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How much do I pay for the current benefits, and what is the current plan? The average cost of the plan is $130 per household per year, or $531,000 per year for all employees of the police department. The plan is provided by the Texas Municipal Retirement System (TMRS), which provides benefits for 827 Texas cities and covers about 135,000 public employees. Both the employer and employee make contributions to accounts held in trust that are invested by TMRS. An annuity is calculated at retirement based on employee/employer contributions and investment returns. In an effort to provide more secure and stable assets held within the system, TMRS sought and received a change in statute that allows it greater investment flexibility. We believe these changes make the system much more secure for employers and employees.
What are the proposed changes?
The cities have proposed the elimination of the cost of living adjustments for retirees and updated service credits (the method by which retirement payouts are calculated). The cities currently match employee contributions by a ratio of 2:1. The total cost for the changes is $46 per household per year.
How much will I pay to get out of the current plan and start a new one?
We don’t know what the alternatives would be, and or what they would cost. We don’t know if the benefits provided would be comparable and competitive with what is available from peer cities. Each of the proposals will have different cost drivers to consider, and without solid estimates, there is no way to compare. In addition, there will always be costs associated with the TMRS plan as many employees within MVPD are already vested.
Why should police officers get a guaranteed retirement return when I don’t?
We know that many of you who have worked hard in the private sector are familiar with defined contribution plans, which are standard in the private sector. However, public sector practices are different. When choosing a law enforcement career, we accept a lifetime of modest pay for the advantage of receiving a retirement benefit that will live as long as do we. We look for decent salaries at a department in a solid community that will offer stability and long-term security. We believe that when we signed on at MVPD, these were the terms that were offered.
What is driving the retirement reductions?
There are different ideas about risk tolerance in investing, and differences in thinking how conservative fiduciaries ought to be. These differences are magnified by the current economy. We are not opposed to the evaluation of these risks and benefits, but would like you to be a part of the decision-making process.
How do these reductions impact the police department?
We are concerned about a negative effect on the recruitment, hiring, and retention of experienced, high quality police officers. Law enforcement is still a competitive market despite the economy, and over 95% of our peer agencies offer these retirement benefits. We anticipate increased costs to find and train new officers.
What about individual officers?
In a real example, if the proposed changes are made, one officer will lose over $600 per month which is 10% of his retirement. Other officers are selling retirement properties and re-evaluating their retirement plans
What is different from the TMRS plan and my 401K or other private pension plans?
The primary difference between a public employee retirement system and most private plans is investment options and funding. In a 401K, you get a certain percentage that you are allowed to contribute and it is matched (or not) by your employer, who also gives you a range of investment options to follow. Many private ‘defined benefit’ pension systems operate by providing a defined benefit based on numbers of years service. Many of these styled plans and public plans like them have become unstable over the last few years and many have gone away, leaving employees devastated. TMRS operates more like a defined contribution plan (like a 401K), but all the money put into the fund is put into investment mangers that handle the investments. The TMRS board awards interest credits based on these returns, which are not set at a minimum of 5% for employees and estimated to yield no less than 7% for employer contributions. TMRS has never had a negative annual return (but without the changes provided by the Texas Legislature, that would have become a possibility). TMRS is one of the most stable retirement plans in the country.
Why are our cities seeking to reduce benefits?
There are those who believe that TMRS should not begin investing in equities and should stick with fixed income investments. The overwhelming opinion of the best minds in this business have warned that TMRS would begin losing money within the next few years if it did not start a more diversified investment strategy. There is a misguided and wrong presumption by many who believe that fixed income plans (bonds and T-bills) are secure. The reality is that many bonds have and do lose money and TMRS, with a $14.6 Billion fund, needed this asset diversification plan.
How do these reductions impact the police department? What about individual officers?
There is no way to calculate the specific costs without knowing the plan that is implemented, but as an example, if the cities reduce our retirement contribution from seven (7) percent to five (5) percent, our retirement annuity will be reduced by 29%.
How can I help?
Please call your Mayor and members of the City Council—ask them to please study the issues before making any reductions. Please ask lots of questions to satisfy your knowledge. Please provide comments on your priorities. Visit our website, city council meetings, and police commission meetings this month.