(a)

(1) Every employer participating in the hybrid plan shall contribute each year a sum equal to the greater of:

(A) The normal contribution rate and the accrued liability contribution rate as determined pursuant to subsection (b), multiplied by the earnable compensation of all its participating employees; or

(B) Four percent (4%), rounded to the nearest whole number, of the earnable compensation of all its participating employees, except as otherwise provided in subdivision (a)(3).

(2) All employer contributions shall be deposited to the hybrid plan benefits trust account until such time as the pension stabilization reserve trust takes effect as provided in § 9-4-1001. Once the trust takes effect, any employer contributions made in excess of the actuarial rate determined pursuant to subsection (b) shall be deposited into the pension stabilization reserve trust fund established pursuant to § 9-4-1001.

(3) Employer contributions for kindergarten through twelfth (K-12) grade teachers shall be paid by the respective local education agency for which the teachers are employed. Employer contributions for political subdivision employees shall be paid by the respective participating political subdivision. Notwithstanding any other law to the contrary, the director of the retirement system is authorized, at the director's sole discretion, to determine the amount of employer contributions, if any, that must be paid by a local education agency into the stabilization reserve trust account or to the pension stabilization reserve trust fund pursuant to § 8-36-920; provided, that the amount shall not exceed the amount that would otherwise be required. The director of the retirement system is further authorized, at the director's sole discretion, to determine the amount of employer contributions, if any, that must be paid by a participating political subdivision into its individual pension stabilization reserve trust fund pursuant to § 8-36-920; provided, that the amount shall not exceed the amount that would otherwise be required.

(4) Notwithstanding this section, if deposits of employer contributions attributable to federal funds are prohibited to be made to the stabilization reserve trust account or to the pension stabilization reserve trust fund pursuant to § 8-36-920(d)(2), the employer contributions attributable to those funds shall be based solely on subdivision (a)(1)(A).

(5) Notwithstanding this section, employer contributions shall be based solely on subdivision (a)(1)(A) on July 1 of any given year for an employer whose deposits into the stabilization reserve trust account are suspended pursuant to § 8-36-920(g) or whose deposits into the pension stabilization reserve trust fund are suspended pursuant to § 9-4-1005. Nothing in this subdivision (a)(5) shall be deemed to give any participating employer or any participant a valid claim or cause of action for refund or credit for any sum or sums paid or to be paid to the hybrid plan or to the pension stabilization reserve trust fund.

(b) The actuary of the retirement system shall compute the normal contribution rate and the accrued liability contribution rate payable to the defined benefit component of the plan for each account described in § 8-36-920(e); provided, however, the computation shall not include the stabilization reserve trust account and shall be made by an actuarial valuation in the manner provided by chapter 37, part 3 of this title; provided, further, that the entry age actuarial cost method, as defined by the Actuarial Standards Board, shall be used in determining normal costs and contributions for unfunded accrued liabilities. Level dollar amortization of unfunded accrued liabilities shall be used over a period of time as set by the board, but not to exceed twenty (20) years. The asset valuation method shall be based on the market value of plan assets and provide for smoothing of investment gains and losses over a period of time established by the board, but not to exceed ten (10) years. In addition, the actuarial demographic assumptions shall include projections of mortality improvement.

(c)

(1) Notwithstanding this part or any other law to the contrary, if the actuarial valuation as of any year establishes a normal contribution rate and an accrued liability contribution rate, combined, that exceeds four percent (4%), the following steps in the order provided below shall automatically take effect the next July 1 immediately following the actuarial valuation as determined by the actuarial valuation process:

(A) Transfer such amounts as may be necessary from the stabilization reserve trust account created in § 8-36-920 to the reserve trust account to fund the increase in the employer contribution rate;

(B) Request a transfer pursuant to § 9-4-1004 of such amounts as may be necessary from the pension stabilization reserve trust fund created in § 9-4-1001 to the reserve trust account to fund the increase in the employer contribution rate;

(C) Suspend or reduce, as necessary, the three percent (3%) maximum cost-of-living adjustment as provided for in § 8-36-701(b)(1). Any such suspension or reduction shall begin on the July 1 next following the actuarial valuation;

(D) Suspend or reduce, as necessary, the amount of employer contributions required to the defined contribution component of the plan and redirect such amount to the reserve trust account to fund the increase in the employer contribution rate;

(E) Increase the employee contributions required in § 8-36-904 by one percent (1%) of the participant's earnable compensation;

(F) Reduce the retirement allowance formulas in § 8-36-907 from one percent (1.0%) and one and six-tenths percent (1.6%) to such lesser amount as is necessary to reduce the employer contribution rate to four percent (4%). The reduction in formulas shall only apply to future service accruals; and

(G) If the employer contribution rate still exceeds four percent (4%) after taking the above steps, then the hybrid plan shall be suspended for future service accruals until such time as the employer rate equals four percent (4%) or lower.

(2) If the actuarial valuation as of any year establishes a normal contribution rate and an accrued liability contribution rate, combined, that equals four percent (4%) or lower, the above steps in the reversed order as provided above shall automatically take effect the next July 1 immediately following the actuarial valuation as determined by the actuarial valuation process.

(d)

(1) The actuary of the retirement system shall determine the amount of the unfunded accrued liability for the defined benefit component of the hybrid plan. If the unfunded liability exceeds the maximum unfunded liability, the following steps in the order provided in subdivisions (d)(1)(A)-(E) shall automatically apply on the effective date that the maximum unfunded liability has been reached. The unfunded liability shall be determined by the calculation of the net pension liability in accordance with the standards and other pronouncements issued by the governmental accounting standards board. For purposes of this section, “maximum unfunded liability” means with respect to state employees an unfunded liability of no greater than twelve and one-half percent (12.5%) of a five-year moving market average of the general obligation debt of the state of Tennessee, including its commercial paper. With respect to teachers, “maximum unfunded liability” means an unfunded liability of no greater than twelve and one-half percent (12.5%) of a five-year moving market average of the general obligation debt of the state of Tennessee, including its commercial paper. With respect to political subdivision employees, “maximum unfunded liability” means an unfunded liability of no greater than the amount as determined by the employees' respective employer and as shall be set forth in the political subdivision's participation resolution:

(A) Suspend or reduce, as necessary, the three percent (3%) maximum cost-of-living adjustment as provided for in § 8-36-701(b)(1). Any such suspension or reduction shall begin on the July 1 next following the actuarial valuation;

(B) Suspend or reduce, as necessary, the amount of employer contributions required to the defined contribution component of the plan and redirect such amount to the reserve trust account to fund the increase in the maximum unfunded liability;

(C) Increase the employee contributions required in § 8-36-904 by one percent (1%) of the participant's earnable compensation;

(D) Reduce the retirement allowance formulas in § 8-36-907 from one percent (1%) and one and six-tenths percent (1.6%) to such lesser amount as is necessary to reduce the unfunded liability to the maximum unfunded liability. The reduction in formulas shall only apply to future service accruals; and

(E) If the maximum unfunded liability is still exceeded, then the hybrid plan shall be suspended for future service accruals until such time as the unfunded liability equals or is less than the maximum unfunded liability.

(2) If the unfunded liability equals or is less than the maximum unfunded liability, the above steps in the reversed order as provided above shall automatically apply on the effective date that the unfunded liability equals or is less than the maximum unfunded liability.