Actuarial Audit of the Employees’ Retirement Fund of the City of Fort Worth October 21, 2008

Purpose of the Actuarial Audit Required by Government Code Chapter 802.1012 Review of valuation, studies, & reports over past 5 years Emphasis placed on January 1, 2008 actuarial valuation & Ad Hoc COLA provision Other issues of interest or concern to the City

Actuarial Audit Report Components Plan Liability Audit Actuarial Assumption & Cost Method Review Summary of Findings & Recommendations Ad Hoc COLA Elections 8.5% Investment Return Assumption Valuation of Ad Hoc COLA

Funding Period (years) Ad Hoc COLA Schedule Funding Period (years) COLA Increase 18.0 or less 4.0% 18.1 to 24.0 3.0% 24.1 to 28.0 2.0% 28.1 or greater 0.0%

Projected Ad Hoc COLAs The above results were presented by GRS in the January 1, 2008 Actuarial Valuation

Ad-Hoc COLA Elections

Plan Liability Audit Results Actuarial Valuation Stanton Group Difference Actuarial Accrued Liability $ 2,059,232,093 $ 2,030,294,579 -1.4% Actuarial Value of Assets $ 1,821,688,380 0.0% Unfunded Actuarial Accrued Liability $ 237,543,713 $ 208,606,199 -12.2% Total Normal Cost Amount $63,869,176 $ 61,945,811 -3.0% GASB 30-year Annual Required Employer Contribution 13.48% 12.44% -7.7% Funding Period (not including 1/1/2009 Ad-Hoc COLA) 13.8 years 10.5 years -23.9% Funding Period (including 4.0% 1/1/2009 Ad-Hoc COLA) 15.0 years 11.5 years -23.3%

8.5% Investment Return Assumption Somewhat aggressive compared to most public plans This issue was previously raised & discussed New concerns related to Ad Hoc COLA Lower assumption = Lower COLA’s Investment risk has now shifted to certain retirees Increased Member scrutiny of the investment return Other related concerns about Member equity Impact of salary increases on retiree COLA Similar Members with different benefits

Valuation of Ad Hoc COLA Before Ad Hoc COLA Provision After Ad Hoc COLA Provision 5,517 Members 2.0% COLA 0.0%, 2.0%, 3.0% or 4.0% COLA Guaranteed Conditional upon funding period Known to be 2.0%/year Projected to be > or = 2.0% until 2023 $123.5M Liability $0.0M Liability

Valuation of Ad Hoc COLA ERF Position Stanton Group Opinion COLAs are conditional COLAs are not required to be recognized as a liability COLAs should be recognized as a liability Actuarial & Accounting Standards support position

Ad Hoc COLA Valuation Considerations Goal of actuarial cost methods and accounting standards Fund retirement benefits during working lifetimes Attribute costs to period benefits are earned Eliminate generational cost shifting Consistency of results This is a disclosure of liability issue What is the opinion of the auditor?