STRATEGIC PRIORITY: Government Performance & Financial Management
AGENDA DATE: August 14, 2024
COUNCIL DISTRICT(S): N/A
DEPARTMENT: Budget and Management Services
EXECUTIVE: Jack Ireland
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SUBJECT
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An ordinance amending Chapter 8, “Boards and Commissions,” of the Dallas City Code by amending Section 8-1.5; (1) moving the limitation of terms of the employee’s retirement fund board to Chapter 40A; amending Chapter 40A, “Retirement,” of the Dallas City Code, by amending Sections 40A-1, 40A-3, 40A-4, 40A-6, 40A-7, 40A-7.1, 40A-9, and 40A-35; (2) adding, revising, and deleting various definitions; (3) providing amended terms and term limits of the board; (4) modifying the retirement fund board’s powers and duties; (5) specifying the date the board shall adopt the actuarially determined contribution rate, the current total adjusted total obligation rate, the current total obligation rate, and the pension obligation bond credit rate for each fiscal year; (6) providing amended contribution amounts for the city and employees; (7) providing a contribution maximum for Tier A and Tier B employees; (8) providing that the city may contribute additional monies to the retirement fund in its sole discretion; (9) amending the modifications of contribution rates; (10) providing guardrails with respect to the calculation of the actuarially determined contribution and incorporating the guardrails into actuarial assumptions; (11) amending the procedure to amend Chapter 40A; (12) providing a saving clause; (13) providing a severability clause; and (14) providing an effective date - Financing: This action has no cost consideration to the City (see Fiscal Information)
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BACKGROUND
The Employees’ Retirement Fund (ERF) provides retirement, death, and disability benefits for permanent civilian (non-uniform) employees of the City of Dallas. Currently there are approximately 8,000 retirees and beneficiaries, and approximately 8,000 active civilian (non-uniform) employees that are members of the Employee Retirement Fund. The fund was first established in 1944 and is governed by Chapter 40A of the Dallas City Code.
The Texas Pension Review Board (PRB) is mandated to oversee all Texas public retirement systems based on Chapter 802 of the Texas Government Code. The Pension Review Board’s funding guidelines require that actual contributions should be sufficient to cover the normal cost and to amortize the unfunded actuarial accrued liability over as brief a period as possible, but not to exceed 30 years. As of December 31, 2023, the Employee Retirement Fund has a funding percentage of 70.1 percent and is projected to achieve full funding in 51 years. In order to comply with the Pension Review Boards’ funding guidelines and the requirement to be fully funded within 30 years, a Funding Soundness Restoration Plan (FSRP) must be submitted to the Pension Review Board by September 1, 2025. The Funding Soundness Restoration Plan is required in accordance with Chapter 802 of the Texas Government Code.
City staff and Employee Retirement Fund staff have been working together since September 2023 to develop a plan to achieve full-funding within the required 30-year timeline. The changes recommended include lifting the 36 percent contribution cap that has limited the City’s contribution to the fund. Additionally, it is recommended that a five-year step-up to an actuarially determine contribution model be put in place to allow City contributions to adjust when necessary to recognize actual experience that differs from current projections. Employee contributions will increase to a maximum of 14.0 percent for Tier A active employees and remain at 13.32 percent for Tier B active employees. No changes to the current benefit structure are recommended. Except as provided in Section 40A-35(b), Chapter 40A may not be amended except by a proposal initiated by either the board or the city council that results in an ordinance approved by the board, adopted by the city council, and approved by a majority of the voters.
Prior Action -
Presentations to the Ad Hoc Committee on Pensions occurred between September 2023 and June 2024.
Presentations to the Dallas City Council occurred or were provided on January 19, 2024, June 18, 2024, and August 7, 2024.
Fiscal Information -
This action has no cost consideration to the City. The funding plan recommended by City staff will have a total cost to the City of approximately $7.87 billion over 30-years including the remaining principal and interest cost on Pension Obligation Bonds that were previously issued in 2005 and will be paid in 2035 as well as annual contributions. The cost to the City is shared proportionally by the General Fund, Enterprise Funds, Internal Service Funds, and other operating funds based on the proportional number of civilian (non-uniform) employees. This cost is reflective of the period to achieve full-funding in 30-years in compliance with State guidelines. City contributions to the Employee Retirement Fund will continue beyond 2055 but are not included in the above cited amount.