Retirement Contribution

Tucson Supplemental Retirement System Executive Summary of Major Board Activity Calendar Year 2013

Background
On December 19, 2013, the Tucson Supplemental Retirement System (TSRS) Board voted to issue an annual executive report summarizing the Boards’ major activities for the calendar year.  This action was recommended by an education committee seeking to keep all TSRS members informed on the retirement system.  Due to the complexities of the pension plan, readers are encouraged to not only read this summary but also to refer to the TSRS website (https://www.tucsonaz.gov/retirement) for more detailed information, including Board Minutes, Comprehensive Annual Financial Reports (CAFR), Plan Summary, and FAQ (Frequently Asked Questions) Sheet.  In addition, questions can be directed to the TSRS Office, located at 255 W. Alameda, 5th Floor, 85701, (520)791-4598.  

Executive Summary
During calendar year 2013, the Board focused on five (5) major issues: 1) Stabilization of contribution rates; 2) Modification of the funding policy to improve TSRS funded ratio; 3) Request for Proposal  for the TSRS investment consultant; 4) Analysis of Proposition 201 and potential impacts and 5) TSRS member education.  This summary will provide an overview of actions taken on each of these major issues as well as financial highlights for the year.   

Stabilization of Contribution Rates:
The TSRS Board seeks to have stable contribution rates for both the employer and employee, while maintaining long-term sustainability for the pension system. Due to significant investment losses amounting to more than $205 million during the plan years 2008 and 2009, unfunded liabilities rose from $128 million in 2007 to $348 million in 2013.   Consequently, employee contribution rates increased from 7.50% of pay in 2008 to 13.976% during FY13; employer contribution rates increased from 14.37% in 2008 to 30.03% in FY13. In considering the actuarial studies received, the Board recommended two significant changes affecting member and employer contribution rates for the fiscal year (FY14) beginning July 1, 2013. The first change lengthened the plan’s amortization of unfunded accrued liabilities from fifteen (15) years to twenty (20) years, matching the retirees’ historical average career span. The second change addressed the structure of how member and employer contributions were determined for all employees hired after June 30, 2006.  The new hires were previously subject to a member contribution rate that could change annually, and was determined to be 40% of the Actuarially Required Contribution rate.  The new structure would require members hired after June 30, 2006 to pay contributions based upon 50% of their tiers’ normal cost.  This formula is more in line with other pension plans that calculate variable rates for employee contributions.  As a result, the new contribution rates were set at 6.715% for Tier I members hired after June 30, 2006 and before July 1, 2011, and at 5.06% for the Tier II members hired after June 30, 2011.  The two changes solved the immediate problem associated with contribution rates, but deferred important decisions related to paying off the Plan’s unfunded liabilities until further studies could be developed and analyzed, including the annual valuation report.    

Modification of the Funding Policy to Improve the Plan's Funded Ratio
The Board spent a considerable amount of time during the year reviewing options to make steady progress towards paying off the Plan’s unfunded liabilities within a reasonable timeframe.   The annual valuation report revealed modest changes to the FY15 contribution rates and a slight decline in the funded ratio, from 63.5% in 2012 to 63.3% for 2013.  The Board was not content with projected contribution rate policies indicating the Plan’s funded ratio at less than 100% in 20 years.   Further study of alternative approaches prompted the Board to recommend a funding policy approach that increases the current contribution rates slightly above the Annual Required Contribution and assumes that funding rates will remain essentially constant until significant improvement of the Plan’s funded ratio occurs.  
As a result, the Board recommended setting Fiscal Year 2015 employer contribution rates at 27.5% for all TSRS membership Tiers and employee contribution rates as follows:

 

Fiscal Year Rates

City Contribution

Employee Contribution

Total

2014

 

 

 

Employees hired prior to July 1, 2006

27.32%

5.00%

32.32%

Employees hired after June 30, 2006 and before July 1, 2011

25.605%

6.715%

32.32%
Employees hired after June 30, 2011 27.26% 5.06% 32.32%

2015 - 2018

 

 

 

Employees hired prior to July 1, 2006

27.50%

5.00%

32.50%

Employees hired after June 30, 2006 and before July 1, 2011

27.50%

6.75%

34.25%
Employees hired after June 30, 2011 27.50% 5.25%

32.75%

 

TSRS Financial Highlights as of June 30, 2016

 

Active Employees 2,495 Average Annual Compensation $46,166
Retired Members 2,945 Average Annual Retirement Benefit $23,856
Total Assets $747,607,089    
Total Liabilities $20,824,210 Actuarial Valuation - Assets $732,926,710
Net Position Held in Trust $726,782,879 Actuarial Valuation - Liabilities $1,030,694,946
Portfolio Investment Return for 6/30/16 2.38% Funded Ratio 71.10%