Travis County Commissioners Court
August 21, 2007
Item 11
Number 11 is to receive and take appropriate action on f.y. '08 Texas county and district retirement system contribution rates and retirement system options.
>> leroy ellis, planning budget. We have howard and chris from planning and budget to review with you. Some of the current situation in the preliminary budget on the retirement and also some options that you have that you will be considering in markup. Would you like to go over those with the court, chris?
>> I don't know, do you have the copy of the backup? I'm not sure it's necessary to read every bit of this, but we had a savings in the preliminary budget and then because of -- what do you call that -- how I can describe the 1.2 to one change that would generate additional savings. At any rate, there is considerable savings in the plan if we leave our rate the same and there's three different options that we presented on what to do with that savings. All of which include 3% cola for retirees, existing retirees. Option a uses the all the $1.275 million savings to reduce unfunded liability and increase the strength of the retirement plan. We are at a very high funding level. So you may or may not wish to further that funding level. The second option would be to retroactively increase the matching rate that you pay to -- for employees contributions in the retirement system from 2.25 times salary or contributions to 2.3 times contributions. And this still leaves a savings of $482,000, which you could apply to reducing the unfunded liability. And the final option would be to -- instead of using a retroactive rate increase, the matching rate increase, you would use a future only matching rate increase, meaning any contributions employees put into the plan from now on would be matched at a rate of 2.4 times. And it just so happens that that rate would exactly equal our current rate so there wouldn't be any savings, but it wouldn't cost you anything at least in the current year.
>> I think it might be beneficial for howard to give us a short overview of how our retirement system the last couple of years, how it has gained -- reduced the unfunded liability. If you could comment on that.
>> I'd be glad to. It's a pleasure to be in front of the court and speak to you about your retirement court. Howard miller, communications manager for Texas county district retirement system. Reloi asked me to be here when we were looking at options and I usually see the stuff that's brought to the court and I guess I wanted to just point out some things that you may or may not have seen. Your retirement system had a major funding change adopted by our board of trustees this spring. And the difference is substantial in the fact that Travis County has been funded over a 20-year rolling amortization period. And the actions the court has taken -- I went back about eight years, have built up some of that unfunded liability. As a matter of fact, from 1998 you had an unfunded liability at December 31 of 29.7 million. At the end of 2005, that was $58.3 million. In other words, the actions of the court taking consecutive cost of living adjustments continually increase your unfunded liability. And fortunately for Travis County and for our retirement system our investment experience has been such that that has kept your rate quite stable n 2003 we allocated 38% diluted through smoothing through your employer subaccount. This year we allocated a total of 15% instead of the assumed. So Travis County contributed $18.9 million to the retirement system for the calendar year 2006. The retirement system allocated to Travis County's subaccount $46.4 million. And it's only that kind of performance which we can never expect to continue that's kept your rate stable. So I guess in quick word, my message to the court would be your policy of continually adding cost of living adjustments, although very honorable, you might look at taking this opportunity with the large decrease in your unfunded liability by this interest allocation to possibly go with that preliminary budget line item option a and use last year's required rate of 10.71 to pay for those decisions you are making. In other words, to adopt a 3% cost of living adjustment for f.y. '08, the cost to the county is 424, 434,000, 400,000. The cost to adopt that cola by our actuaries, the estimated cost is $4.7 million. So you are taking a little piece of this and paying it each time in passing this continually, so what's going to happen is you are going to have an ever increasing unfunded liability unless we have excellent investment performance or you choose to fund above what is required. The difference between our past funding method and the new funding method is that you will see the adoptions of these colas build your rate much quicker than you ever did before. In other words, had you taken the actions that you did over the last eight years eight years from now, I would expect to see your rate about two, two and a half percent higher. As a line budget item.
>> howard, tell us why you -- why you really wouldn't do b versus a because who wouldn't want to go from 2.25 to 2.3. That would be the obvious thing that would jump off the page.
>> to enhance your benefit, your current benefits package is always a great thing. I would love to work here. You have a better benefits package than I do. But when you look at that cost to the county continually accumulating, truly the 2.3 future only without the cola is insignificant cost change. It's the cost of living adjustment that makes the biggest difference here. So this 230 past and future or no future, that includes the cola, correct, chris? On your option b.
>> yes, all of them include 3% cola. You could elect 1, 2, 3% cola or zero. Rks for trisounty would replace about 77% of their income. You participate in social security so depending on your pages, you are replacing anywhere from 15 to 30% of your income from social security. To me that's an opportunity to put 25-year career in with Travis County and leave with more money than I had when I was working. So enhancing the benefit package just makes your retention and retaining more lucrative.
>> so of these three options are you recommending one or a fourth one?
>> your honor, tcds would not recommend to you the actions that this court wants to have. We just want to point out that your actions may cause future rate increases, especially with this changed funding option.
>> and in order to avoid the future rate increases, the suggestion is --
>> would be to fund a higher elected rate. Use that rate decrease opportunity to possibly find a budget line item that would be constant for the court. In other words, you've got the opportunity to even do -- go with 10.71 or 10.5 and adopt the cola. Anything extra that you send us goes dollar for dollar to pay off your unfunded liability.
>> we sort of don't like that unfunded liability. Reminds us of unfunded mandates.
>> you are a very well funded plan, your honor, but as we've seen from federal pension reform signed last year, earlier this year into effect, we're all going to need to be totally funded soon.
>> do you want us to land on this during markup?
>> that's correct. We will bring this back to you during markup with compensation items.
>> thank you. Thanks for coming over from the retirement system. We looked up and saw you and thought you were coming over to ask for more money.
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Last Modified:
Wednesday, August 22, 2007, 18:30 AM