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UPDATED SERVICE CREDIT AND ANNUITY INCREASE STUDY EXPLANATION OF PLANS TMRS member cities have the opportunity to annually adopt Updated Service Credit and Annuity Increases, improving retirement benefits for beth active employees and retirees who are currently receiving a monthly retirement benefit from the System. Section If the City adopts 100% Updated Service Credit effective January 1, 2002, a member's updated service credit will be calculated based on the member's average monthly salary for the three-year period of 1998, 1999 and 2000, assuming the member had always earned that average salary and made contributions to the System, matched by the City on the basis of the three-year average salary, and had earned 3% annual interest. In other words, a member's retirement benefits are "updated" based on the wages earned in recent years (granted a credit if the updated service credit calculation is greater than the actual amount from all sources in the member's account). In addition, if the City has increased the employee deposit rate and/or the City's matching ratio, the new Updated Service Credit will reflect those changes. If the City adopts Updated Service Credit of less than 100%, the percentage adopted will be used in calculating the member's credit. The "Proposed Plans" on the Updated Service Credit artd Annuity Increase Study (Section I) are prepared as follows: 1. The first plan includes Updated Service Credit, along with the Senate Bill 505 provisions if the City has not previously adopted these provisions. If your City has adopted the Annualty Repeating Updated Service Credit and Annuity Increases, this plan indicates the separate cost of the update. 2. If your City has a matching ratio other than 2 to 1, or an employee deposit rate other than 7%, additional proposed plans will be shown with a higher matching ratio or a higher employee deposit rate, as well as Updated Service Credit. These plans will also include the optional provisions of Senate Bill 505 if the City has not previously adopted these provisions. 3. If your City requested any specific plans, these plans will also be shown. Section II The City also has the option to adopt increases in the monthly annuities being paid to retirees. Most cities adopt annuity increases each year along with the Updated Service Credit. The increase that can be granted to retirees is calculated based on a maximum of 70% of the change in the Consumer Price Index (CPI-U), less any previously granted increases. The change in the CPI is measured from the December preceding the individual's actual retirement date through December 2000. Proposed Plans "A" through "C" (Section II) indicate the cost of the various levels of annui~ increases. The rate shown under one of these proposed plans must be added to the rate of a Proposed Plan in Section ! to yield the City's total contribution rate. The City can adopt Updated Service Credit and Annuity Increases by adoption of an ordinance each year, or by adopting the annually repeating provision whereby the City is not required to adopt an ordinance each year. By adopting Updated Service Credit and Annuity Increases regularly, the City will be providing a retirement program that keeps benefits in line with increases in employees' salaries, in addition to protecting retirees' monthly retirement annuities for the effects of inflation.