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<br />Mr. Gene Anderson <br />January 6, 2006 <br />Page Three <br /> <br />Termination of a pension plan can accelerate the payment date for benefits. In the private sector, <br />terminating plans are usually subject to the Pension Benefit Guaranty Corporation (PBGC) plan <br />termination insurance program. The PBGe requires that the benefits of terminated plans be valued <br />under much more conservative assumptions than those typically used for ongoing plans. For this <br />reason, termination of a private-sector plan can significantly increase a plan sponsor's financial <br />obligation to its pension plan. The plan terminations in the airline industry are recent examples of the <br />problems which can occur on plan termination. Governmental plans. such as those maintained by the <br />City of Paris, are not subject to PBGe coverage. <br /> <br />Governmental plans can also have problems upon plan termination. It is possible for the obligation <br />for benefits to equal the actuarial accrued liability in some cases. [n such instances, it may be <br />necessary to continue funding for several years after benefit accruals have ceased. However, only in <br />an unusual situation would it be necessary for a city to come up with the full difference between the <br />value of accrued benefits and plan assets in a single payment. Several years ago, the City of Paris <br />opted out of the state constitutional amendment guaranteeing accrued benefits. This provides a <br />measure of protection under the fire fighters' plan. The Texas Municipal Retirement System is <br />exempt from the constitutional amendment. <br /> <br />We have all read about governmental retirement plans, both here in Texas and elsewhere, that are in <br />financial trouble. Typically. these plans have been the victims of neglect for a considerable period of <br />time. While most retirement plans are still recovering from the 2000 to 2002 market downturn, I do <br />not believe that the majority of governmental pension plans represent a threat to the financial health of <br />their sponsors. <br /> <br />If you have questions concerning this letter or if you need additional information, please feel free to <br />contact me. <br /> <br />Sincerely, <br /> <br />.< <br /> <br />l\ <br />\ \ < <br />,,~ <br />J6~n M. Crider. Jr. <br /> <br />v <br /> <br />Pans Ff_ Z300\2006corr\A ndcrson20060 I 06.doc <br />