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[00:00:06]

COMMITTEE AND WE ARE GOING TO CONVENE THIS MEETING.

WE HAVE ALL OF OUR MEMBERS PRESENT, UM,

[Item 1]

IN OUR FIRST AND ONLY ITEM OF BUSINESSES, THE PENSION ANALYSIS FOR THE CITY OF AUSTIN EMPLOYEE AND POLICE DEPARTMENT, RETIREMENT SYSTEMS STAFF.

WOULD YOU LIKE TO BEGIN YOUR PRESENTATION PLEASE? YEP.

YOU'RE MUTED.

CAN YOU HEAR ME NOW? YES.

ALRIGHT, AWESOME.

THANK YOU.

GOOD MORNING.

UM, WE APPRECIATE THE OPPORTUNITY, UM, TO PRESENT OUR PENSION ANALYSIS, WHO WE PULL UP THE OTHER PRESENTATION.

SURE.

SORRY.

THANK YOU.

UH, THIS WILL BE IN THE MIDDLE OF THIS ONE.

UM, WE APPRECIATE THE OPPORTUNITY TO PRESENT OUR PENSION ANALYSIS TO THE AUDIT AND FINANCE COMMITTEE TODAY, BEFORE WE BEGIN, I REALLY WOULD LIKE TO EXPRESS MY SINCERE THINGS TO THE MANY, MANY PEOPLE WHO WORKED ON THIS PROJECT TO GET US TO THIS POINT.

UM, SPECIFICALLY THE POLICE AND EMPLOYEE RETIREMENT SYSTEM BOARDS OF TRUSTEES, THE BOARD CHAIRS, DETECTIVE TYLER LINK, AND AINA THE RETIREMENT SYSTEM, EXECUTIVE DIRECTORS, HATTIE FEATHERSTON FOR THE POLICE SYSTEM AND CHRIS HANSON FOR THE EMPLOYEE SYSTEM CITY STAFF WHO WORKED ON OUR INTERDEPARTMENTAL TEAM, OUR CONSULTANTS PFM AND ESPECIALLY DEPUTY CFO, CHIEF FINANCIAL OFFICER, UH, ED VENTING FOR HIS WORK AND LEADERSHIP ON THIS IMPORTANT PROJECT.

I'M ELAINE HART AND THE CHIEF FINANCIAL OFFICER.

BEFORE WE BEGIN, UM, JUST, UH, A LITTLE BACKGROUND.

THE CITY OF AUSTIN HAS THREE EMPLOYEE RETIREMENT SYSTEMS. THEY'RE ALL CONTRIBUTORY DEFINED BENEFIT PLANS.

EACH OF THESE PLANS, UM, HAS MONTHLY RETIREE ANNUITY BENEFITS THAT ARE DETERMINED BY THE YEARS OF SERVICE, AVERAGE SALARY AND A SYSTEM, UH, MULTIPLIER INVESTMENT RETURNS ARE NOT A FACTOR.

UM, ALL THREE PLANS ARE CREATED IN STATE LAW AND, UM, STATE STATUTE GOVERNS THE BENEFIT AND MINIMUM CONTRIBUTION PROVISIONS.

THIS PRESENTATION WILL COVER TWO OF THOSE THREE RETIREMENT SYSTEMS. THE AUSTIN POLICE RETIREMENT SYSTEM KNOWN AS APRS AND THE CITY OF AUSTIN EMPLOYEES, RETIREMENT SYSTEM, UH, REFERRED TO AS COERCE.

NEXT SLIDE PLEASE.

UM, THIS PRESENTATION WILL COVER THE CITY MANAGERS, UH, 2020 INITIATIVE.

I WILL IDENTIFY THE BOARD MEMBERS, THE WORKING GROUP, UH, OUTLINE OUR PROCESS AND TIMELINE.

AT THAT POINT, WE WILL TURN OUR PRESENTATION OVER OUR, UH, CONSULTANTS, UH, PUBLIC FINANCIAL MANAGEMENT TO JIM LINK AND MICHAEL LADLE WHO WILL, UH, COVER THEIR REPORT.

ONCE THE REPORT IS CONCLUDED, UH, WILL COME BACK TO ME, I'LL COVER THE BOARD RECOMMENDATIONS, CITY STAFF RECOMMENDATIONS AND OUR NEXT STEPS.

AND THEN WE'LL TURN THE MEETING BACK OVER TO THE COMMITTEE FOR A DISCUSSION AND POSSIBLE ACTION.

NEXT SLIDE.

UM, AS, UH, NOTED ON A SLIDE, UH, THE CITY MANAGER HAD AN SEVERAL INITIATIVES THAT HE ANNOUNCED WITH THE PROPOSAL OF THE BUDGET.

THIS WAS ONE OF THEM.

HE ASKED THE STAFF WORK CLOSELY WITH OUR PARTNERS AT THE TWO SYSTEMS POLICEMEN FLOAT IN EMPLOYEE RETIREMENT SYSTEMS WITH A GOAL OF DEVELOPING LONGTERM STRATEGIES AND OPTIONS THAT WOULD ENSURE THOSE FINANCIAL SUSTAINABILITY AND HEALTH OF THESE TWO SYSTEMS MONEY WAS PUT IN THE BUDGET FUNDING WAS PUT IN FOR OUR CONSULTING ASSISTANCE.

AND, UH, WE WANTED, ESPECIALLY NOT, NOT TO JUST USE CITY STAFF EXPERTISE, BUT TO LOOK OUTSIDE TO FOLKS WHO WORK WITH PENSION SYSTEMS TO ASSIST US IN IDENTIFYING AND EVALUATING OPTIONS, UM, THAT WOULD ENSURE THE LONGTERM SUSTAINABILITY OF THESE RETIREMENT SYSTEMS. WE ALSO WANTED TO DO SOME IMPORTANT BENCHMARKING WORK COMPARED TO OTHER PEER CITIES OF SIMILAR SIZE.

UM, AND THE MANAGER ASKED US THAT WE WORK COOPERATIVELY WITH THE BOARDS OF TRUSTEES AND THEIR EXECUTIVE DIRECTORS, AND HE WANTED ALSO, UH, FOR US TO ENGAGE A, UM, INTERDEPARTMENTAL TEAM.

NEXT SLIDE, PLEASE.

UH, HERE ARE THE TWO, UH, BOARDS OF TRUSTEES.

UH, THE MEMBERSHIP OF THE BOARDS EACH HAS AN 11 MEMBER BOARD.

UM, EACH BOARD HAS A COUNCIL MEMBER ON IT AND CITY STAFF ON IT, AS

[00:05:01]

WELL AS ACTIVE, UM, EMPLOYEES AND RETIREES OF THOSE SYSTEMS. UH, AGAIN, WE'VE NOTED ON THIS SLIDE.

UM, TITLE AND LINK IS A DETECTIVE, EXCUSE ME, DETECTIVE TYLER LINK IS CHAIR OF THE APRS SYSTEM.

PATTY FEATHERSTON IS THE EXECUTIVE DIRECTOR.

UH, COUNCIL MEMBER TOVO IS A TRUSTEE ON THIS COMMITTEE ON THE COERCED SYSTEM.

AND , UH, IS THE CHAIR, UH, ADVENT.

HE KNOWS THE VICE CHAIR.

CHRIS HANSON IS THE EXECUTIVE DIRECTOR AND COUNCIL MEMBER POOL SERVES AS A TRUSTEE ON THIS COMMITTEE.

NEXT SLIDE, PLEASE.

OUR STAFF TEAM, UH, INCLUDED A NUMBER OF DEPARTMENTS, NOT JUST FINANCIAL STAFF.

UM, AUSTIN ENERGY WAS REPRESENTED BY, UH, THEIR CHIEF FINANCIAL OFFICER, UH, AND, UM, DEPUTY, UH, MARK DOMBROWSKI THAT, UH, REPRESENTED A DEPARTMENT, A LARGE DEPARTMENT WITH BOTH FIELD STAFF AND OPERATIONAL STAFF, UM, GOVERNMENT RELATIONS, UM, BRIEF BRONCO AND HER STAFF WERE ALSO ON THIS TEAM AS WE EXPECT TO HAVE, UM, SOME LEGISLATIVE CHANGES.

UM, SO WE KEPT THEM INVOLVED FROM, UH, FROM THE GET GO.

UM, WE ALSO INCLUDED HUMAN RESOURCES, JOY HAYES DIRECTOR, AND, UH, DEBRA HER DEPUTY DIRECTOR, KAREN HAYWOOD, WHO IS OVER THE BENEFITS, UM, DIVISION, UM, BECAUSE THIS INVOLVED POLICE DEPARTMENT, WE INCLUDED DEVIN DECIDE WHO IS OUR LABOR RELATIONS OFFICER AS A CRITICAL MEMBER OF THIS TEAM, LEE CRAWFORD WITH THE LAW DEPARTMENT.

UM, LEE WAS INSTRUMENTAL IN, UH, DEVELOPING THE SUPPLEMENTAL FUNDING PLAN IN 2010 FOR THE, UH, EMPLOYEE RETIREMENT SYSTEM.

SO HE'S GOT THE LEGISLATIVE BACKGROUND AS WELL AS A PERSONNEL, UH, FOCUS FROM A LAW PERSPECTIVE.

SO HE WAS ALSO A VERY IMPORTANT MEMBER, THE POLICE DEPARTMENT, UH, BECAUSE THIS, UH, AFFECTED THE POLICE RETIREMENT SYSTEM.

THEY'RE ALSO A VERY LARGE DEPARTMENT, UM, AND WE WANTED TO MAKE SURE WE TOOK INTO ACCOUNT HOW ANY CHANGES MIGHT AFFECT RECRUITMENT OF, UM, POLICE OFFICERS IN THE FUTURE.

NEXT SLIDE PLEASE.

UM, THIS IS OUR TIMELINE.

UH, AGAIN, WE, UH, CRANKED UP RIGHT AFTER ADOPTION OF THE BUDGET.

WE HIRED OUR CONSULTANTS.

UM, WE DID, UH, TWO, UH, UPDATES FOR THE, UH, COMMITTEE.

ONE WAS THE ANNUAL PENSION UPDATE FOR ALL THREE SYSTEMS, UH, THAT WAS DONE IN, UH, I BELIEVE OCTOBER IN NOVEMBER.

UM, I DID A, UH, UPDATE ON WHAT WAS GOING ON IN THE STATE, UH, HOW WE GOT TO THIS POINT, UM, WHAT OTHER TEXAS CITIES WERE EXPERIENCING, UM, AND THAT, THAT SORT OF THING.

THEN IN JANUARY, WE FORMED OUR TEAMS. WE STARTED LOOKING AT, UM, PLAN DESIGN AND FUNDING OPTIONS IN FEBRUARY, UM, PFM, UH, DID THE INITIAL BENCHMARKING AND, UH, ACTUARIAL MODELING IN, UM, MARCH, UH, THERE, THAT INFORMATION WAS PRESENTED INITIALLY TO THE, UH, UH, POLICE AND EMPLOYEE BOARDS, THE CHAIR, AND TO THEIR CHAIRS AND, UH, SOME OF THEIR STAFF AND EXECUTIVE DIRECTORS.

UM, AND THEN IN, UH, APRIL AND MAY, WE STARTED IN EARNEST MEETING WITH, UH, THE BOARDS, UM, AND, UH, THEY DID SOME ACTUARIAL SCENARIOS THEMSELVES, UM, PFM, UH, DID THIS, THIS PRESENTATION, YOU WILL SEE NEXT, UH, FOR EACH PENSION BOARD, UH, FOR COERCE ON MAY 13TH AND FOR THE, UH, POLICE RETIREMENT SYSTEM ON MAY 26TH.

AND SO THAT'S TAKEN US TO THIS POINT, UH, TO GET AHEAD OF OUR PROPOSED BUDGET AND THE NEXT LEGISLATIVE SESSION, UM, TO INFORM THIS COMMITTEE, UH, SO THAT THEY CAN CONSIDER SOME POLICY RECOMMENDATIONS.

UM, WITH THAT, I'M READY TO TURN THE PRESENTATION OVER TO, UM, PUBLIC FINANCIAL MANAGEMENT, OUR PENSION CONSULTANTS, UH, JIM LINK AND, UH, MICHAEL NEEDLE.

THANK YOU.

THIS IS MIKE NATE OFF FROM PFM.

IF WE CAN SWITCH PRESENTATIONS, WE CAN DIVE RIGHT IN.

IS IT POSSIBLE TO LOAD UP THE PRESENTATION

[00:10:01]

WE HAD PREVIOUSLY? UM, YES, WE'RE WORKING ON IT.

GOT IT.

OKAY.

NO PROBLEM.

THERE WE GO.

THANK YOU.

UM, SO AGAIN, I'M MIKE NATE, ALL FROM PFM GROUP CONSULTING.

UM, JOINING ME A LITTLE LATER IN PRESENTING SOME OF OUR FINDINGS TO YOU TODAY WILL BE JIM LINK FROM PFM ASSET MANAGEMENT.

UH, WE'VE ALSO HAD SOME ANALYSIS AND CONTRIBUTIONS TO OUR WORK, UH, FROM DENNIS WHALEY AND HIS TEAM, UH, OUT OF PFM FINANCIAL ADVISORS.

UM, SO THANK YOU FOR THE OPPORTUNITY TO WORK WITH THE CITY ON THIS VERY IMPORTANT PROJECT.

UM, WE'LL BE COVERING MANY OF OUR FIVE WHO ARE DEFINITELY DETAILED LEVEL, BUT I'D NOTE THAT THE REPORT SUBMITTED ALSO DOES INCLUDE SOME ADDITIONAL BENCHMARKING AND ANALYTICAL DETAIL, UH, IN THE APPENDICES.

UH, BUT WITH THAT, WHY DON'T WE, UM, GET RIGHT INTO THE FINDINGS? IF WE COULD MOVE AHEAD, A COUPLE OF SLIDES, PLEASE.

THERE WE GO.

UM, SO THIS, UH, SLIDE PRESENTS THE ACTUARIAL STATUS OF THE THREE SYSTEMS, UH, FOR THE CITY'S EMPLOYEES AND RETIREES, UH, AS OF DECEMBER 30, FIRST 2018, WHICH IS THE MOST RECENT DATE, UH, UPON WHICH ALL OF THE SYSTEMS HAD A COMPLETE ACTUARIAL, UH, SET OF FINDINGS.

AND THEN WHAT YOU'LL NOTE IS THAT THESE ARE A SIGNIFICANT COMMITMENT TO THE CITY'S EMPLOYEES.

THE LONGTERM LIABILITY IS CALCULATED AT OVER $6.

THE CITY HAS SET ASIDE WELL OVER $4 BILLION TOWARDS THAT COMMITMENT.

UM, BUT NOT WITHSTANDING THAT INVESTMENT THAT'S BEEN MADE OVER THE, OVER THE YEARS.

THERE'S CURRENTLY A CALCULATED LIABILITY THAT'S UNFUNDED IN EXCESS OF $2 BILLION ACROSS THIS RECESS SYSTEMS. UM, THE MAJORITY OF THAT BEING PART OF THE LARGEST SYSTEM OF THE CITY OF BOSTON EMPLOYEE RETIREMENT SYSTEM OR COERCE, BUT, UM, SHORTFALLS ACROSS ALL OF THE SYSTEMS, UM, WITH A, UH, CURRENT SCHEDULE TO PAY DOWN THOSE LIABILITIES THAT IS RELATIVELY PROLONGED, PARTICULARLY IN THE CASE OF COERCE OR ACTUALLY WOULD NEVER FULLY PAY DOWN THE LIABILITY UNDER THE ACTUARY'S ASSUMPTIONS IN THE CASE OF POLICE.

AND WE EXPECT THAT IF YOU WERE ABLE TO TAKE A REAL TIME SNAPSHOT OF THE ACTUARIAL LIABILITY TODAY, IT WOULD PROBABLY BE SOMEWHAT HIGHER, UM, IN PART, BECAUSE OF THE RECENT, UM, MARKET, UH, WEAKNESS IN THE WAKE OF THE COVID, UM, PANDEMIC AND THE ASSOCIATED ECONOMIC DOWNTURN, UM, AND IN PART, BECAUSE AS WE'LL TOUCH ON, AS WE MOVE FORWARD A LITTLE BIT, UM, THE PLANS HAVE BEEN, UM, REVISING THEIR ACTUARIAL ASSUMPTIONS, EVEN SINCE THE SNAPSHOT DATE OF DECEMBER 31ST, 2018, UH, THAT WAS THE BASIS FOR THESE CALCULATIONS.

AND WHEN YOU, UM, CHANGE SOME OF THOSE ACTUARIAL ASSUMPTIONS TO ADOPT A MORE PRUDENT APPROACH AND TO REQUEST EXPERIENCE, UM, SOMETIMES, AND UNFORTUNATELY THAT'S THE CASE HERE.

IT MEANS THAT YOU NEED TO RECOGNIZE AN EVEN GREATER, UH, UNDERLYING CHALLENGE THAT NEEDS TO BE FUNDED OVER TIME, BUT EVEN, UM, ON THIS MOST RECENT, FULLY, UH, DEVELOPED ACTUARIAL ANALYSIS, WE'RE TALKING ABOUT A $2 BILLION PLUS AGGREGATE LIABILITY, UH, THAT, THAT IS OUT THERE FOR THE CITY TO ADDRESS IN THE YEARS TO COME.

I MEAN, IF WE CAN TURN THE SLIDE AND FOCUS JUST A LITTLE BIT MORE ON COERCE ON SLIDE FIVE, UM, THIS CHALLENGE IS NOT DUE TO A LACK OF ACTION.

I THINK IT'S IMPORTANT TO RECOGNIZE THAT, AND NOT ONLY IS THE CITY SET ASIDE, UH, BILLIONS OF DOLLARS TOWARDS THESE CHALLENGES OVER MANY YEARS, UH, BUT THOSE EFFORTS TO ADDRESS THE UNFUNDED LIABILITY, UM, HAVE BEEN INTENSIFIED IN A COUPLE OF DIFFERENT WAYS FOR THE SYSTEMS, UH, IN MORE RECENT PERIODS, UM, OVER THE LAST DECADE OR SO.

UM, THE CITY HAS SIGNIFICANTLY INCREASED ITS FUNDING COMMITMENT ON AN ANNUAL BASIS, UH, TO THE COERCED SYSTEM BUILDING ON COMMITMENTS THAT GO BACK EVEN FARTHER TO, TO CONTRIBUTE MORE THAN THE STATUTORY MINIMUMS. AND IN 2012, A NEW BENEFIT TIER WAS INTRODUCED FOR, UM, FUTURE HIRES THAT, UH,

[00:15:01]

PROVIDES A, A SOMEWHAT MORE MODERATE LEVEL OF RETIREMENT, UH, BENEFIT TO HELP MANAGE DOWN THE LIABILITY, UH, PROSPECTIVELY, NONETHELESS, OVER THE COURSE OF THE YEAR, SINCE THE START OF THE DECADE, THE COLOR'S LIABILITY HAS STILL INCREASED EVEN WITH THIS NEW BENEFIT TIER INTRODUCED, EVEN WITH INCREASING CITY CONTRIBUTIONS AND THE FUNDED RATIO FOR THE PLAN, THE DEGREE TO WHICH THE PLAN IS ACTUARIALLY FUNDED, UH, HAS SLIGHTLY DECLINED.

UM, SIMILARLY, IF YOU CAN TURN THE SLIDE, UH, THE POLICE PLAN, THE AUSTIN POLICE RETIREMENT SYSTEM APRS, UH, HAS ALSO SEEN INCREASED CITY CONTRIBUTIONS, UM, OVER THE PAST DECADE OR SO, UH, BUT HAS ALSO SEEN A SIGNIFICANT AND SO MUCH SHARPER INCREASE IN THE UNFUNDED LIABILITY AND A SOMEWHAT GREATER EROSION OF THE FUNDED RATIO.

AND EVEN IF THE CITY WERE CONTINUE, UH, TO MEET ITS CURRENT FUNDING COMMITMENTS, UM, IN FULL AS IT HAS, UM, THE CURRENT ACTUARIAL VALUATION, EVEN WITH, UH, INVESTMENT RETURNS, MEETING THEIR GOALS AS, AS IS PRETTY UNLIKELY TO HAPPEN, AT LEAST IN THIS CURRENT YEAR, UM, THAT LIABILITY WOULD BE FORECAST TO CONTINUE TO GROW.

AND THE DEGREE OF FUNDING WOULD BE FORECAST TO CONTINUE TO DECLINE, UH, BECAUSE THE CURRENT STRUCTURE FOR FUNDING THE PLAN, UM, IS, UH, ACTUARIALLY INSUFFICIENT TO FUND THE BENEFITS AS, AS THE SYSTEM'S ACTUARIES NOTED IN THAT RECENT VALUATION.

THE APRS IS FUNDED RATIO IS EXPECTED TO CONTINUE TO DECREASE UNTIL IT REACHES ZERO.

WHEN THE ASSETS OF THE SYSTEM ARE DEPLETED, UM, OVER MANY YEARS, IF NO CORRECTIVE ACTION IS TAKEN.

UM, SO, SO TURN THE SLIDE.

WHY HAS THAT HAPPENED? UH, WHY HAS UNDERFUNDING GROWN EVEN AS FUNDING HAS INCREASED THEM, THE COERCE BENEFITS HAVE BEEN ADJUSTED, UM, AND ON SEVEN, YOU'LL SEE, THERE ARE SEVERAL REASONS FOR THAT.

UM, ONE OF WHICH IS INVESTMENT RETURNS, UM, WHICH HAVE BEEN BELOW THE PLANS, ASSUMPTIONS, EXCUSE ME, MR. NADELLA, THEY NEED TO ADVANCE THIS SLIDE TO SLIDE SEVEN, PLEASE.

VERY GOOD.

I'LL PAUSE.

THERE YOU GO.

SO YOU CAN SEE HERE THAT OVER THE PAST FIVE YEARS, AND EVEN OVER THE PAST 15 YEARS, BOTH THE COLORS AND POLICE RETIREMENT SYSTEM, SO HAVE ACHIEVED A NET RETURNS ON THE ASSETS THAT HAVE BEEN SET ASIDE THAT HAVE FALLEN, UM, IN RECENT YEARS, PRETTY SIGNIFICANTLY SHORT AND OVER A LONGER TERM, A LITTLE BIT SHORT OF THE, UH, HISTORICAL ASSUMPTIONS THAT THE SYSTEM WAS COUNTING.

SO IF YOU'RE NOT GAINING THOSE INVESTMENT RETURNS, UM, YOUR FUNDED RATIO FALLS, YOU NEED TO PUT IN EVEN MORE TO CATCH UP, UH, GOING FORWARD.

AND THAT'S PART OF WHAT YOU SEE HERE.

UM, PART OF WHAT YOU SEE AS THE SYSTEMS ADJUSTING TO THOSE CHANGES IN WHAT IS SEEN IN THE MARKETS, AND THIS IS NOT UNIQUE TO AUSTIN, UM, SYSTEMS ACROSS THE COUNTRY HAVE BEEN REVISING THEIR INVESTMENT RETURN ASSUMPTIONS DOWNWARD TO REFLECT, UH, WHAT IS MORE CURRENTLY ANTICIPATED FOR FUTURE MARKET RETURNS AND SEEM TO BE REALISTIC AND ACHIEVABLE.

UM, AND THAT EFFECT ALSO MEANS THAT WHEN YOU'RE BUILDING THAT ACTUARIAL MODEL, UM, YOU CAN'T ANTICIPATE AS MUCH TO COME FROM JUST INVESTMENT RETURNS, WHICH MEANS TO MEET THE EXPECTED LIABILITIES, UH, GREATER CONTRIBUTIONS ARE REQUIRED OR CHANGES TO THE, UH, ULTIMATE BENEFITS AND LIABILITIES ARE REQUIRED TO GET THINGS MORE INTO BALANCE.

UM, I I'D ALSO NOTE, UM, JUST WHILE THE SLIDE WAS WAITING TO CHANGE, UM, THAT UNDERFUNDING HAS NOT BEEN DRIVEN BY UNDERFUNDED OR UNFUNDED BENEFITS.

UM, NEITHER COERCE NOR THE POLICE SYSTEM HAS ADDED A COST OF LIVING ADJUSTMENT, UH, FOR QUITE A NUMBER OF YEARS.

UM, AND SO IT, IT REALLY IS MUCH MORE A FUNCTION OF THE INVESTMENT RETURNS AND ALSO THE FIXED FUNDING APPROACH THAT THE CITY USES, UM, YOU KNOW, ABOVE THE STATUTORY MINIMUMS, BUT, BUT NOT BASED DIRECTLY ON ANNUAL ACTUARIAL VALUATIONS, UH, FALLING SOMEWHAT SHORT.

AND THAT'S FURTHER ILLUSTRATED IN THIS SLIDE, WHICH IS DRAWN FROM ANALYSIS THAT MOODY'S INVESTORS DOES.

ONE OF THE MAJOR CREDIT RATING AGENCIES.

THEY TAKE A LOOK AT HOW MUCH FUNDING CONTRIBUTIONS, UM, DO OR DON'T FULLY COVER, UM, THE COST FOR YOUR ACTUARIAL, UM, SET ASIDE FOR FUTURE BENEFITS AND THE INTEREST, UH, ON ANY UNFUNDED LIABILITY, THEY CALL THAT A TREAD WATER METRIC.

AND BY THAT MEASURE,

[00:20:01]

UM, WHAT THE CITY HAS BEEN DOING, EVEN THOUGH IT'S ABOVE THE STATUTORY MINIMUMS AND HAS BEEN INCREASING, UM, IN RECENT YEARS STILL COMES SOMEWHAT SHORT OF WHAT IT WOULD TAKE JUST TO KEEP THE FUNDED RATIO, EVEN ON A GOING FORWARD BASIS.

UM, TURNING THE SLIDE.

UM, WELL, WE'LL TALK SHORTLY ABOUT HOW SOME OF THE EXTERNAL, UM, RATING AGENCIES AND OTHER MARKET PARTICIPANTS VIEW THIS, BUT FIRST, JUST A COUPLE OF NOTES ABOUT THE GOVERNANCE STRUCTURE FOR EACH OF THESE TWO LARGEST CITY SYSTEMS, UM, LIKE MANY SYSTEMS AROUND THE COUNTRY, THE SYSTEMS, UM, THE RETIREMENT BENEFITS MANAGED WITH A MIX OF ROLES AND RESPONSIBILITIES.

THERE ARE STATE LEGISLATIVE STATUTORY PROVISIONS THAT COVER PARTICULARLY THE BENEFITS THAT CAN BE PROVIDED.

UM, THE CITY AS THE PLAN SPONSOR HAS SOME ROLE IN APPROVING COAL WAS FOR THE COSIS COVERED SYSTEM.

AND ALSO, UM, IN TERMS OF WHAT ADDITIONAL CONTRIBUTIONS THE CITY MAY MAKE OVER AND ABOVE A STATUTORY MINIMUMS CITY.

OF COURSE, ALSO AS, AS, UH, UH, THE, UH, CHIEF FINANCIAL OFFICER NOTED HAS SOME REPRESENTATION ON THE BOARD, UH, FOUR OF 11 MEMBERS ARE EITHER FROM COUNCIL COUNCIL APPOINTEES OR THE CERTAIN MANAGERS DESIGNATE.

UM, SO THERE'S THAT VOICE, UH, BUT ALSO A SIGNIFICANT ROLE FOR THE BOARD IN TERMS OF, UM, THE INVESTMENT MANAGEMENT, THE ACTUARIAL ASSUMPTIONS AND THE, LIKE THE STRUCTURE FOR GOVERNANCE FOR THE POLICE SYSTEM IS SIMILAR AND ALSO INCLUDES A MIX OF RESPONSIBILITIES IF WE CAN JUMP TO SLIDE 10.

UM, BUT IT'S JUST A LITTLE BIT DIFFERENT.

MMM.

ONE FEWER CITY REPRESENTATIVE ON THE BOARD.

UM, BUT ALSO SOME GREATER FLEXIBILITY FOR THE BOARD TO ADJUST BENEFITS, UH, AND NO ROLE, UM, IN ANY BEYOND THE, THE MINORITY BOARD REPRESENTATION, UH, FOR THE CITY TO APPROVE OR DISAPPROVE OF ANY POTENTIAL COLAS.

AND AGAIN, THERE HASN'T BEEN ONE FOR QUITE SOME TIME, BUT, UH, JUST A FEW DISTINCTIONS IN THE DIFFERENT ROLES AND RESPONSIBILITIES FOR THE TWO SYSTEMS, BOTH OF WHICH FEATURE, UH, AGAIN, A MIX INVOLVING LEGISLATIVE BOARD AND, AND CITY, UM, RESPONSIBILITIES.

SO TURNING TO SLIDE 12, I WANT TO NOW FOCUS ON HOW THE RATING AGENCIES IN PARTICULAR, WHO EVALUATE THE CITY'S CREDIT, UH, HAVE VIEWED THE UNFUNDED LIABILITIES AND ALSO, UM, THE TRENDS AND, AND CONTEXT FOR THOSE UNFUNDED LIABILITIES AND, YOU KNOW, ANY CREDIT RATING AGENCY CONSIDERS PENSION FUNDING TO BE A SIGNIFICANT COMPONENT OF AN OVERALL RATING.

THERE ARE MANY OTHER FACTORS IN TERMS OF YOUR GENERAL FINANCIAL CONDITION, THE ECONOMIC CONDITION OF THE CITY, UH, YOUR OVERALL DEBT LEVELS AND SO ON, BUT PENSIONS ARE AN IMPORTANT PART OF THAT.

UM, AND WHAT, UH, EACH OF THE RATING AGENCIES LOOKS TO DO AND SOMEWHAT DIFFERENT, SOMEWHAT DIFFERENT WAYS IS TO PUT THOSE PENSION LIABILITIES IN THE CONTEXT OF YOUR OVERALL LONGTERM CAPACITY TO MEET THEM.

UM, SO THEY'LL LOOK AT YOUR PENSION LIABILITY IN RELATION TO YOUR REVENUES, YOUR, UM, PENSION LIABILITIES IN RELATION TO YOUR TAX BASE.

UM, AND THEY WILL COMPARE HOW YOU LOOK RELATIVE TO OTHER GOVERNMENTS AND OTHER GOVERNMENTS HAVE A SIMILAR CHARACTER ON A NORMALIZED BASIS.

SO WHEN YOU SEE THESE METRICS LISTED ON THIS SLIDE FOR ADJUSTED NET PENSION LIABILITY ADJUSTMENT IS ACTUALLY DONE BY MOODY'S ONE OF THE MAJOR CREDIT RATING AGENCIES.

THEY USE SOME STANDARDIZED ACTUARIAL ASSUMPTIONS AND, AND KIND OF TWEAK YOUR NUMBERS AND EVERYONE ELSE'S TO BE A LITTLE CLOSER TO APPLES, TO APPLES.

AND WHEN THEY DO THAT, UM, WHAT YOU SEE PARTICULARLY IN THE HIGHLIGHTED RED AREA IS THAT THE PRESSURES THE CITY IS NOW FACING WITH THE SCALE OF ITS PENSION LIABILITIES IN RELATION TO YOUR OPERATING REVENUE, UM, IN PARTICULAR ARE SOMEWHAT GREATER THAN WHAT YOU WOULD TYPICALLY SEE FOR OTHER LARGE CITIES

[00:25:01]

WITH THE AAA RATING THAT AUSTIN, UM, HAS ACHIEVED AND, AND TAKES PRIDE IN AND COUNTS ON FOR, UM, LOWER COSTS OF ACCESS TO THE CAPITAL MARKETS.

UM, IN FACT, YOUR, UM, MORE LIKE A AA RATED COMMUNITY IN TERMS OF THE SCALE OF YOUR PENSION LIABILITIES IN RELATION TO OPERATING REVENUES.

SO WHEN THE WHOLE CONSTELLATION OF FACTORS IS TAKEN INTO ACCOUNT, UM, IN CRAFTING A RATING BY THE AGENCIES, UM, THE PENSION BURDENS ARE, YOU KNOW, ARE PART OF WHAT, UM, PERHAPS WEIGHS YOU DOWN A LITTLE BIT AND, AND IS ONE OF THE AREAS THAT NEEDS TO BE ADDRESSED, UH, TO HELP SUSTAIN THE HIGH CREDIT, UH, IN WHICH THE CITY, UH, RIGHTLY TAKES PRIDE.

UM, AND IF YOU TURN THE PAGE, YOU CAN SEE THAT THIS ISN'T JUST A NUMBERS ISSUE.

IT'S SOMETHING THAT'S THAT THE MAJOR RATING AGENCIES HAVE COMMENTED ON, UM, IN THEIR NARRATIVE REPORTS ABOUT THE CITY'S, UH, RATING MOODY'S ACTUALLY, UM, LAST YEAR PLACED A NEGATIVE OUTLOOK ON THE CITY'S AAA RATING, REFLECTING THAT THEY DO SEE SOME MEANINGFUL PRESSURE TO MAINTAIN THAT RATING.

AND ONE OF THE SPECIFIC FACTORS THEY CITED WAS QUOTE, INABILITY TO MANAGE THE GROWTH OF LIABILITIES AND COSTS ASSOCIATED WITH THE RETIRING BENEFITS SYSTEMS, UM, THAT, UM, THAT THAT'S INCONSISTENT WITH THE AAA RATING STANDARD AND POISE POURS DID NOT GIVE YOU A NEGATIVE OUTLOOK.

THANKFULLY, THEY, THEY RECOGNIZE THE MANY OTHER STRENGTHS OF THE CITY AND MAINTAIN, UH, THE CREDIT, UH, AT A STABLE, UH, LEVEL.

UH, BUT THEY ALSO ACKNOWLEDGE THE RISK OF THE LARGE PENSION OBLIGATIONS AND FIXED COSTS, UM, AND SPOKE TO THE IMPORTANCE OF ME, OF ADDRESSING THOSE COSTS, UM, IN ORDER TO SUSTAIN, UH, THE CITY'S, UH, LONGTERM FINANCIAL POSITION AND THE LONGTERM HEALTH OF THE PLANS AND THE RATING THAT'S ASSOCIATED WITH ALL OF THAT, UM, TURNING TO THE NEXT SLIDE.

UM, ANOTHER EXTERNAL PERSPECTIVE ON THE BURDENS THAT THE CITY'S NOW FACING WITH ITS PENSION FUNDING CAN COME FROM THE TEXAS PENSION REVIEW BOARD.

UH, THIS IS A BOARD THAT OVERSEES ALL PENSION, THAT PENSION PLANS ACROSS THE STATE, AND THEY REQUIRE, UH, FUNDING SOME RESTORATION PLANS FOR THOSE SYSTEMS THAT ARE NOT IN A POSITION TO PAY DOWN THEIR UNFUNDED LIABILITIES OVER A 40 YEAR PERIOD.

UM, AND, UM, CURRENTLY BASED ON THAT STANDARD, UH, THE AUSTIN POLICE RETIREMENT SYSTEM WOULD BE CONSIDERED AT RISK IF THAT'S NOT ADDRESSED, UM, YOU KNOW, WITHIN A THREE YEAR WINDOW THAT THE BOARD PROVIDES.

AND I'D NOTE THAT WHILE COVERS IS STILL AS OF DECEMBER, 2018, UH, JUST BARELY WITHIN THAT RANGE.

UM, IT IS ABOVE THE RECOMMENDED LEVEL FOR AMORTIZING DOWN THE DEBT OF, UH, 10 TO 25 YEARS BEING PREFERRED 30 YEARS BEING KIND OF A MAXIMUM RECOMMENDED LEVEL.

UH, COERCES SAID 32 YEARS AS A, AS A 2018.

AND, AND AGAIN, BASED ON MORE RECENT DEVELOPMENTS, UM, LOOKS TO BE TRENDING IN A, IN A NEGATIVE DIRECTION WITHOUT SOME, SOME ACTIONS TO ADDRESS IT.

UM, SO THERE ARE REAL PRESSURES, REAL EXTERNAL CONCERNS WHEN I, UM, KIND OF CHANGE FOCUS A LITTLE BIT AND, AND LOOK AT THE BENEFITS BEING PROVIDED BECAUSE WHILE THE FUNDING IS CRITICAL, THE FINANCIAL DIMENSION TO THIS IS CRITICAL.

IT'S ALSO OF COURSE, IMPORTANT TO HAVE A COMPETITIVE BAG METHOD THAT HELPS THE CITY RECRUIT AND RETAIN GOOD QUALITY EMPLOYEES.

IT'S IMPORTANT TO THINK ABOUT AND HELP EMPLOYEES PREPARE FOR RETIREMENT SECURITY AND A DIGNIFIED RETIREMENT FOR CAREER WORKERS.

UM, SO WE, WE ALSO TOOK A LOOK AT, UM, HOW YOUR BENEFITS STRUCTURES TODAY, UH, COMPARE TO THOSE SEEN AMONG OTHER LARGE TEXAS CITIES.

AND IF WE CAN TURN TO SLIDE 16, UH, BEGIN TO PROVIDE AN OVERVIEW OF THAT FOR FIRST, THE GENERAL EMPLOYEES, THE COERCE MEMBERS, NOT POLICE OR FIREFIGHTERS, BUT, UH, THE CIVILIAN CITY EMPLOYEES, IF YOU WILL.

UM, AND THERE ARE A COUPLE OF THINGS TO THINK ABOUT WHEN COMPARING BENEFITS, UM, YOUR PENSION BENEFITS DON'T EXIST IN A VACUUM.

THEY MAY OR MAY NOT STAND SIDE BY SIDE WITH SOCIAL SECURITY AND RETIREE HEALTHCARE.

SO THERE'S KIND OF A FULL PACKAGE TO THINK ABOUT, UM, FOR, UM, GENERAL EMPLOYEES AND POLICE.

UM, AUSTIN DOES PROVIDE

[00:30:01]

BOTH A TRADITIONAL PENSION AND SOCIAL SECURITY COVERAGE, AND SOCIAL SECURITY IS IMPORTANT BECAUSE, UM, NOT ONLY IS IT AN EXTRA SOURCE OF RETIREMENT INCOME THERE'S, UH, ADDITIONALLY, UH, FURTHER CONTRIBUTION THAT THE CITY MAKES TOWARDS THAT BENEFIT AT, UH, 6.2% OF PAY AND EMPLOYEES DO THE SAME.

SO IT'S PART OF THEIR OVERALL COMPENSATION STRUCTURE.

I'D ALSO NOTE THAT SOCIAL SECURITY HAS A BUILT IN COST OF LIVING ADJUSTMENT.

SO WHEN YOU'RE THINKING ABOUT THE LONGTERM CHARACTER OF THE OVERALL BENEFIT PACKAGE, UM, THERE IS FOR THAT PART OF RETIREMENT INCOME, A COLA THAT'S ALREADY THERE INDEPENDENT OF WHAT THE CITY MAY OR MAY NOT DO WITH ITS OWN BENEFITS, AND IT'S NOT UNIVERSAL, UH, EVEN AMONG GENERAL EMPLOYEES, UH, TO PROVIDE, UM, SOCIAL SECURITY COVERAGE AT DALLAS AND FORT WORTH DO NOT FOR THEIR GENERAL EMPLOYEES.

UM, AND, UM, SAN ANTONIO, WHILE THEY DO HAVE SOCIAL SECURITY IS IN A DIFFERENT STRUCTURE, UM, RETIREMENT PROGRAM UNDER THE CMRS TEXAS SYSTEM THAT IS NOT A TRADITIONAL DEFINED BENEFIT PENSION.

SO STRUCTURALLY AUSTIN'S IN THE MORE COMPETITIVE, UH, GENEROUS GROUPING OF MAJOR TEXAS CITIES.

UM, ALL OF THESE PLANS, INCLUDING AUSTIN AS ALREADY NOTED IN 2012, UH, HAVE IN THE LAST, YOU KNOW, FIVE TO 10 YEARS, UH, ESTABLISHED, UH, SOMEWHAT LESS GENEROUS TIERS FOR MORE RECENT HIRES TO HELP MANAGE THESE COSTS.

AND EVEN AMONG THE GROUPING OF CITIES THAT HAS A TRADITIONAL DEFINED BENEFIT PENSION, UM, AND SOCIAL SECURITY, UH, AUSTIN'S OVERALL BENEFITS STRUCTURE IS, UH, IS PRETTY COMPETITIVE.

UM, SO IF YOU TURN TO THE NEXT PAGE, WE'VE HIGHLIGHTED SOME OF THE MAJOR FEATURES OF THAT PLAN.

UH, THE DEPENDENCIES INCLUDE SOME MORE DETAIL, UM, JUST NOTE THAT, UM, THE MULTIPLIER, THE PORTION OF THE FORMULA APPLY TWO YEARS OF SERVICE TO CALCULATE THE SIZE OF THE BENEFIT IS, UM, CONSISTENT WITH, UM, THE CITIES WITH A MORE GENEROUS STRUCTURE.

AND THIS IS AGAIN FOR YOUR CURRENT MORE RECENT POST 2012 HIRES.

UM, AND AGAIN, THEY'RE KIND OF DIFFERENCES ACROSS THE BOARD IN THE ELEMENTS OF THE PLAN, UH, THOSE COVERED HERE IN THOSE COVERED IN THE DEPENDENCIES.

UM, BUT IN THE AGGREGATE, UM, THE CURRENT STRUCTURE IS, UM, IS VERY GOOD AND ESPECIALLY, SO WHEN SOCIAL SECURITY IS, IS ADDED INTO THE MIX, I'M TURNING THE PAGE FROM A FUNDING PERSPECTIVE.

UM, YOU SEE THAT, UM, THE, UM, AND THIS IS JUST FOR THE PENSION PLAN, NOT TAKING INTO ACCOUNT THE SOCIAL SECURITY CONTRIBUTIONS OF BOTH CITY AND AUSTIN GENERAL EMPLOYEES MAKE ON TOP OF THIS.

UM, THE, UH, CITY'S CONTRIBUTION LEVEL CURRENTLY AS I GUESS, MID RANGE, THERE'S A FAIR AMOUNT OF VARIATION THERE, AND EMPLOYEES, LIKEWISE ARE KIND OF MID RANGE.

UM, SOME OF THEIR COUNTERPARTS DO CONTRIBUTE MORE IF YOU CONTRIBUTE LESS, UM, TURNING NEXT TO THE POLICE BENEFIT STRUCTURE.

UM, HERE YOU SEE THAT AUSTIN IS, UM, UNIQUE AMONG THIS GROUPING OF MAJOR TEXAS CITIES IN PROVIDING BOTH SOCIAL SECURITY AND TRADITIONAL PENSIONS.

AUSTIN IS ALSO THE ONLY CITY IN THE POLICE GROUPING, UH, THAT HAS NOT ADOPTED A NEW TIER OR MORE RECENT HIRES WITH A DIFFERENT, UM, AND MORE MODERATED BENEFIT LEVEL.

UM, SO THERE'S A FEW MORE DISTINCTIONS HERE.

IF YOU TURN THE PAGE, YOU CAN SEE THAT THAT EXISTING AUSTIN PLAN, UH, IN COMPARISON TO THOSE NEWER TIERS FOR THE OTHER CITIES IS, UM, AGAIN, VERY COMPETITIVE, THAT MULTIPLIER THAT IS IN THE BENEFIT FORMULA COLUMN, UH, FOR AUSTIN 3.2% OF PAY, UH, FOR EACH YEAR OF SERVICE, UH, AS THE, AS THE FUTURE BENEFIT IS DEVELOPED, UM, IS, UM, THE STRONGEST OF THE GROUP.

UM, AND WHILE AGAIN, THERE ARE VARIATIONS IN TERMS OF EXACTLY HOW MANY YEARS YOU HAVE TO SERVE OR HOW OLD YOU ARE TO QUALIFY FOR RETIREMENT OR QUITE WHAT GOES INTO THE FORMULAS.

UM, THE CITY'S PLAN, UM, EVEN WITHOUT TAKING THE SOCIAL SECURITY NEW ACCOUNT IS VERY STRONG.

UM, TURNING THE PAGE FROM A FUNDING PERSPECTIVE.

UM, THE CITY'S CONTRIBUTIONS ARE, UM, PERHAPS A LITTLE BIT BELOW THE MID RANGE AMONG OTHER, UH,

[00:35:01]

THESE OTHER TEXAS CITIES AND THE EMPLOYEE CONTRIBUTIONS ARE JUST A LITTLE BIT ABOVE THE MID RANGE, UM, BUT VERY MUCH IN THE MAINSTREAM, UM, IN TERMS OF, UM, IN TERMS OF HOW MUCH THEY'RE PUTTING TOWARDS THE BENEFITS AS, AS, UH, AS PROVIDED, UM, I'VE, I'VE NOTED THAT, UM, THE DIFFERENT SYSTEMS, UM, ALL OF THE OTHER POLICE SYSTEMS AND ALL OF THE OTHER GENERAL SYSTEMS, INCLUDING AUSTIN HAVE MADE SOME CHANGES IN RECENT, JUST WANT TO HIGHLIGHT, UH, SEVERAL OF THOSE THAT HAVE BEEN, UM, PROMINENT OVER THE LAST COUPLE OF YEARS.

SO TURNING TO SLIDE 22, UM, HOUSTON, DALLAS, FORT WORTH IN PARTICULAR EVOLVE, FACED VARYING DEGREES OF, UH, FUNDING PRESSURE FOR THEIR PLANS, UM, CONCERNED ABOUT UNDID RATIOS AND THE NEED TO ADDRESS THOSE FUNDING CONCERNS TO, TO ENSURE THE SUSTAINABILITY AND AFFORDABILITY THEIR PLANS AND THROUGH DIFFERENT MECHANISMS BASED ON THE DIFFERENT LEGAL STRUCTURES AND REQUIREMENTS FOR THE PLANS, UH, HAVE MADE SOME SIGNIFICANT CHANGES, UM, UH, YOU KNOW, AGAIN, KIND OF WITHIN THE LAST, UM, REALLY SEVERAL YEARS, UM, AND IN SOME CASES BUILDING ON EARLIER PLANT PLAN CHANGES, UM, PUTTING INTO PLACE, INCREASED CONTRIBUTIONS FOR ALL EMPLOYEES, UH, PUTTING INTO PLACE SOME INCREASED FUNDING COMMITMENTS, UM, MAKING SOME CHANGES TO MODERATE THE BENEFIT LEVELS, TO ENSURE THAT THEY CAN BE AFFORDED IN A SUSTAINABLE WAY LONGER TERM.

AND, UM, WE'LL, WE'VE GOT SOME MORE DETAIL ABOUT THAT IN THE APPENDICES, AND THERE'S ALSO, UH, I THINK JIM, IN A FEW MINUTES IS GOING TO TOUCH ON SOME OF THE RISK MANAGEMENT FEATURES PARTICULAR TO THE HOUSTON REFORMS, UM, AS PART OF, UH, WHICH HE SHARES WITH YOU.

UM, SO WITH THAT, LET ME TURN IT OVER TO JIM, UM, TO TALK ABOUT, YOU KNOW, WITH, WITH THIS KIND OF BACKDROP AND CONTEXT, UM, WHAT ARE SOME OF THE CITY'S OPTIONS, UH, FOR IMPROVING THE HEALTH OF ITS PLANS GOING FORWARD? THANKS, MIKE.

UM, IF YOU COULD FLIP TO SLIDE 24, PLEASE, WE'RE GOING TO KIND OF THINK ABOUT WHAT ARE THE TOOLS, WHAT ARE THE, WHAT ARE THE ALTERNATIVES FOR ADDRESSING, UM, THESE VARIOUS, UH, UNDER, UNDER FUNDING ISSUES? UM, AND THEY'RE REALLY FOR THAT, THAT WE CAN SPEAK OF.

ONE IS, UH, BUDGETARY FUNDING.

UH, ANOTHER IS MANAGING THE BENEFITS LIABILITY PORTION, UH, RISK MANAGEMENT, AND THEN BUILDING THE FUND'S ASSETS.

UM, I'LL NOTE THAT THE CITY OF AUSTIN, UM, WAS ONE OF THE EARLY ADOPTERS OF FUNDING POLICIES WHEN THAT BECAME, UH, KIND OF IN THE MAINSTREAM, UH, AND, AND MOVING DOWN INTO THE BENEFITS LIABILITIES, UH, AS MIKE TALKED ABOUT IN COERCE, THERE HAVE BEEN SOME CHANGES IN TEARS AND, AND BENEFIT DESIGN AND THE LIKE, UM, AND THEN WE'LL SPEND A LITTLE TIME TALKING ABOUT THE RISK SHARING, WHICH MIKE REFERENCED A LITTLE BIT A LITTLE BIT AGO.

UM, IF YOU MOVE TO SLIDE 25 AND LET'S TALK ABOUT FUNDING POLICY, UM, ALL OF THE SYSTEMS, INCLUDING FIRE HAVE A FUNDING POLICY, UM, ONE OF THE CHALLENGES, UM, IT'S COMMON TO TEXAS PLANS, BUT ONE OF THE CHALLENGES, UM, THAT YOU'RE YOU'RE FACING, UM, TIES TO THE FACT THAT THE FUNDING POLICY IS NOT, UM, ORIENTED AROUND THE ACTUARIALLY DETERMINED CONTRIBUTION.

INSTEAD IT'S A FIXED RATE CONTRIBUTION.

UM, FIXED RATE CONTRIBUTION CAN WORK, BUT IT DOES CREATE SOME CHALLENGES TO MAINTAIN SUFFICIENT FUNDING.

UM, AND IF YOU, IF YOU LOOK OVER IN, IN THE RIGHT SECTION IN THE MIDDLE, UH, IN THE SECOND PARAGRAPH, WE TALK ABOUT THE HIGHEST DEGREE OF CONTRIBUTION STABILITY IS THE FIXED PERCENTAGE, BUT IT FALLS SHORT AND ACHIEVING TWO OTHER GOALS.

ONE IS RETIREMENT SECURITY, AND THE OTHER IS POTENTIALLY INTERGENERATIONAL EQUITY BECAUSE AT SOME POINT THE CONTRIBUTIONS HAVE TO BE, HAVE TO BE MADE.

UM, IF WE FALL SHORT, UH, IF YOU'LL MOVE TO SLIDE 26, UM, UH, KIND OF ADDING ON TO THE FUNDING POLICY DISCUSSION, UM, THE, THE GOVERNMENT FINANCE OFFICERS ASSOCIATION, WHICH IS A ASSOCIATION OF CFOS AND FINANCE DIRECTORS FROM AROUND THE COUNTRY, UM, UH, HAS DEFINED, UH, THE APPROACH AND, AND THE MOST COMMON APPROACH IS BEING, UH, FUNDING ON AN ACTUARIALLY DETERMINED CONTRIBUTION BASIS.

UM, AND, AND THAT IN FACT, THAT THIS IS THE MOST PRUDENT WAY TO MAINTAIN,

[00:40:01]

UH, THE INTERNET INTERGENERATIONAL EQUITY AND THE SUSTAINABILITY OF BENEFITS.

AND THAT REALLY, UH, AS YOU SEE A NUMBER THREE DOWN AT THE BOTTOM APPLIES TO DEFINED BENEFIT PENSIONS AND OPEB FUNDS THERE, THE GFS RECOMMENDATION IS TO FUND THE FULL AMOUNT OF THE ACTUARILY DETERMINED CONTRIBUTION EACH PERIOD.

UM, WE'LL FLIP PAST THE NEXT TWO SLIDES, WHICH REALLY GET TO BENEFIT DESIGN OPTIONS, WHICH, UH, AT LEAST IN THE, IN THE CASE OF POLICE WILL, WILL BE SOMETHING THAT WE'LL, WE'LL TALK ABOUT IN A COUPLE OF MINUTES.

AND WE'LL TALK ABOUT RISK SHARING AS RISK SHARING IS ANOTHER MAJOR ELEMENT OF THIS AND RISK SHARING ESSENTIALLY, UH, IS ORIENTED AROUND HAVING, UM, BOTH THE CITY AND ITS TAXPAYERS ALONG WITH THE, UH, PARTICIPANTS AND BENEFICIARIES OF THE SYSTEM SHARE TO A CERTAIN DEGREE IN THE RISKS THAT ARE INHERENT IN THE, UH, IN THE SYSTEMS, BOTH TO THE GOOD AND TO THE BAD.

UM, THERE ARE A COUPLE OF WAYS THAT WE CAN, WE'VE SEEN THIS PLAY OUT.

UM, ON THE LEFT HAND SIDE, ONE IS SPLITTING THE NORMAL COST OR THE COST OF EACH YEAR OF SERVICE, UM, FOR, FOR AN EXISTING EMPLOYEE.

UM, IN SOME CASES LIKE IN FORT WORTH, THERE'S ACTUALLY A SPLIT OF THE ACTUARIALLY DETERMINED COSTS, WHICH INCLUDES BOTH THE NORMAL COST AND THE COST OF THE UNFUNDED LIABILITY.

THERE'S A COST CORRIDOR APPROACH THAT, UH, THAT IS, UH, IN, IN THE HOUSTON, UH, CASE.

AND THEN THERE EVEN SOME HYBRID APPROACHES THAT, THAT DEFINE, UM, HOW CONTRIBUTIONS MAY BE SPLIT BETWEEN DEFINED CONTRIBUTION AND DEFINED BENEFIT PLANS.

UM, WHEN WE TALK ABOUT RISK SHARING IN FORT WORTH, UM, YOU KNOW, WHERE CONTRIBUTIONS ARE LESS THAN THE ACTUARIALLY DETERMINED COSTS FOR A COO FOR A COUPLE OF YEARS, THE CONTRIBUTIONS ARE INCREASED IN A 60, 40, UM, UH, PROPORTION, UH, WITH THE CITY, UH, FUNDING THE 60 AND THE, THE EMPLOYEES FUNDING THE 40, SO THAT, SO THAT ALL PARTIES ARE KIND OF, UH, UH, INVOLVED IN THE, IN THE OVERALL, UM, UH, FUNDING OF THE, OF THE UNFUNDED LIABILITY.

UM, IF, IF, IF AFTER HITTING SOME CERTAIN, UH, STATUTORY, UH, CAPS OR ANNUAL CAPS, IT'S STILL INSUFFICIENT, THEN CITY COUNCIL HAS TO DECIDE HOW THEY WANT TO ADDRESS ANY ADDITIONAL FUNDING OVER AND ABOVE THAT.

IN THE CASE OF HOUSTON, THEY'VE ACTUALLY DEFINED SOME CORRIDORS TO TRY TO PUT SOME LIMITS, UH, IF YOU WILL, ON THE PLUSES AND MINUSES, UH, SURROUNDING THOSE BENEFITS, THOSE, UH, CONTRIBUTION CHANGES, UM, AND, AND THE WAY THEY CAME UP WITH THAT, AS THEY, THEY TOOK A REALLY COMPLETE VIEW OF A TARGET MUNICIPAL CONTRIBUTION RATE, WHICH WOULD BE A CLOSED 30 YEAR AMORTIZATION ON THE UNFUNDED LIABILITY.

UM, ASSUMING A 7% RETURN, THE EXPECTED NORMAL COSTS AND THE EXPECTED ADMINISTRATIVE EXPENSES, AND, AND THERE'S A SHARING AND A, IN A CORRIDOR DURING, AND A LIMITING OF THE, OF THE, A PLUS AND MINUS OF THAT CORRIDOR, UM, WHICH IS HELPFUL FROM A BUDGETING STANDPOINT, IT CAN RUN INTO SOME SIMILAR CHALLENGES THAT, THAT HAVE FIXED RATE FUNDING METHOD CAN, BUT, BUT TO A MUCH LESSER DEGREE, IT'S A, IT'S A MUCH STRONGER, UH, A WAY OF FUNDING, UH, THE, THE PENSION SYSTEM, UM, THE LAST SLIDE, UM, WE PUT IN BECAUSE IT IS A HOT TOPIC AND A LOT OF PEOPLE ARE, ARE DEALING WITH THIS, UM, IN PARTICULAR, OUT IN CALIFORNIA.

UM, AND THAT'S THE ISSUANCE OF PENSION OBLIGATION BONDS.

THAT WOULD BE, UH, A DIFFERENT WAY.

THE CITY COULD ADDRESS SOME OF THE UNFUNDED LIABILITY IF THEY CHOSE TO DO SO.

UM, THERE ARE A LOT OF, LOT OF, UH, UH, CONSIDERATIONS TO BE HAD AROUND THAT, BUT WE, WE FELT LIKE, UM, HERE AT, IN THE APPENDIX, WE'VE ADDRESSED THAT.

AND SOME OTHER KINDS OF, OF, UH, UH, EXTRA FUNDING MECHANISMS THAT, THAT THE CITY MIGHT WANT TO CONSIDER AT SOME POINT IN THE FUTURE.

UH, WE JUST DIDN'T WANT TO LEAVE THEM COMPLETELY AN UNSAID THERE AND THERE, BY THE WAY, UM, THEY ARE NOT, THESE EXTRA FUNDING METHODS ARE NOT A SILVER BULLET.

THEY SHOULD NOT BE DONE, UH, IN PLACE OF GOOD, UH, HEALTHY REFORMS THAT, THAT MAKE THE SYSTEMS MORE SUSTAINABLE IN AND OF THEMSELVES.

THEY WOULD BE A PIECE OF A, OF SOME KIND OF A PLAN.

UM, WE MOVED TO THE NEXT COUPLE OF SLIDES IN THESE NEXT TWO SLIDES THAT WE'LL LOOK AT A SLIDE 32 AND 33 ARE FROM THE SYSTEM'S ACTUARIES.

SO THIS WAS ACTUALLY DONE BY THE SYSTEMS THEMSELVES IN THEIR ACTUARIES, UH, GABRIEL ROTOR SMITH, UM, TO DESCRIBE SOME OF THE POTENTIAL FUNDING COSTS IN LIGHT OF THE INVESTMENT RETURNS

[00:45:01]

AND, AND, UM, AND, AND UNFUNDED LIABILITIES.

SO THIS FIRST CHART IS FOR COERCE AND YOU SEE UP IN THE TOP LEFT THE CURRENT CONTRIBUTION RATES, THE CITY CONTRIBUTION RATED 18% AND THE CURRENT MEMBER CONTRIBUTION RATE AT 8%.

AND IN THE TOP, UM, UH, TABLE, WHAT YOU SEE HERE IS, UH, ACROSS THE TOP IS 2020, UM, ASSUMED RATE OF RETURN 7% BEING THE ACTUARIAL, UH, DISCOUNT RATE, UM, A POTENTIAL FOR A ZERO RATE OF RETURN THIS YEAR, A NEGATIVE SEVEN AND A HALF IN A NEGATIVE 15, OBVIOUSLY, UM, UH, THAT IS, UH, IN ANTICIPATION OF WHAT MIGHT HAPPEN GIVEN COVID SOCIAL UNREST, ALL OF THE OTHER THINGS THAT ARE GOING ON THAT I'M HERE TO FOR A ROYAL THE MARKETS FOR A MONTH, BUT HAVEN'T SEEMED TO STICK VERY MUCH.

UM, UH, BUT WHAT THIS TRIES TO DO IS SHOW THAT THE, THE, UM, FIRST LINE, THE A D E C IF 25 YEAR AMORTIZATION.

SO WHAT THAT MEANS IS IF WE TAKE YOUR UNFUNDED LIABILITY AND AMORTIZE IT AND PAY IT OFF OVER 25 YEARS, WHAT IS THE COST TO THE CITY? WHAT'S THE EMPLOYER COSTS IN ORDER TO DO THAT? AND WE CAN SEE IF YOU HIT YOUR ACTUARIAL DISCOUNT RATE, IT WOULD BE JUST OVER 21%, COMPARE THAT TO THE 18%.

AND YOU CAN SEE IN PART WHY YOU'RE FALLING BEHIND YOUR, YOUR CURRENT FIXED RATE.

ISN'T QUITE ENOUGH TO FUND THE 25 YEAR AMORTIZATION.

IF THIS WAS A 30 YEAR AMORTIZATION, IT WOULD BE A LITTLE LESS, BUT STILL NOT AS LOW AS 18%.

AND YOU CAN READ ACROSS IF IN FACT, THE, THE MARKETS WERE TO TURN SOUTH AGAIN, AND YOU WERE TO END UP WITH A NEGATIVE 15% RATE OF RETURN AND COERCE THIS YEAR, THE ACTUARILY DETERMINED EMPLOYER CONTRIBUTION WOULD BE ABOUT 26 AND A HALF PERCENT.

THE NEXT LINE DOWN LOOKS AT THE FUNDING PERIOD AT STAY ON THAT ONE.

YEAH.

IF, IF THE CONTRIBUTION REMAINS 18%, HOW LONG WOULD IT TAKE TO, UM, UH, PAY OFF THE UNFUNDED LIABILITY? AND AT 7%, IT WOULD BE ABOUT 36 YEARS.

IF YOU GO TO THE NEGATIVE 15%, YOU WOULD NEVER PAY IT OFF.

AND THE ZERO AND SEVEN AND A HALF PERCENT A FALL FALL SOMEWHERE IN BETWEEN, ON THE BOTTOM OF THE TABLE, ONE OF THE, ONE OF THE ANOMALIES OR ONE OF THE DIFFERENCES IN THE WAY AUSTIN TREATS, UM, ONE PARTICULAR ASPECT OF, UH, OF THE PLAN IS THAT SERVICE PURCHASES, UM, FOR MILITARY OR OTHER PERMISSIVE, UH, REASONS, UM, IN MOST PLANS ARE DONE ARE CALCULATED TO BE ACTUARIALLY NEUTRAL.

IN OTHER WORDS, THE PAYMENT INTO THE PLAN IS THE FULL COST OF THE, OF THE BENEFIT OR THE ASSUMED FULL COST OF THE BENEFIT IN THE CASE OF AUSTIN FOR PRIOR MILITARY SERVICE, BASICALLY IT'S A, IT'S A THREE QUARTERS, UH, DISCOUNT.

SO YOU CAN SEE THAT THE TOTAL PURCHASES WERE ABOUT 6 MILLION AND THIS, THE CITY AND THE SYSTEM EFFECTIVELY FUNDED ABOUT 28 MILLION OF THAT.

UM, OTHER SERVICE IT'S NOT, NOT NEARLY AS, AS BIG A DIFFERENCE, UM, $65 MILLION OF PURCHASES WITH A SHORTFALL OF ABOUT 6 MILLION OR ABOUT 10%.

UH, IF YOU WANT TO MOVE TO THE NEXT SLIDE, WHEN WE LOOK AT, UH, APRS AGAIN, SAME THING, TOP RIGHT HAND CORNER, YOU CAN SEE THE CITY'S CONTRIBUTION RATE IN THE CURRENT MEMBER RATE.

HERE.

THEY LOOK AT A 30 YEAR, UH, A 30 YEAR AMORTIZATION RATE.

SO IF WE, IF WE'RE PAYING OFF THE UNFUNDED LIABILITY AND WE SEE THE SAME KIND OF, UH, RETURN INFORMATION ON THE LEFT, 0% RETURN IN 2020 MINUS FIVE OR MINUS 15.

SO YOU CAN SEE THAT THE RATES FOR THE CITY, UM, ARE IN THE 34 35% RANGE IN ORDER TO PAY OFF THE UNFUNDED LIABILITY VERSUS THE CURRENT 21.

UM, I MENTIONED THAT THE BENEFIT TIER WE WOULD LOOK AT BACK HERE, HERE ARE TWO EXAMPLES OF BENEFIT TIERS THAT HAVE BEEN LOOKED AT, UM, FOR NEW HIRES, UH, ONLY A CHANGE TO THE MULTIPLIER FROM THE 3.2 TO THE 2.5 AND SOME, SOME CHANGES TO THE AGE AND SERVICE REQUIREMENTS, UH, FOR RETIREMENT.

UM, AND THEN AGAIN, UH, THE SECOND PIECE IS THAT ALL MEMBERS CONTRIBUTIONS WOULD BE INCREASED FROM THE 13 TO 13% TO 15% IN 2021 AND 17 AND 2022.

AND YOU CAN SEE WHAT THAT YIELDS IN TERMS OF THE, UH, EMPLOYER COSTS STILL, UH, A, A SIGNIFICANT

[00:50:01]

AMOUNT MORE THAN THE CURRENT 21%.

UM, BUT, UH, BUT NOT, NOT, NOT NEARLY AS HIGH AS, UH, IF THERE WERE NO BENEFIT CHANGES WHATSOEVER WITH THAT, I'M GOING TO TURN IT BACK OVER TO MIKE TO KIND OF, UH, TAKE US THROUGH THE, THE LAST BIT OF THE KEY FINDINGS.

OKAY.

WE CAN TURN TO 35 JUST TO SUMMARIZE, UM, WHAT WE HAVE FOUND.

UM, THE CITY'S CHALLENGE AGAIN, IS SIGNIFICANT.

THE OVERALL UNFUNDED LIABILITY IS IN EXCESS OF $2 BILLION.

THAT'S HAPPENED DESPITE, UH, SOME SIGNIFICANT ACTIONS TO DATE BECAUSE INVESTMENT RETURNS, UM, AND SOME OF THE ADJUSTMENTS MADE TO ACCOUNT FOR, UH, INVESTMENT RETURNS, FALLING SHORT OF ACTUARIAL ASSUMPTIONS HAVE BEEN, UM, HAVE BEEN ERODING THE HEALTH OF THE FUNDS, UM, THAT COULD BE EVEN WORSE, UH, WITH A COCONUT MARKET DOWNTURN, AS JEN NOTED SO FAR, WE'RE SORT OF HOLDING OUR OWN IN TERMS OF MARKET PERFORMANCE.

UM, BUT YOU'RE COUNTING ON, YOU KNOW, A SEVEN OR, OR GREATER PERCENT RETURN EVERY YEAR AND, AND FLAT, UM, MEANS YOU'RE FALLING FURTHER BEHIND.

SO THERE ARE REAL CHALLENGES AND THE STATUTORY FIXED FUNDING APPROACH.

UM, DOESN'T AUTOMATICALLY ADJUST AS THOSE CHALLENGES MAY, UH, CHANGE OVER TIME.

AND THIS CAN ULTIMATELY AFFECT BOTH THE SUSTAINABILITY OF THE PLAN AND THE BENEFITS FOR ITS PARTICIPANTS AND, OR THE CITY'S FINANCIAL POSITION AND CREDIT RATING.

UM, AGAIN, SUMMARIZING ON THE NEXT SLIDE, SOME OF THE, UH, CONTEXT UNDERLYING THAT, UM, THE CURRENT BENEFITS STRUCTURE, UM, AS OUTLINED IN VERY SHORT SUMMARY FOR MONTH 36, UH, THE NEXT SLIDE IS, UH, VERY COMPETITIVE, UH, FOR THE DIFFERENT POLICE GROUPS.

UM, I THINK WE WENT ONE TOO FAR.

THERE WE GO, UH, FOR THE DIFFERENT GENERAL AND POLICE GROUPS, UM, WITH BOTH TRADITIONAL PENSIONS AND SOCIAL SECURITY COVERAGE AND GOOD QUALITY BENEFITS.

UM, AUSTIN IS AMONG THE, UH, ONLY MAJOR TEXAS CITIES WITHOUT A NEW TIER FOUR POLICE HIRES.

AND A NUMBER OF OTHER MAJOR TEXAS CITIES HAVE MADE VERY RECENT CHANGES TO ADDRESS PARALLEL, UH, SOMEWHAT DIFFERENT, BUT PARALLEL PENSION FUNDING, PRESSURES AND CHALLENGES.

UM, NONE OF THOSE ADJUSTMENTS, PARTICULARLY FOR, UM, UH, PUBLIC SAFETY EMPLOYEES HAVE MOVED AWAY FROM THE, UM, TYPE OF PUBLIC SECTOR PLAN THAT IS PREVALENT TOWARDS A 401K STYLE PRIVATE SECTOR MODEL.

UM, SO WHILE THERE ARE DIFFERENT ALTERNATIVE WAYS TO GO AT THIS, UM, MOST OF THE CHANGES THAT HAVE BEEN MADE HAVE BEEN TO REVISE, UM, THE EXISTING DEFINED BENEFIT FRAMEWORK TO JUST BE A BIT MORE SUSTAINABLE AND AFFORDABLE AND BETTER FUNDED OVER TIME.

AND, AND AS WE'VE NOTED IN FROM SEVERAL DIFFERENT PERSPECTIVES, THE PRACTICE THAT IS COMMON IN TEXAS, MUCH LESS SO NATIONWIDE OF, UH, CONTRIBUTING A FIXED AMOUNT EACH YEAR, RATHER THAN A VARYING CONTRIBUTIONS BASED ON ACTUARIAL EXPERIENCE IS, UM, SOMETHING THAT PUTS YOU AT GREATER RISK OF FALLING SHORT MAKES IT HARDER TO SUSTAIN THE LEVEL OF FUNDING THAT IT WOULD TAKE TO KEEP YOU ACTUARILY WELL-FUNDED.

SO IT'S A, IT'S A FACTOR TOO, TO THINK ABOUT.

UM, FROM THERE JUST THE FINAL SLIDE 37, UM, WITH REGARD TO PROSPECTIVE SOLUTIONS, WHAT WE'VE SEEN NATIONALLY, UM, IS THAT THE BEST APPROACHES ARE ALMOST ALWAYS BALANCED APPROACHES THAT, UM, COMBINE A MIX OF SOME CHANGES TO ENSURE BENEFITS, SUSTAINABILITY, SOME INCREASE IN CONTRIBUTIONS, AND PERHAPS CHANGES TO THE APPROACH IN THOSE CONTRIBUTIONS.

UM, AND THAT'S IN MORE RECENT REFORMS, UM, ALSO OFTEN COMPLIMENTED BY SOME FORM OF RISK SHARING, UM, AS JIM DESCRIBED WITH THE FORT WORTH AND, UM, HOUSTON EXAMPLES, UM, JUST TO, JUST TO NAME A COUPLE, UM, SO, YOU KNOW, THESE CHALLENGES ARE REAL, UH, BUT YOU'VE BEEN SQUARING UP TO THEM FOR YEARS AND BY ADDRESSING THEM AGAIN NOW, UM, THERE'S, THERE IS UNQUESTIONABLY TIME AND POSITIONING TO KIND OF MOVE THINGS BACK INTO A GOOD SUSTAINABLE PATH.

[00:55:01]

UM, SO I THINK THAT CONCLUDES OUR PRESENTATION, BUT WE'RE HAPPY TO TAKE QUESTIONS OR TO TURN IT BACK TO THE CITY.

THANK YOU, MS. HART, DID YOU WANT TO, WE CAN, WE CAN PICK UP HERE.

IF WE CAN SWITCH BACK TO THE OTHER SLIDE DECK, IT WILL NOT TAKE LONG TO FINISH, AND THEN WE CAN OPEN FOR Q AND A FOR EVERYONE.

THANK YOU.

UH, IF WE COULD GO TO THE NEXT SLIDE, UM, AS MICHAEL AND JIM HAVE INDICATED IN THEIR, UM, VERY COMPREHENSIVE REPORT, UH, WE DO FEEL A CALL TO ACTION, UM, WITH A UNFUNDED LIABILITY FOR THOSE, UH, THESE TWO SYSTEMS OF APPROACHING $2 BILLION AND THE FUNDING PERIODS FOR POLICE BEING INDEFINITE AND COERCE BEING 32 YEARS.

UH, WE DO THINK WE NEED TO MOVE ON IDENTIFYING, UM, PENSION REFORMS THAT WILL PROVIDE FOR A LONG RANGE.

UM, SUSTAINABILITY FROM A FINANCIAL HEALTH STANDPOINT FOR THESE TWO SYSTEMS. UM, THESE METRICS HAVE GOTTEN WORSE OVER RECENT YEARS AS THEY INDICATED.

AND, UM, WE DON'T REALLY SEE THAT, UM, UH, INVESTMENT RETURNS ARE GOING TO BE THE ANSWER EASING THESE LONGTERM FUNDING, UH, CHALLENGES FOR US.

UM, IN ADDITION, UH, WE HAVE THE TEXAS LEGISLATIVE SESSION COMING UP, UH, IN JANUARY OF 2021, WHICH WILL PROVIDE US AN OPPORTUNITY TO MAKE CHANGES, UH, TO THESE SYSTEMS THAT MAY EXCUSE ME, THAT MAY REQUIRE LEGISLATIVE ACTION.

UM, AS THEY MENTIONED, THE TEXAS RE UH, PENSION REVIEW BOARD HAS A THREE YEAR TIME PERIOD FOR, UH, BEFORE YOU NEED TO PREPARE A RESTORATIVE PLAN.

UM, 2020 WILL BE THE SECOND YEAR THAT POLICES UNDER THAT THREE YEAR, UM, GUIDANCE.

AND SO THIS WOULD BE THE FIRST, UH, OPPORTUNITY FROM A LEGISLATIVE STANDPOINT FOR US TO MAKE CORRECTIVE ACTION, UM, UH, THAT MAY NOT REQUIRE US TO GO TO A RESTORATIVE PLAN.

RATING AGENCY CONCERNS ARE IMPORTANT TO US.

AND, UM, WE HAVE CERTAINLY, UM, THAT HAS CERTAINLY BEEN A MOTIVATION IN MOVING ON THIS PROJECT.

AND, UH, WE FELT LIKE THE REPORT THAT, UH, PFM PROVIDED THEIR ANALYSIS AND BENCHMARKING REALLY HELPED INFORM THE BOARDS AND STAFF RECOMMENDATIONS AND WOULD BE INFORMATIVE TO THE COUNCIL AND COMMITTEE, UM, FOR THEIR POLICY GUIDANCE AS WELL.

NEXT SLIDE.

SO, UM, IN BRIEF, I'LL GO OVER THE, UM, TWO PENSION SYSTEMS BOARD, THEIR BOARD RECOMMENDATIONS.

THESE ARE THE BOARD OF TRUSTEES, UM, FOR THE EMPLOYEE RETIREMENT SYSTEM, THEY HAD THREE RECOMMENDATIONS.

UH, THE FIRST WOULD BE TO ENACT A, UH, FLEXIBLE CONTRIBUTION POLICY.

UH, ONE THAT WOULD NOT NECESSARILY REQUIRE A FIXED CONTRIBUTION, RIGHT.

UM, AND THAT WOULD HELP MANAGE THE SYSTEMS RISK AND FUND, UH, THE UNFUNDED ACTUARIAL LIABILITY OVER A PERIOD OF TIME.

UM, WITH THAT 30 YEAR FUNDING PERIOD GO, UM, WE, UH, THEY ALSO RECOMMENDED AMENDMENTS TO, UM, BENEFIT POLICIES TO ENSURE THAT THE OBLIGATIONS AND SYSTEM OBLIGATIONS ARE BEING MET APPROPRIATELY FOR ALL MEMBERS AS, UM, PFM INDICATED IN SOME OF THEIR SLIDES.

THERE ARE SOME, UH, MEMBER OPTIONAL, UM, SERVICE ENHANCEMENT THAT ARE NOT ACTUARILY NEUTRAL.

THEY ALSO RECOMMENDED A APPROPRIATE RISK SHARING BE CONSIDERED A, BETWEEN THE CITY AND EMPLOYEES IN A MANNER THAT MANAGES THE RISK THAT, UM, OF HAVING A DEFINED BENEFIT PLAN.

NEXT SLIDE.

OKAY.

UM, FOR THE POLICE RETIREMENT SYSTEM, THE BOARD RECOMMENDATIONS, UM, ARE COVERED OVER THE NEXT THREE SLIDES.

THEY REAFFIRMED THEIR COMMITMENT TO ACHIEVING A LONGTERM SUSTAINABILITY OF THE, OF THE SYSTEM, UH, CONSISTENT WITH A FUNDING POLICY THAT THEY APPROVED, UH, LATE IN 2019.

THEY WANT TO DO THAT, UH, THROUGH ADDRESSING THEIR, UH, THEY WANT TO ADDRESS THEIR FUNDING DEFICIENCIES THROUGH, UH, DISCUSSIONS WITH THE CITY.

UM, AND, UM, THEY GAVE SPECIFIC PARAMETERS OR METRICS THAT THEY WANTED TO LOOK AT IF THE FUNDING PERIOD EXCEEDED 30 YEARS BY THREE OR MORE YEARS, OR IF UNDER AN EIGHT X SYSTEM, UM, THE, UM,

[01:00:01]

WAS MORE THAN 2% ABOVE CONTRIBUTION RATES FOR TWO ACTUARIAL VALUATIONS OR TWO CYCLES.

SO THEY, THEY SPECIFIED SOME, UM, METRICS THAT WOULD, UM, DETERMINE WHEN THEY WOULD COME BACK TO HAVE DISCUSSIONS WITH THE CITY.

AND WE'RE CURRENTLY UNDER THAT, UM, 30 YEAR, UH, BY THREE OR MORE YEARS GUIDANCE.

THEY ALSO RECOMMENDED THAT IF CONTRIBUTION LEVELS WERE NOT SUFFICIENT, THAT WE CONSIDER AND RECOMMEND THAT THEY CONSIDER AND RECOMMEND TO THE CITY NECESSARY CONTRIBUTION OR BENEFIT CHANGES BOTH ON THE MEMBER SIDE AND THE CITY SIDE.

AND, UH, ALSO RECOMMENDED A COST SHARING RATIO, THE 60, 40 WITH THE CITY PAYING 60% AND THE OFFICER'S, UH, RESPONSIBLE FOR 40% OF A COMBINED CONTRIBUTION.

RIGHT? NEXT SLIDE.

THEY ALSO RECOMMENDED CONTRIBUTION INCREASES AND SPECIFIC BENEFIT CHANGES FOR NEW HIRES.

UM, THE CONTRIBUTION INCREASES THAT THEY RECOMMEND ARE FOR THE CITY TO INCREASE ITS CONTRIBUTION RATE EFFECTIVE OCTOBER 1ST OF 2020, WHICH WOULD BE, UM, EFFECTIVE IN THE PROPOSED.

UM, I WOULD EXPECT IN THE PROPOSED 20, 21 BUDGET, THAT'S UPCOMING TO BE PROPOSED IN, IN JULY OR AN OPPORTUNITY TO PROVIDE A LUMP SUM PAYMENT, UH, AT OUR, AT THE CITY'S OPTION.

AND, UM, THAT WOULD BE, UH, DIRECTED TOWARDS SECURING A FUNDING PERIOD OF 30 YEARS OR LESS.

BUT I WOULD ALSO BASE THAT ON AN UPDATED ACTUARIAL VALUATION THAT WOULD LIKELY BE MADE AVAILABLE IN MIDDLE OF JULY FOR THEIR MEMBERS.

THEY RECOMMEND A, UH, INCREASE OF 2% ON JANUARY 1ST OF 2021, UM, WHICH WOULD REQUIRE A VOTE OF THE SYSTEM MEMBERS, UM, UM, ON BENEFIT CHANGES FOR NEW HIRES.

UM, THIS WOULD BE, UH, AFTER, UH, JANUARY 1ST, 2022, UM, THIS WOULD BE CONSISTENT, UH, IN CONTINGENT ON, UM, FAVORABLE ACTION AT THE TEXAS LEGISLATURE ON ANY PROPOSED CHANGES.

THERE ARE BENEFITS, UH, LOWER WERE LOWERED, UH, FROM THE EXISTING OFFICER LEVEL BENEFITS.

UH, THE MULTIPLIER, THE RETIREMENT ELIGIBILITY AND, UH, YEARS OF SERVICE WERE CHANGED.

UM, MULTIPLIER WAS CHANGED FROM 3.2 TO TWO AND A HALF.

UM, AND THE ELIGIBILITY WAS, UH, REQUIRED 50 YEARS WITH, UM, 25 YEARS OF CREDITABLE SERVICE.

THEY ALSO CHANGED THE, UM, COMPENSATION CALCULATION, UH, FOR A CALCULATION OF THE ANNUITY TO THE HIGHEST 60 MONTHS SALARY INSTEAD OF 36.

AND THESE BENEFIT CHANGES.

UH, IF YOU LOOK BACK TWO SLIDES, UH, IN THE PFM SLIDE DECK ARE, UH, MORE IN LINE WITH WHAT YOU SEE FOR THE SECOND TIERS FOR OTHER, UM, LARGE CITY, TEXAS, UH, POLICE RETIREMENT SYSTEMS. NEXT SLIDE, PLEASE.

THE FINAL RECOMMENDATION OF THE BOARD, UH, WAS TO MOVE TO, UM, A MORE VARIABLE CONTRIBUTION RATE ARRANGEMENT BASED ON A DECK SYSTEM.

UM, AND THEY UNDERSTOOD THAT THAT WOULD NOT BE PUT IN PLACE UNTIL A LATER DATE.

UH, THEY RECOMMENDED DECEMBER 31ST OF 2022, UM, SUCH A CHANGE WOULD RE WOULD LIKELY REQUIRE IT WOULD REQUIRE LEGISLATIVE ACTION.

AGAIN, THEY RECOMMEND MAINTAINING THE COST SHARING RATIO OF 60% FOR THE CITY AND 40% FOR THE OFFICERS.

AND THEY WANTED A, UH, SOMETHING SIMILAR TO THE HOUSTON SYSTEM WITH A CORRIDOR, WITH A MINIMUM AND MAXIMUM AND SPECIFIED THAT, UM, THE OFFICER CONTRIBUTION WHEN COMBINED WITH THE SOCIAL SECURITY CONTRIBUTION WOULD NEVER EXCEED A TOTAL OF 24% OF THEIR PAY.

NEXT SLIDE PLEASE.

UM, CITY STAFF, UH, RECOMMENDATIONS ARE BASED ON OUR WORK WITH, UH, BOTH THE PENSION SYSTEMS, THEIR EXECUTIVE DIRECTORS, OUR STAFF TEAM, UM, AND THE ANALYSIS FROM, UH, PUBLIC FINANCIAL MANAGEMENT.

WE DO RECOMMEND MAINTAINING A FUNDING PERIOD OF 30 YEARS OR LESS.

AND, UM, WE DO BELIEVE AND RECOMMEND THAT, UH, PENSION REFORMS, UH, ARE NECESSARY TO IMPLEMENT, TO ACHIEVE THIS, OR WE RECOMMEND PHASED INCREASES, UH, OVER TIME IN THE EMPLOYER AND EMPLOYEE CONTRIBUTIONS THAT

[01:05:01]

WE'LL BE ABLE TO MAINTAIN AN EQUITABLE COST SHARING RATIO AND ALSO REFLECT VARIATIONS IN ANY EMPLOYEE BENEFIT LEVELS BETWEEN TIERS.

WE ALSO A GRAY, UH, THAT A NEW TIER FOUR, UM, NEW HIRES IN THE POLICE DEPARTMENT ELIGIBLE FOR, UH, THAT RETIREMENT SYSTEM, UH, NEEDS TO BE PUT IN PLACE.

UM, BUT IT NEEDS TO BE, UH, COMPARABLE TO OTHER LARGE TEXAS CITIES SO THAT WE CAN MAINTAIN A COMPETITIVE RETIREMENT BENEFIT.

NEXT SLIDE, PLEASE.

WE ALSO RECOMMEND MOVING TO A MORE, UM, ADAPTABLE LONGTERM FUNDING STRATEGY AND ONE THAT'S BASED ON, UH, THE, A DECK OR, OR SOMETHING THAT'S, UM, BASED ON ACTUARIAL CONTRIBUTIONS, AS OPPOSED TO THE CURRENT FIXED, UH, FUNDING APPROACH.

WE REALLY WANTED TO WORK ON, ON AN APPROACH THAT WOULD NOT REQUIRE US TO HAVE TO COME BACK TO COUNCIL, UH, EVERY FIVE TO 10 YEARS TO INCREASE A FIXED RATE CONTRIBUTION.

AND SO, UM, WE AGREE WITH THE TWO PENSION BOARDS THAT THIS TYPE OF, UH, FUNDING APPROACH IS SOMETHING I'D LIKE TO CONTINUE TO WORK WITH THEM ON.

UM, AND THEN WE DO, UM, ALSO RECOMMEND THAT, UM, SOME OF THE MEMBER OPTIONAL BENEFIT ENHANCEMENTS, UH, SERVICE CREDIT PURCHASES BE ADJUSTED, UH, SO THAT THEY ARE ACTUARIAL ACTUARIALLY NEUTRAL, UM, UH, BUT YET STILL MAINTAIN, UH, THAT COMPETITIVENESS WITH, UM, OTHER OTHER TEXTS, LARGE TEXAS SYSTEMS. AND FINALLY, THE FINAL SLIDE, UM, IS OUR NEXT STEPS.

UM, FIRST AND FOREMOST IS LOOKING AT OUR PROPOSED BUDGET FOR FYI 2021, AND LOOKING AT PHASED INCREASES, UH, FOR, UH, CONTRIBUTIONS, UH, FOR P UH, THE POLICE SYSTEM AND THE RETIREMENT, UH, EMPLOYEE RETIREMENT SYSTEM, UH, CONTINUE TO WORK WITH, UH, THE POLICE BOARD ON A POTENTIAL MEMBERSHIP VOTE ON, UM, MEMBER CONTRIBUTION INCREASES TO THAT SYSTEM.

WE WOULD LIKE TO WORK WITH A COUNCIL LEGISLATIVE GROUP, A WORKING GROUP TO, UH, CONTINUE TO PROVIDE US POLICY DIRECTION ON PENSION REFORMS THAT, UH, WE'LL CONTINUE TO WORK ON, UH, OVER THE COMING MONTHS.

AND THEN, UH, WE WILL NEED TO DEVELOP A LEGISLATIVE PACKAGE, UH, WITH OUR INTER GOVERNMENTAL, UH, RELATIONS STAFF AND, UH, OTHERS TO MOVE A LEGISLATIVE PACKAGE TO, UM, THE LEGISLATURE.

SO WITH THAT, I TURN THE MEETING BACK OVER TO THE CHAIR CHAIR, UH, ALTER AND WE'RE OPEN FOR ANY QUESTIONS ARE A DISCUSSION BY THE COMMITTEE.

THANK YOU.

LET ME GET IT SO I CAN SEE PEOPLE.

THERE WE GO.

UM, SO BEFORE I TAKE QUESTIONS, I JUST WANT TO THANK YOU FOR YOUR PRESENTATION.

UM, AND I ALSO WANT TO ACKNOWLEDGE THE SERVICE OF SEVERAL MEMBERS OF THIS COMMITTEE ON, UM, VARIOUS RETIREMENT SYSTEM FORWARDS.

UM, COUNCIL MEMBER TOFU HAS LONG SERVED ON THE POLICE RETIREMENT SYSTEM, COUNCIL MEMBER POOL ON THE COERCE BOARD.

AND I BELIEVE THAT MAYOR ADLER LEADS THE FIRE PENSION BOARD.

UM, SO WE HAVE A LOT OF, A LOT OF EXPERTISE AND KNOWLEDGE HERE.

UM, AND FOR THOSE WHO ARE OBSERVING THIS, I ALSO WANT TO MENTION THAT I BELIEVE THAT EACH OF US MET INDIVIDUALLY WITH CITY STAFF TO GO OVER.

UM, SO MANY OF OUR QUESTIONS MAY HAVE BEEN ANSWERED, UM, IN THAT, IN THAT SETTING.

UM, BUT IT'S IMPORTANT, UM, THAT WE AS A COUNCIL BODY COMMUNICATE, UM, THAT WE ARE WORKING ON THESE ISSUES.

UM, THE CITY MANAGER AND THE COUNCIL IN OUR BUDGET IN, UM, IN 2019 FOR THIS FISCAL YEAR HAVE PUT MONEY IN THE BUDGET TO HAVE THIS CONSULTING SERVICE, UM, SO THAT WE WOULD BE IN LINE TO BE ABLE TO STEWARD, UM, CHANGES TO OUR PENSIONS, UM, WITHOUT HAVING TO HAVE THE STATE COME IN AND FIX IT IN A WAY THAT MIGHT BE LESS FAVORABLE TO OUR GOALS, UM, AS A CITY.

UM, SO WITH THAT, I SEE MR. FLANAGAN HAS HIS HAND UP, MR. FLANAGAN, I CAN SHARE.

AND, AND THANKS STAFF FOR, FOR ALL YOUR HARD WORK ON THIS.

UM, YOU KNOW, I, I DO THINK IT'S IMPORTANT TO JUST AT LEAST ACKNOWLEDGE THAT WE ARE TALKING ABOUT POLICE RETIREMENT SYSTEMS, GIVEN WHAT EVERYTHING THAT'S GOING ON RIGHT NOW, WHICH MAKES THIS A VERY COMPLICATED CONVERSATION AND A NECESSARY ONE.

I DON'T KNOW THAT I'M PREPARED TO HAVE THAT LEVEL OF CONVERSATION IN THIS MEETING AT THIS MOMENT, BUT I JUST WANTED TO PUT A PIN IN THAT.

UM, I'M, I'M REALLY STRUCK BY THE GOVERNANCE STUFF.

UH, IT SEEMS, I WOULD IMAGINE THAT THE MEDIA AND THE PUBLIC

[01:10:01]

ASSUMED THE COUNCIL WAS IN CONTROL SINCE THIS, THE CITY PAYS FOR IT, ESSENTIALLY.

UM, IT TURNS OUT THAT'S NOT, IT TURNS OUT THE LEGISLATURE ACTUALLY DICTATES A LOT OF THIS, WHICH, UM, WHICH IS A CHALLENGE FOR US IN, IN GETTING CHANGES THROUGH THE LEGISLATURE.

MMM.

BUT I, I JUST THINK, I WANT TO REALLY NOTE THAT IN CASE THERE ARE REPORTERS LOOKING AT THIS, TRYING TO WRITE SOME STORIES, BECAUSE THE HEADLINES AREN'T GOING TO MATCH UP WITH THE DETAILS, KNOWING HOW HEADLINES GET WRITTEN.

UM, SO I'M, I'M INTERESTED ABSOLUTELY.

IN THE, IN THE ALLEGED WORKING GROUP TO MY MIND, I THINK AUDIT AND FINANCE IS THAT GROUP FOR THIS TOPIC.

THERE'S, THERE'S SEPARATE LEGISLATIVE WORK THAT GOES ON.

AND I DON'T KNOW THAT IT WOULD MAKE A LOT OF SENSE TO TRY TO BRING UP THOSE COUNCIL MEMBERS, GIVEN THE WORK WE'VE ALL SPENT IN AUDIT AND FINANCE ON THIS TOPIC.

SO I WOULD BE COMFORTABLE WITH AUDIT AND FINANCE, BEING THAT WORKING GROUP ON THIS TOPIC ALONE.

MY, MY QUESTION IS SOMETHING THAT WAS SAID ABOUT BENEFITS, PENSION BENEFITS IN THE CONTEXT OF RECRUITING AND RETAINING TALENT.

AND I DON'T KNOW THAT WE HAVE THE RIGHT PEOPLE ON THIS CALL FOR THAT CONVERSATION, BUT, YOU KNOW, WE'RE LOOKING AT A POLICE DEPARTMENT THAT HAS HAD, I THINK, OVER A HUNDRED VACANCIES.

SO I'M NOT ENTIRELY SURE THAT IT IS A SIMPLE ANALYSIS THAT THE LEVEL OF PENSION BENEFIT DRIVES RECRUITING AND RETENTION.

HOW, HOW, HOW ARE WE TO HAVE THIS, THIS PART OF THE CONVERSATION? ELAINE? YOU'RE ON