(a) Notwithstanding any law, rule, ordinance, resolution, charter, pension plan, agreement or pension plan contract to the contrary, the applicable provisions of this part shall apply to any political subdivision in the state that has established and maintains, directly or indirectly, a defined benefit pension plan for the benefits of its employees, irrespective of the manner in which the pension plan is administered.
Terms Used In Tennessee Code 9-3-504
Amendment: A proposal to alter the text of a pending bill or other measure by striking out some of it, by inserting new language, or both. Before an amendment becomes part of the measure, thelegislature must agree to it.
Amortization: Paying off a loan by regular installments.
Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
Contract: A legal written agreement that becomes binding when signed.
Fiscal year: The fiscal year is the accounting period for the government. For the federal government, this begins on October 1 and ends on September 30. The fiscal year is designated by the calendar year in which it ends; for example, fiscal year 2006 begins on October 1, 2005 and ends on September 30, 2006.
Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
Pension plan: means the defined benefit pension plan established and maintained by a political subdivision for its employees, excluding a political subdivision's participation in the Tennessee consolidated retirement system pursuant to title 8, chapters 34-37. See Tennessee Code 9-3-503
Political subdivision: means any local governmental entity, including, but not limited to any municipality, metropolitan government, county, utility district, school district, public building authority, housing authority, emergency communications district, and development district created and existing pursuant to the laws of this state, or any instrumentality of government created by any one (1) or more of the named local governmental entities. See Tennessee Code 9-3-503
Unfunded accrued liability: means the actuarially determined accrued liabilities of the pension plan that are greater than the actuarially determined value of the pension plan assets. See Tennessee Code 9-3-503
(b) Each political subdivision shall develop a funding policy for financing the obligations under the pension plan. Such funding policy shall be legally adopted and approved through a resolution by the political subdivision’s chief legislative body or governing body. The funding policy shall be in effect until amended. Each political subdivision shall develop a funding policy for fiscal years beginning after June 15, 2015. The funding policy and any amendment thereto shall be submitted to the comptroller of the treasury within thirty (30) days after adoption.(c) The political subdivision’s funding policy shall include, but not be limited to the following:
(1) The ADC for each pension plan shall include the normal costs and the amortization of the unfunded accrued liability, to the extent that any of the plans have any unfunded accrued liability for a particular fiscal year;(2) The maximum amortization period for which any unfunded accrued liabilities will be paid; and(3) A statement that the political subdivision’s budget shall include funding of at least one hundred percent (100%) of the ADC, except as provided in § 9-3-505(b).(d) The actuarial methodology is expected to provide that projected revenues (employer contributions, employee contributions, and investment earnings), and current assets will finance all of the projected benefits (death, disability, and retirement) provided by the plan. In the event that pension plan has an unfunded accrued liability, the level dollar amortization method shall be utilized beginning on or before June 15, 2020, for financing the unfunded accrued liability, and will continue to be utilized thereafter.(e) The ADC calculated by the political subdivision’s actuary shall be calculated utilizing the following methodology, and in accordance with the Actuarial Standards of Practice established by the Actuarial Standards Board:
(1) Actuarial cost method allocating normal costs over a period beginning no earlier than the date of employment which should not exceed the last assumed retirement age. This method is designed to fully fund the long-term costs of promised benefits, consistent with the objective of keeping contributions relatively stable and equitably allocating the costs over the employees’ period of active service. Commencing with the plan fiscal year beginning after June 15, 2019, a generally accepted actuarial method that achieves the above objectives shall be used, except the projected unit credit method is not permitted;(2) Actuarial value of assets calculated using a maximum ten-year asset smoothing period. Any smoothing period greater than five (5) years will have a maximum twenty percent (20%) market corridor. For the purposes of this subsection (e), the term “market corridor” means a range beyond which deviations are not smoothed;(3) No later than the plan fiscal year beginning after June 15, 2020, the level dollar amortization method of unfunded accrued liabilities;(4) Mortality assumptions, which should consider the effect of expected mortality improvements, and shall be utilized beginning on or before the plan fiscal year after June 15, 2024, and will continue to be utilized thereafter;(5) Investment earnings assumption that shall not be greater than fifty (50) basis points above the rate adopted by the Tennessee consolidated retirement system; and(6) A closed amortization period not to exceed thirty (30) years for all unfunded accrued liabilities.(f) The ADC for the political subdivision’s pension plan shall be determined by an independent, qualified actuary.(g) The actuary used by the political subdivision shall be a member of the American Academy of Actuaries.(h) The actuary used by a political subdivision for the calculation of the ADC for its pension plan shall not be an employee of that political subdivision, and shall not be otherwise eligible to participate in any of the political subdivision’s pension plans.(i) The measurement standard used to determine a pension plan’s funded status must be done in accordance with rules, standards, guidelines, and interpretations established by the governmental accounting standards board.(j) The actuary’s determinations, including the ADC, shall be contained in a report submitted to the political subdivision and shall include a certification indicating the actuary’s report has been prepared in accordance with all of the Actuarial Standards of Practice established by the Actuarial Standards Board as well as an explanation for any deviations. The actuary shall also certify in the report the overall appropriateness of the analysis in addition to the assumptions and results. The assumptions analyzed by the actuary must include, but not be limited to, the following: asset experience, including, but not limited to, the investment rate of return, discount rate, salary experience, cost of living adjustments, rates of retirement, turnover, and disability; mortality, including future improvement; and forms of benefit payments, including, but not limited to, lump sum payments.
