2022-060 – Approving an Agreement with the Paris Firefighters’ Relief and Retirement Fund Pertaining to the General Obligation Pension Bonds, Taxable Series 2022 2022-060
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PARIS, TEXAS,
APPROVING AN AGREEMENT WITH THE PARIS FIREFIGHTERS' RELIEF AND
RETIREMENT FUND PERTAINING TO THE CITY OF PARIS, TEXAS, GENERAL
OBLIGATION PENSION BONDS, TAXABLE SERIES 2022; AND PROVIDING AN
EFFECTIVE DATE.
WHEREAS, on the date hereof, the City Council of the City (the "Council") adopted an
ordinance authorizing the issuance of the City of Paris,Texas, General Obligation Pension Bonds,
Taxable Series 2022 (the `Bonds") pursuant to Chapter 107, Texas Local Government Code
("Chapter l OT'), for the purpose of funding all or any part of the unfunded, accrued liability of the
City to the Paris Firefighters' Relief and Retirement Fund (the "PFRRF"), as determined by
actuarial analysis (the"Unfunded Liability"); and
WHEREAS, Section 107.003, Texas Local Government Code, requires that the Council
enter into a written agreement with the Board of Trustees of the PFRRF (the `Board"), which is
the governing body of the PFRRF,which written agreement(the"Pension Obligation Agreement")
must state the amount of the Unfunded Liability and the date or dates on which the PFRRF will
accept the net proceeds of the Bonds to be issued in payment of all or a portion of the Unfunded
Liability; and
WHEREAS, the Council desires to enter into the Pension Obligation Agreement in
compliance with Chapter 107 and in connection with the issuance of the Bonds;
NOW,THEREFORE,BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF PARIS, TEXAS:
Section 1.
The recitals set forth in the preamble of this Resolution are true and correct in all material
respects.
Section 2.
The Council hereby approves the Pension Obligation Agreement by and between the City
and the Board in substantially the form attached hereto as Exhibit A. The Mayor is hereby
authorized to execute the Pension Obligation Agreement and the City Clerk may attest such
signature.
Section 3.
It is hereby found, determined, and declared that sufficient written notice of the date, hour,
place, and subject of this meeting of the Council was posted at a place convenient to the public at
the City Hall of the City for the time required by law preceding this meeting, as required by the
Open Meetings Act, Chapter 551,Texas Government Code,and that this meeting has been open to
the public as required by law at all times during which this Resolution and the subject matter thereof
has been discussed, considered and formally acted upon. Council further ratifies, approves and
confirms such written notice and the contents and posting thereof.
Section 4.
This Resolution shall be effective immediately upon its adoption.
PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF PARIS, TEXAS
at a regular meeting on the 8th day of August, 2022.
ATTEST: CITY OF PARIS, TEXAS
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AGREEMENT REGARDING CITY PENSION OBLIGATION BONDS
This AGREEMENT REGARDING CITY PENSION OBLIGATION BONDS (this
("Agreement")is entered into by and between the City Council (the "Council") of the City of Paris,
Texas (the "City") and the Board of Trustees (the "Board") of the Paris Firefighters' Relief and
Retirement Fund, a public retirement system and a municipal retirement plan (the "Fund" ar the
"Plan") created by the City, and will be effective for all purposes as of the date this Agreement is
signed by the latter party to do so below ("Effective Date").
WHEREAS, City records indicate that the Fund was created in 1941; and
WHEREAS, the Fund as currently constituted was amended and restated as of January 1,
2019 (the "2019 Plan), which Plan is attached hereto as Exhibit A; and
WHEREAS, pursuant to City Ordinance No. adopted on August 8, 2022, the
Council has authorized the City to issue its City of Paris,Texas,General Obligation Pension Bonds,
Taa�able Series 2022 (the `Bonds") pursuant to Chapter 107 of the Texas Local Government Code
("Chapter 107") for the purpose of funding all or any part of the unfunded, accrued liability of the
City to the Fund, as determined by actuarial analysis (the "Unfunded Liabiliry"); and
WHEREAS, at present, the beneficiaries of the Fund are the City's Firefighters, their
Spouses (as such terms are defined in the Plan) and such other persons who are entitled to benefits
by the terms of the Plan as of the Effective Date (collectively the"2022 Fund Beneficiaries"); and
WHEREAS,upon the issuance of the Bonds,both the City and the Board desire to preserve
the vested rights solely of and for the 2022 Fund Beneficiaries in the Fund, but to simultaneously
transition all current and future Firefighters into the Texas Municipal Retirement System
("TMRS") for participation thereafter in TMRS on the same basis as all other City employees who
participate in TMRS; and
WHEREAS, to effectuate the immediately preceding recital, the Board has revised the
Plan to implement said objective, and the amended and restated Plan (the "2022 Plan") has been
approved by a vote of the City Firefighters as required by Section 7 of Vernon's Ann.Texas Civ.St.
Art. 6243e, as amended, the Texas Local Fire Fighters Retirement Act (the "Act") and all
prerequisites of the Act for the Board to amend the Plan to change the benefits or eligibility
requirements for benefits payable from the Plan have been met, including the approval of the 2022
Plan by Definiti LLC, which is eligible actuary pursuant to the Act selected by the Board; and
WHEREAS, the 2022 Plan provides that it shall be effective only upon the funding by the
City of the Unfunded Liability; and
WAEREAS, pursuant to City Ordinance No. adopted on August 8, 2022, the
Council has approved the 2022 Plan and provided for it to be implemented only upon the funding
by the City of the Unfunded Liability; and
WHEREAS, Chapter 107, Section 107.003 ("Section 107.003") requires that, before
authorizing the issuance and delivery of the Bonds, the governing body of the City must enter into
a written agreement with the governing body of the public retirement system that has (i) fiduciary
responsibility for assets of the public pension fund that are to receive the net proceeds of the
obligations to be issued and (ii) the duty to oversee the investment and expenditure of the assets
of the public pension fund, w�hich written agreement "must state the amount of the unfunded
liability and the date or dates on which the public pension fund will accept the net proceeds of the
obligations to be issued in payment of all or a portion of the unfunded liability";
NOW THEREFORE, the Council and the Board enter into this Agreement pursuant to
Section 107.003, as follows:
1. The Board certifies that:
(a) The Fund is municipal retirement plan qualified under section 401(a)of the Internal
Revenue Code of 1986, as amended (the "IRC"), to provide Retirement, Disability
and Death Income Benefit to provide periodic income to Firefighters and survivors
during retirement, disability or death; and
(b) The Fund is not:
(i) a program that provides only workers' compensation benefits;
(ii) a program administered by the federal government;
(iii) a plan described by IRC Section 401(d);
(iv) an individual retirement account consisting of an annuity contract described
by IRC Section 403(b);
(v) an individual retirement account as defined by IRC Section 408(a);
(vi) an individual retirement annuity as defined by IRC Section 408(b);
(vii) an eligible deferred compensation plan as defined by IRC Section 457(b);
or
(viii) a program for which benefits are administered by a life insurance company
or for which the only funding agency is a life insurance company.
2. The Council and the Board acknowledge and agee that the City has an Unfunded Liability
owing to Fund in the amount of$12,150,000.00 as of the July 14, 2022 actuarial valuation
(the "2022 UAAL").
3. The Council acknowledges and agrees that:
(a) this 2022 UAAL calculation was done by the Board's consulting actuaries, Definiti
LLC;
(b) the full actuarial valuation report is attached hereto as Exhibit B;
(c) the City has requested to make a lump sum employer contribution to the Fund in
the amount of$12,150,000.00 to fund the 2022 UAAL from proceeds of the Bonds
on the closing date of the Bonds, which shall be on or before September 8, 2022;
(d) the deposit of $12,150,000.00 pursuant to paragraph 3(c) above equals the 2022
UAAL.
(e) upon the issuance of the Bonds and the funding of the 2022 UAAL, the City will
move all current Firefighters into the TMRS retirement program while preserving
the vested rights in the Fund of the 2022 Fund Beneficiaries:
(� following the events described in Section 3(e) above, the City will (i) continue to
honor its funding obligations pursuant to the requirements of the Fund to the 2022
Fund Beneficiaries and (ii) make provision for all current and future Firefighters to
participate in TMRS on the same basis as other City employees who participate in
TMRS; and
(g) the City will issue the Bonds and provide for the payment of the debt service on the
Bonds.
4. The Board acknowledges and agrees that:
(a) the Board agrees to accept the deposit set forth in paragraph 3(c) above when made;
(b) the Board has fiduciary responsibility for the assets of Fund and has the duty to
oversee the investment and expenditure of the assets of Fund;
(c) the Board agrees that such deposit, when made, shall be applied to the City's 2022
UAAL as determined in the annual actuarial valuation performed by the City's
actuary;
(d) following the events described in Section 3(e) above, no further increases or
substantive changes may be made to the Fund, and only the 2022 Fund
Beneficiaries shall be entitled to any portion of the benefits of the Fund, in effect
"freezing" the Fund for the 2022 Fund Beneficiaries and foreclosing the Fund to
any new participants not already provided for under the Fund; and
(e) upon final payout to the last person qualifying as a 2022 Fund Beneficiary, any
remaining amounts in the Fund shall be allocated in accordance with applicable State
law.
5. This Agreement may be amended only by a written instrument executed by the parties
hereto. This Agreement may be executed in one or more counterparts, each of which will
be deemed an original, but all of which together will constitute one and the same
agreement.
SIGNATURE PAGE TO FOLLOW
IN WITNESS WHEREOF, the parties have executed this Agreement on the date(s) set
forth opposite the signatures of their authorized representatives to be effective for all purposes on
the Effective Date.
CITY COUNCIL BOARD OF TRUSTEES
OF THE CITY OF PARIS, TEXAS OF THE PARIS FIREFIGHTERS' RELIEF
AND RETIREMENT FUND
By: By:
Name: Paula Portugal Name:
Title: Mayor Title: Chairman
Date: , 2022 Date: , 2022
:] D E F I N I T I 2201 Timberloch Place, Suite 150 1 (800)822-4026
The Woodlands, TX 77380 definiti.com
July 14, 2022
Mr. Bob Rast
144 N. Main St., Box 300
Paris, TX 75460-2652
Re: Freezing the Firefighter's Relief& Retirement Fund
Dear Bob,
This letter contains actuarial estimates of the Unfunded Actuarial Accrued Liability(UAAL)assuming the
plan is frozen effective June 30, 2022 based on the draft amendment provided by ERISA counsel and
replaces the results provided May 16, 2022. These estimates are part of the Board's considerations
regarding the potential transition of the Paris Firefighters from the existing Texas Local Firefighters
Retirement Act (TLFFRA) Fund to the Texas Municipal Retirement System (TMRS). However, there are
other legal and administrative issues that the Board will need to consider that are beyond the scope of the
actuarial information contained herein.
Current Situation
Paris firefighters currently contribute 16% of pay and accrue benefits in the Paris Firefighter's Relief&
Retirement Fund ("Fund"). The Fund has a number of challenges including low funded status, high
member contributions, and relatively low benefits compared to other TLFFRA Funds.
City of Paris Strategy
Based on discussions with the City of Paris management, they are aware of the situation. Rather than
funnel a considerable amount of money into the Fund and continue with the separate TLFFRA Fund, the
City wants to work with the Board and its members to freeze the benefits in the existing Fund, and
transition future benefits to the Texas Municipal Retirement System (TMRS)where other City employees
earn their retirement benefits. That is, the retirement benefit in the Fund would be frozen at current levels
for active members and future retirement benefits would begin to be earned in TMRS.
Since member contributions would cease, the City will be responsible for the existing Unfunded Actuarial
Accrued Liability (UAAL). The City intends to improve the funded status by issuing a pension obligation
bond and depositing the proceeds into the Fund's trust. We estimated the June 30, 2022 UAAL at
several discount rates.
6/30/2022 7.25% 6.75%
AAL $15,500,QOQ $16,34Q,Q.00;
MVA $4,150,000 $4,150,000
UAAL $11,350,000 $12,150,000
Bob Rast
July 14, 2022
Due to the importance of these measurement results,the Board provided updated census data as of June
30, 2022. Because the benefits will be frozen,the AAL is based on the Unit Credit Cost method that
measures the actuarial present value of the accrued benefits (PVAB)as of the valuation date (AAL =
PVAB). The Unit Credit cost method is more appropriate for frozen plans than the Entry Age Normal cost
method that has been used for long term funding policy measures in the past.
Given the current economic environment, most investment firms are expecting lower pension returns over
the next 5-10 years. tn addition, frozen pension funds often shift the allocation away from higher returning
equities to fixed income as the plan population shifts from active and retired members to a plan that
eventually only covers retirees. Based on these two considerations, we were asked to also provide the
UAAL measurements at a lower discount rate to illustrate the sensitivity of results of this important
assumption and how the cost could increase in the future due to lower market expectations or changes in
the asset allocation.
While these are long-term estimates, the financial markets have been very volatile this year, so the UAAL
could be materially higher or lower than $11.35 million at the point when the proceeds from the pension
obligation bond are deposited.As of now,the effective date of the plan amendment is expected to be
October 1, 2022. At that time, the AAL, using the 7.25% discount rate, is projected to be approximately
$15,750,000 or about$250 thousand higher.At that time, the assets could be higher or lower than the
June 30, 2022 value of$4.150 million.
While there is no way to precisely predict the UAAL at the time the bond proceeds are deposited, that
volatility in the UAAL measurement will exist in the future as well. That is, the actual long-term cost of the
Fund won't be known until the last participant passes away, but these estimates should provide the City
with the actuarial information needed to determine the size of the bond issuance.
Summary of Plan Changes
In addition to freezing the benefit as of June 30, 2022, there were a few other changes made to the plan
provisions that are listed below:
... Benefits earned in the Fund will be fully vested.
... Since service is frozen, Normal Retirement Age will change from age 55 with 20 years of service
to age 55. Since all members were hired before age 35, this doesn't result in earlier eligibility, but
rather addresses the fact that most active members will never reach 20 years of service.
... The Early Retirement Eligibility, Rule of 80,will be limited to those that already have 20 years of
service as of the effective date of the amendment.
... Going forward, members will be eligible for in-service distributions once they reach retirement
eligibility rather than having to terminate. That is, they can start their benefit at age 55 even if
they haven't terminated employment yet.
... Since members can commence their benefit at age 55, eligibility for the DROP was frozen to
those currently eligible as of the effective date of the plan freeze.
... The pre-retirement death benefit will be based on the frozen benefit without the minimum benefit
based on 20 years of service.
... The disability benefit was reduced to the TLFFRA minimum of$1,200 per year until the member
reaches age 55,then it reverts to the frozen benefit.
... Active members cease making contributions to the Fund.
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Bob Rast
July 14, 2022
Plan Administration
Administration of the plan will continue until all benefits are paid. Retirees shouldn't notice any difference,
but current active members will eventually receive a benefit from the Fund as well as TMRS. Employees
hired after the effective date will only receive a retirement benefit from TMRS.
Measurement Basis for the Plan Freeze
... Results based on discount rates of 6.75°/a and 7.25% are provided
... The mortality projection scale was updated from the MP-2018 to the ultimate rates from MP-2021
... Active members are assumed to retire at age 55, or current age if older
... Except for the changes mentioned above, all other assumptions are the same as shown in the
12/31/2020 actuarial report.
... The cost method was changed from Entry Age Normal (EAN)to Unit Credit. The Unit Credit cost
method measures the actuarial present value of the accrued benefit rather than allocating the
ultimate projected cost(including expected future service) levelly over a member's career as the
EAN method does, so it is more appropriate for frozen plans when no additional benefits will be
earned.
... Census data was based on member data as of June 30, 2022 as provided by the Board. The new
data had 51 active members, 11 deferred vested, and 40 retirees/beneficiaries.
... The changes to the plan provisions were described above.Any plan provision not mentioned
herein is the same as described in the 2020 actuarial report.
Except for the most senior active members, the active members' accumulated contributions exceed the
actuarial present value of accrued benefits(PVAB). Over time, the PVAB will increase as the members
approach retirement(less discounting), but the accumulated contributions will not grow in value. These
estimates assumed the changes being made would not result in a mass exodus of the active member
population. Since the TMRS benefits will provide higher benefits at a lower member contribution rate,this
is a reasonable assumption. However, if all active members below age 50 were to immediately terminate
and take a refund of contributions, then the PVAB/AAL would increase by$1.2 million. Over time, the
PVAB based on the underlying assumptions will increase, and the$1.2 million difference will gradually
decrease.
Closing
The information contained in this analysis is intended to assist the Board in its discussions with the City of
Paris on this important topic. As noted at the beginning,this is not a comprehensive summary of
everything the Board will need to consider, and we recommend continuing discussions with the Fund's
attorney. If you have any questions about this analysis, I'm happy to meet with you at your earliest
convenience.
Best regards,
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David A. Sawyer, FSA EA FCA MAAA
Senior Consulting Actuary
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