from 20 years to 5 years; moving employee contributions from 5% to 7%; moving the City Match from 1:1 to 2:1; providing Updated Service Credits and additional benefits to retirees.
· Up until recent years, the contribution rate the City paid did not pre-fund, benefits above the base system, thus creating an unfunded liability for the City.
· Over the past eight years, the TMRS Board has established and implemented a plan for providing cities a mechanism to fully fund the benefits they have adopted.
· When TMRS was created by the Legislature, the law included a statutory cap on the rate for cities. In 2012, we raised the cap to 15.5%. Now, in order for us to fully fund the benefits we have adopted, we must remove the cap. Our fully funded rate will be 15.82% or we can use the phase in rate for next year which would be 15.68%.
· Because we are a growing city and our payroll is growing at a rate higher than the TMRS assumptions, it is not expected that we will have a major spike in our contribution rate; however, the rate could go higher than it is today.
Alternative:
· If the Council chooses to not remove the cap, we will need to make some type of benefit reduction. We have looked at several options but feel that the option with the least impact is the transfer credit. The transfer credit provides an additional benefit to employees who come to McKinney from another TMRS city where there was a lower contribution rate, matching rate or the individual had a much lower salary. After 48 months service with McKinney they receive a transfer credit that upgrades their previous service to match McKinney. Currently, we have 144 employees who might be eligible for this credit if they stay until they have 48 months of credit here. The elimination of this benefit could have an impact on our ability to recruit employees from other cities, however, it is not felt to be a major issue.
TMRS rate projections without the transfer credit (and the assumption of 2% payroll increases per year and 5% interest) indicate that our rate would remain below the cap for 10 years. Obviously, a significant downturn in the economy and/or a reduction in force would impact that rate projection.
Should the Council choose the option of eliminating the transfer credit (or another benefit reduction), staff will bring the appropriate ordinance forward for Council adoption.
· Whether we remove the cap and use the 15.82% rate or make this reduction in benefits, our plan will be fully funded in 30 years.
· This ordinance or any reduction of benefits must be adopted by December 31, 2014 for an effective date of January 1, 2015.
BACKGROUND INFORMATION: N/A
FINANCIAL SUMMARY:
Using the FY 15 payroll as the bases for calculating the increases in funding requirements compared to the FY 14 fully funded rate of 15.62%:
The FY 15 phased in amount based on a rate of 15.68% = $29,943
The FY 15 fully funded amount based on a rate of 15.82% = $99,943
NOTE: The current FY 15 budget includes the fully funded rate of 15.82%.
BOARD OR COMMISSION RECOMMENDATION: N/A