The City of Hudson Oaks is a member of Texas Municipal Retirement System (TMRS) a statewide, multiple employer agent plan. In an agent plan, each participating government's pension is centrally administered and governed by state statutes but the assets and related pension liabilities for each government are accounted for separately and any unfunded liabilities are solely the obligation of that government. Hudson Oaks has chosen from a menu of plan options as authorized by the TMRS statute. Hudson Oak's plan provides the following benefit level:
| Item | Plan Selection |
|---|---|
| Employee Contributions | 7% of pay |
| Employer Match at Retirement | 2 to 1 employee account balance |
| Updated Service Credits | 100% (100% is maximum) |
| Cost of Living Adjustments | 70% of CPI (70% is maximum) |
| Vesting of Benefits | 5 years |
| Transfer Credits | None Provided |
| Death Benefits | Yes (Active and Retirees) |
Upon retirement the employee account balance including interest is combined with the employer match to price a lifetime annuity based on the employee’s age at retirement.
Behind the Pension Numbers
To understand the pension commitments made by government to its employees and how successful it has been in funding those commitments to date, it is important to understand 1) investments (management of the assets/TMRS responsibility), 2) actuarial valuations (calculation of the cost of benefits earned to date/TMRS responsibility) and 3) funding (the city’s commitment to make contributions to fund the benefits earned to date/City responsibility).
Information on investment strategies and results are available in the investment section of TMRS’s Comprehensive Annual Financial Report (CAFR) at http://www.tmrs.com/publications.php (pages 58-69). If TMRS does not earn its projected rate of return, assets will be less than expected and the City must make up the shortfall through increased contributions.
Additional information on actuarial policies including valuations and experience studies validating assumptions used can also be found at the site above. If unrealistic actuarial assumptions or methodology are used, actual liabilities could be higher than projected and the City would be required to make up the shortfall with additional contributions.
Information on the City’s commitment to fund its pension liabilities and funded status of those liabilities is provided on this page and in the City’s CAFR, located here.
Interested parties should also note that TMRS employs two separate actuarial valuations: 1) a funding valuation to calculate the City’s actuarially determined contribution and 2) the Governmental Accounting Standards Board (GASB 68) valuation which is used for financial reporting purposes and is reported in the city’s CAFR. Similar in many ways, the primary difference between the two valuations is that the funding valuation uses a smoothed actuarial value of assets and the GASB 68 valuation utilizes fiduciary net position based on a market value of assets on the reporting date.
Financials
Historical Investment Returns
Asset Allocations
As stated on page 58 of the TMRS Annual Report, "The system's portfolio is under the process of diversification and has shifted from an income-oriented strategy to a total return approach similar to most pension funds." As this diversification continues, the allocations listed above will continue to shift away from U.S. Equities and Core Fixed Income towards Non-Core Fixed Income, Real Estate, Private Equity, Real Return and Absolute Return.
| Asset Class | Target Allocation | Long-Term Expected Real Rate of Return (Arithmetic) |
|---|---|---|
| Domestic Equity | 17.5% | 4.55% |
| International Equity | 17.5% | 6.10% |
| Core-Fixed Income | 10.0% | 1.00% |
| Non-Core Fixed Income | 20.0% | 3.65% |
| Real Return | 10.0% | 4.03% |
| Real Estate | 10.0% | 5.00% |
| Absolute Return | 10.0% | 4.00% |
| Private Equity | 5.0% | 8.00% |
Contributions
Actual Determined Contributions (as a % of pay)
| Year | 2016 | 2015 | 2014 |
|---|---|---|---|
| Employee | 7.00% | 7.00% | 7.00% |
| Employer | 12.98% | 12.06% | 11.56% |
| Total | 19.98% | 19.06% | 18.56% |
As illustrated above, the City has a long history of always contributing its actuarially determined contribution and will often contribute more than this amount as it eliminates future interest costs, improves funding percentages and provides a cushion of protection against rate volatility.
As illustrated above, the City has enjoyed a funding percentage in excess of 70% for the last five years. Funding percentage for the funding valuation is defined as actuarial value of assets divided by the total actuarially accrued liability. Funding percentages are affected in any given year by many factors including investment returns, actual experience different from assumption, changing assumptions and changing the benefits provided.
Actuarial (2015 Report Year)
| Item | Value |
|---|---|
| Covered Payroll | $1,279,435 |
| Amortization Period | 15 years |
| Active Members | 23 |
| Inactive Members | 9 |
| Annuitants | 15 |
| Funding Valuation | |
| - Valuation (Actuarial Value of Assets) | $2,237,611 |
| - Funded Ratio | 75.1% |
| - Unfunded Liability | $742,579 |
| - Unfunded Liability per Member | $15,800 |
| - Unfunded Amount as a percent of Covered Payroll | 63.3% |
| GASB 68 Valuation | |
| - Valuation (Market Value of Assets) | $2,519,983 |
| - Funded Ratio | 75.64% |
| - Unfunded Liability | $856,277 |
| - Unfunded Liability per Member | $18,219 |
| - Unfunded Amount as a percent of Covered Payroll | 67.56% |
The following documents can be found under the Financial Reports tab at http://www.tmrs.com/publications.php
- Actuarial valuations for at least the past 5 years.
- Annual Reports for at least the past 5 years.
TMRS Documentation for Hudson Oaks Specific Information
- TMRS Comprehensive Annual Financial Report (Plan provision pages 124-125)
- Schedule of Changes in Fiduciary Net Position (page 24)
- Changes in Fiduciary Net position Hudson Oaks (page 24-25)
- TMRS Funding Valuation 2015 (page 140)
- http://www.tmrs.com/gasb_letters/2016/00629.pdf