Murfreesboro pension committee approves rolling 15-year amortization after actuarial report shows 77% funded ratio

The Murfreesboro City Council Pension Committee on Oct. 15 approved replacing the plan's current amortization schedule that targets full funding in 2041 with a rolling 15-year amortization, after receiving an actuarial valuation that showed the plan is about 77% funded.

Amy Krause, an actuary from AkerSure, presented the annual actuarial valuation and the GASB 68 disclosure, saying the measurement date used for the accounting disclosure was June 30, 2024, and that some of the numbers in the GASB report are therefore a year old. She told the committee the plan's market value of assets was about $195 million and the actuarial value of assets about $193 million, while the present value of promised benefits rose to roughly $281 million; the report's actuarial accrued liability figures were in the low-to-mid $250 millions, leaving an unfunded liability of about $59 million and a funded ratio of roughly 77%.

Krause said normal cost for the coming year is about $3.6 million, roughly 9.69% of the grandfathered group's payroll, and that the plan continues to be a grandfathered closed group (no employees hired after June 30, 2010 may enter this plan). She told the committee that payroll experience produced an actuarial loss of roughly $7 million, driven by average salary increases well above assumptions (Krause said actual increases were roughly 10'15% across employee groups versus the 4% non-public-safety assumption). As a result, the actuary and staff increased the long-term salary-increase assumption for public safety to 6% per year to reflect sustained pay adjustments for retention.

Krause also said the valuation updated mortality assumptions to use a Pub-2016 public-plan table and that the valuation continues to apply the MP-2021 mortality improvement scale. She described the actuarial value smoothing method the plan uses (recognizing only 20% of a big market gain in a single year) and warned that a recent market downturn still had about $6.7 million of loss deferred into future years, which could depress the actuarial value relative to market value when that amount is recognized.

After discussion about spreading gains and losses, committee members moved to change the plan's amortization approach from the fixed 2041 payoff date to a rolling 15-year amortization schedule so each year gains or losses would be amortized over a fresh 15-year period. The committee recorded the motion as approved on a roll call vote with the members present voting in favor. Committee members said they prefer the rolling approach because it smooths year-to-year swings and reduces the risk of a large balloon payment if a market downturn occurs near 2041.

The committee also heard a separate investment review from the committee's consultant. The consultant reported total plan market value at about $194.8 million at June 30, fiscal-year investment gains of roughly $18 million for the 12-month period reported, and a target long-term asset-allocation move toward more fixed income (a target of 44% fixed income versus the current ~38.7%) using a dollar-cost-averaging approach. The advisor noted that one emerging-markets manager (Invesco developing markets) was placed on terminate and that those assets were reallocated across existing strategies. The advisor also reported a negotiated fee reduction for fiduciary services that went into effect in June and summarized the plan's aggregate investment-manager expense ratio at about 44 basis points on the portfolio.

Votes at a glance: - Motion to approve minutes from the Nov. 20 meeting (formal motion and roll call taken earlier in the meeting). Outcome: approved (roll call recorded as unanimous among members responding). Details: the clerk called the roll and members answered "aye." Specific mover/second not named in the meeting record. - Motion to change the plan amortization from the 2041 payoff to a rolling 15-year amortization: Outcome: approved by roll call. Roll call recorded the following "Aye" votes: Amanda DeRosa; Justin Burrows; Earl Hall; Austin Maxwell; Greg Sample; Allen Bozeman; Aaron Tucker.

The committee discussed implementing the rolling 15-year approach in coordination with staff and the actuary so the change would be reflected when the next valuation and contribution-setting work is completed. The actuarial presenter and investment consultant recommended the change as a prudent smoothing measure in light of persistent salary-driven actuarial losses, a maturing participant base and the plan's negative net cash flow from benefits exceeding active contributions.

The committee also noted the city council will be briefed on pension implications at a council retreat the following day; staff said they would bring the actuarial recommendations and the amortization change to that discussion.