12-D Report on City's liability re. firefighters' pension fund

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Mr. Ernest Clark March 14, 2007 Page Two It should be noted that Section 66 of the State Constitution has never been tested in court. Thus, how it is to be interpreted is still open to question. Nevertheless, neither the Paris Firefighters' Relief and Retirement Fund nor the City of Paris is subject to its guarantees. The Paris City Council has asked about the fire fighters' plan previously. At the request of the board, I made a presentation to the City Council on May 18, 2005. During the presentation, I outlined the provisions of the plan and discussed its effect on the financial condition of the City of Paris. At the conclusion of the presentation, I asked Council members whether they had any questions about the plan. No questions were asked. Questions concerning the plan came up again early in 2006. At the request of Mr. Tony Williams and Mr. Gene Anderson, I wrote a letter which discussed some of the technical actuarial terms which seem to cause concern with respect to defined benefit plans such as the Paris FRRF and TMRS. I met with Mr. Williams and Mr. Anderson on January 6, 2006, and discussed the letter with them. It was my understanding that the letter was brought to the attention of the City Council. Contributions under pension plans, such as TMRS and the Paris FRRF, are calculated, in part, by using a quantity know as the "unfunded actuarial accrued liability," or "U AAL. " This term dates from the days when pensions were funded as benefits accrued. The reserves on insurance contracts used to provided plans' benefits represented liabilities on the annual statements of the issuing insurance companies. Thus, when an insurance company actuary-on loan to the IRS during WWII- wrote an IRS bulletin about pension funding in 1945, he used the term "actuarial accrued liability" to describe the reserve which was accumulated in the process of funding benefits. The difference between the reserve and plan assets was referred to as the "unfunded actuarial accrued liability." No thought was given as to how the public would perceive these terms. Today, benefits are funded more rapidly than the rate at which they accrue. However, use of the term "unfunded actuarial accrued liability" has persisted. So, too, has the misunderstanding which it engenders. Guidelines published by the Texas State Pension Review Board (PRB) measure a plan's soundness on an ongoing basis using a quantity know as the plan's "amortization period." The PRB guidelines call for a plan's amortization period to be 40 years or less, with a 25- to 30-year period a more desirable length of time. The 2005 valuation of the Paris FRRF measured its amortization period as 20.9 years. The plan will have a new valuation performed as of January 1, 2007. The Paris FRRF is administered by a board of trustees consisting of three fire fighters elected by plan members, the mayor's designated representative, the City Finance Director and two civilian members. The trustees have been conscientious, responsible stewards of the plan. The fire fighters' ability to tailor benefits to their needs gives them the satisfaction of participating in their retirement planning.