State Pension Review Board of TexasBoard Meeting

January 26, 2017

Cheryl D. Alston, Executive Director

1

Background

Authority Chapter 40A of the Dallas City Code

History First established in 1944

Type Plan Single employer defined benefit plan that provides retirement, disability and death benefits for the permanent civilian employees of the City of Dallas

Governance Seven member board consisting of three persons appointed by the City Council, three employees elected by the membership, and the City Auditor, ex officio

Design City of Dallas does not participate in Social Security. City of Dallas does not provide disability insurance.Dallas ERF does not have a Deferred Retirement Option Program (“DROP”).

2

Fund Value and Funding Ratio

Assets under Management (12/31/16) – $3.3 billion

Funding Ratio (12/31/15) – 80.4% – Actuarial Value of Assets - $3.320 billion– Actuarial Accrued Liability -$4.129 billion

Dallas ERF’s 80.4% funded ratio ranks in the top 30th percentile (better than 70%) according to Wilshire’s City/County Funding Study for 2016 nationwide.

3

Membership Statistics

City of Dallas employs over 7,000 civilian employees to deliver City services to an estimated 1.2 million citizens.

The Fund has given a benefit promise to over 15,000 families in the DFW area.

Membership (12/31/2015)

Membership (12/31/2016)

Active Members 7,477 7,601

Benefit Recipients 6,756 6,895

Inactive Members 1,163 1,100+

Total 15,396 15,596+

4

Active Members and Retired MembersReducing employee headcount reduces the contributions to the Fund.

Note: The number of active employees is 12% lower than the high point in 2008.

• Active members are defined as permanent civilian employees who contribute to the Fund for vesting and retirement eligibility purposes.• Retired members are former employees who earned eligibility to retire through contributions and are receiving a lifetime annuity.• Inactive members are former employees who earned vesting status (five years of credited service) and will receive a lifetime annuity at age 60.

Chart1

200620062006

200720072007

200820082008

200920092009

201020102010

201120112011

201220122012

201320132013

201420142014

201520152015

Active Members

Retired Members

Inactive Members

1,163

7772

5197

980

8117

5304

1043

8371

5476

1092

7654

5706

1219

7034

5993

1111

6745

6199

1047

6864

6320

1043

6993

6447

1052

7180

6598

1099

7477

6756

1152

Sheet1

200020012003200420052006200720082009201020112012201320142015

Active Members816080937538782577637772811783717654703467456864699371807477

Retired Members428843894805492650655197530454765706599361996320644765986756

Inactive Members424412501489748980104310921219111110471043105210991152

5

Contribution Rates Employees are required to contribute to the pension fund along with

the employer, the City of Dallas (“City”)

Total contribution rate is paid jointly by the City (63%) and the employees (37%)

Future City and Employee contribution adjustments are automatic- Subject to trigger points and maximums

Current Contribution Rate – 36.00% – Employee (37%) – 13.32%– Employer (63%) – 22.68% (Split to pay the following)

- Pension Obligation Bond Credit Rate – 8.35%- ERF Contribution - 14.33%

6

Sources of Pension Fund Revenue

2015 Amount PercentageEmployee Contributions $50.7 million 22%

Employer Contributions $50.7 million 22%

Investment Income $133.7 million 56%

= Total Benefits Paid $235.1 million 100%

Source: ERF 2015 Annual Report

7

Dallas ERF has a Long Term Investment Horizon

Dallas ERFEst. 1944

8

Investment Summary Conservative Global Investment Portfolio

90% of Portfolio Valued Daily

Rate of Return– 5.00% Real Rate of Return– 3.00% Inflation= 8.00% Assumed Rate of Return

Investment Returns (as of 12/31/2016)– 1 year return – 9.08%– 5 year return – 8.82%– 30 year return – 8.52%

9

More Conservative Assumptions -Better Positions the Fund for the Future

2015 Actuarial Valuation reflects the Board’s adoption of new assumptions: Decrease in discount rate from 8.25% to 8.00%. Discount rate change increased

liabilities by $106 million and New demographic assumptions, including generational mortality, increased

liabilities by $187 million.

The adoption of more conservative assumptions above represents almost $293 million of the current $800 million Unfunded Actuarial Accrued Liability (UAAL).

Based on the new assumptions, the Employees’ Retirement Fund’s normal cost for the current plan year increased to 20.36% of payroll for FYE 2015.

The “normal cost” of a defined-benefit plan is the annual cost of the future liability associated with the benefits earned in that particular year.

10

Life Expectancy Increases from Age 65

Source: National Vital Statistics Reports

Since 2010, life expectancies continue to increase. The latest published rates (2012) are 20.5 years for females and 17.9 years for males, both from age 65.

15.8 16.8

18.4 19.0 19.1 20.3

13.0 13.0 14.2 15.1

16.1 17.7

-

5.0

10.0

15.0

20.0

25.0

1960 1970 1980 1990 2000 2010

Females Males

11

Approved Changes to Chapter 40A (Financial Impact)

Benefit FactorsPlan Changes

for New Employees Hired on or after January 1, 2017

Retirement Eligibility• Changed from Age 60 to 65 w/5 years of credited service• From 30 years to 40 years of service (unreduced)• Rule of 78 (unreduced ≥ 50 YOA ) to Rule of 80 (actuarially

reduced < 65 years of age)

Benefit Multiplier • Reduced from 2.75% to 2.5%

CPI Cost of Living Adjustment (COLA) • Reduced from a maximum of 5% to a maximum of 3%

Average Monthly Earnings • Changed from 3 to 5 year average

Survivor Benefits • Changed from Joint & 50% survivor to Life Only as the normal form of retirement

• All survivor benefits continue to have a 10 year guarantee• Now Joint & 50% survivor benefits, like Joint & 100%

survivor benefits, will be actuarially reduced Health Benefit Supplement • Eliminated $125 monthly Health Supplement

12

New Plan Reduces Future Liabilities by $2.15 Billion and Reduces Normal Cost by 36.3%

0

1

2

3

4

5

6

7

8

9

10

2016 2021 2026 2031 2036 2041 2046

Current Plan New Tier Current Members

$ in Billions

$2.15 billion in future savings

Chart1

201620162016

201720172017

201820182018

201920192019

202020202020

202120212021

202220222022

202320232023

202420242024

202520252025

202620262026

202720272027

202820282028

202920292029

203020302030

203120312031

203220322032

203320332033

203420342034

203520352035

203620362036

203720372037

203820382038

203920392039

204020402040

204120412041

204220422042

204320432043

204420442044

204520452045

204620462046

Current Plan

New Tier

Current Members

4.128809922

4.128454922

4.128454922

4.2837191621

4.2794198973

4.2801942364

4.4386226717

4.4272165542

4.4236419339

4.5918499636

4.5701230161

4.5581192231

4.7435755123

4.7081901273

4.6838223162

4.8939620677

4.8414005948

4.8006381518

5.0427395131

4.9693976955

4.9066969539

5.1898385597

5.0919454634

5.0015326589

5.3359237113

5.2095148008

5.0852779961

5.4809312453

5.3217938768

5.157225391

5.6252012305

5.4290031689

5.2171062676

5.7698803

5.5320803454

5.2655002503

5.9159389282

5.6317705714

5.3027086418

6.0638218998

5.7282454614

5.3285600942

6.2143485873

5.822098458

5.343216475

6.3681699254

5.9136481843

5.3467243988

6.5258670829

6.0031703533

5.3389527182

6.6881468755

6.0910126412

5.3199161899

6.8554863977

6.177283594

5.2893216976

7.0282688345

6.2620784035

5.2469234919

7.2067823259

6.3455145023

5.1925017915

7.3913464073

6.4277951321

5.1259771618

7.5825874731

6.5096118139

5.0476638173

7.7812689382

6.5918821621

4.9582197467

7.9878326447

6.6753193964

4.858110546

8.2024955942

6.7605739285

4.747750046

8.425479435

6.8485879057

4.6278022714

8.6569999211

6.9404747565

4.4991971417

8.8972362099

7.0375219764

4.3631145255

9.1464722504

7.1412592051

4.221061302

9.4052088807

7.2531618756

4.0745440301

Sheet1

2016201720182019202020212022202320242025202620272028202920302031203220332034203520362037203820392040204120422043204420452046

Current Plan4.14.34.44.64.74.95.05.25.35.55.65.85.96.16.26.46.56.76.97.07.27.47.67.88.08.28.48.78.99.19.4

New Tier4.14.34.44.64.74.85.05.15.25.35.45.55.65.75.85.96.06.16.26.36.36.46.56.66.76.86.86.97.07.17.3

Current Members4.14.34.44.64.74.84.95.05.15.25.25.35.35.35.35.35.35.35.35.25.25.15.05.04.94.74.64.54.44.24.1

To resize chart data range, drag lower right corner of range.

Valuation4128.8099224283.7191620574438.62267169254591.8499635874743.57551233324893.96206765465042.73951313975189.83855966825335.9237113015480.93124534285625.20123053855769.88030004285915.9389281666063.82189977616214.34858730956368.16992543916525.86708293626688.1468755116855.48639773327028.26883449417206.78232588637391.3464073397582.5874731327781.26893815727987.83264467778202.49559424078425.47943496658656.99992105198897.23620986669146.47225039339405.2088807144

Scenario #104128.4549224279.41989726684427.21655418034570.12301606784708.19012728694841.40059477354969.39769547245091.94546335075209.51480084115321.79387682785429.00316892395532.08034536615631.77057135215728.24546143125822.09845800765913.64818431416003.17035327346091.01264116716177.28359400586262.07840349896345.51450233266427.79513208296509.61181390176591.88216211246675.31939637186760.57392852476848.58790568476940.47475650287037.52197635087141.25920514957253.1618755863

Current Members4128.4549224280.19423637034423.64193394564558.11922314964683.82231618634800.63815182934906.69695390945001.53265893185085.27799613865157.22539102785217.10626763895265.50025033685302.7086418325328.56009422265343.21647496565346.72439875985338.95271815755319.91618989915289.3216976375246.9234919425192.50179150325125.9771618125047.66381730724958.21974674584858.11054604184747.75004598684627.80227144814499.19714170284363.11452553144221.06130198154074.54403007773924.72438436083772.63183755563619.17608062943465.07739933173311.09032301963157.89819961453006.08066696922856.22096349922708.82561208332564.2853067157

CurrentCurrentCurrent ActivesTotal

RetireesDeferredsActiveRB & DeferredCurrent

2650174359994925001378788063041284549224128.454922

26190702851031718351342339647215612469.370334280194236.370334280.1942363703

25832440821093798561333164858397853137.945614423641933.945614423.6419339456

25427718171151327201318632257581582429.149644558119223.149644558.1192231496

24977983641205604031299604667765858882.186334683822316.186334683.8223161863

24487183311256212781272963977953334565.82934800638151.82934800.6381518293

239574114413014677512425089071138300127.909424906696953.909424906.6969539094

233891142613392299312165888451312109394.931775001532658.931775001.5326589318

227838446613733882711863677221483186981.138625085277996.138625085.2779961386

221452095714035761011482857221654061102.027815157225391.027815157.2253910278

214788352914287771011129876821813357346.638875217106267.638875217.1062676389

207834867614493041210751991631967021999.336785265500250.336785265.5002503368

200571591414652675010401448132110321164.832055302708641.832055302.708641832

193020994814773355510012205362249396055.22265328560094.22265328.5600942226

18520852581485285869656220132376980617.96565343216474.96565343.2164749656

17716270851488575169241484242502091373.75985346724398.75985346.7243987598

16891509911487885908828191162618194021.15755338952718.15755338.9527181575

16050014721483635498370770862729474082.899115319916189.899115319.9161898991

15195515111474773797861475812836145226.637015289321697.637015289.321697637

14332010111462281277254548932942039460.9425246923491.9425246.923491942

13463752221445524596613857493040188361.503215192501791.503215192.5017915032

12595223871424675615920060953131981118.812035125977161.812035125.977161812

11731095281399841415258349553208735193.307195047663817.307195047.6638173072

10876167151370783814599594853273565165.745814958219746.745814958.2197467458

10035291681337777893937841163327019473.04184858110546.04184858.1105460418

9213264241301116453242594553372052521.986814747750045.986814747.7500459868

8414724831261332892581591373402037362.448114627802271.448114627.8022714481

7644073511218678871974459433415475960.702784499197141.702784499.1971417028

6905360371173438941476589993407575595.531444363114525.531444363.1145255314

6202189061125743391123676923375900364.981484221061301.981484221.0613019815

553760688107596367844212073328765768.077684074544030.077684074.5440300777

491403315102423846633022693267594954.360853924724384.360853924.7243843608

43332184397104489478304183194375087.555573772631837.555573772.6318375556

37962582991694239359658983111890114.629383619176080.629383619.1760806294

33036146086235847269093373021570755.33173465077399.33173465.0773993317

28551422180767150201504982924658454.019583311090323.019583311.0903230196

24501553275329358149537762822599533.614523157898199.614523157.8981996145

20874523869963223109636262716408579.969163006080666.969163006.0806669692

1765364756470791480178222606958752.499192856220963.499192856.2209634992

1481814185959972657750112495269457.083312708825612.083312708.8256120833

1234405545466976941394122382035571.715752564285306.715752564.2853067157

13

Chapter 40A Amendment Process Chapter 40A-35 requires all interested parties to approve any changes – Dallas ERF

Board, Dallas City Council, and the voters of the City of Dallas.– (a) Except as provided in Subsection (b), this chapter may not be amended

except by a proposal initiated by either the board or the city council that resultsin an ordinance approved by the board, adopted by the city council, andapproved by a majority of the voters voting at a general or special election.

– (b) A provision of this chapter, other than this section, that is determined by theboard to require amendment in order to comply with federal law may beamended by ordinance of the city council, without voter approval, uponrecommendation of the board.

Dallas ERF Board and the Dallas City Council approved changes in August 2016

City of Dallas voters approved changes in November 2016 (69% of voters approved)

Chapter 40A changes effective on January 1, 2017

14

ConclusionThe Dallas ERF Board was proactive and conservative by recommending the new tier of benefits for new employees hired on or after January 1, 2017: Maintains a financially sound and sustainable retirement plan based on conservative

economic, demographic and actuarial assumptions;

Addresses people living longer in retirement by lowering the Fund’s normal cost by 36.3% (from 20.36% to 12.96%);

Decreases long term liabilities approximately $2.15 billion over a 30-year period;

Provides an adequate retirement pension for future employees who do not participate in Social Security;

Strengthens the overall trust in the Plan for all members; and

The Plan changes are prudent and fiscally responsible and promote the long term viability of the Fund.

State Pension Review Board of Texas�Board Meeting���January 26, 2017����Cheryl D. Alston, Executive Director�Background�Fund Value and Funding Ratio �Membership StatisticsActive Members and Retired Members�Contribution Rates �Sources of Pension Fund Revenue Dallas ERF has a Long Term Investment Horizon�Investment SummaryMore Conservative Assumptions -�Better Positions the Fund for the FutureLife Expectancy Increases from Age 65Approved Changes to Chapter 40A (Financial Impact)New Plan Reduces Future Liabilities by $2.15 Billion and Reduces Normal Cost by 36.3%�Chapter 40A Amendment Process�Conclusion