LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 74th Regular Session April 24, 1995 TO: Honorable Ken Armbrister, Chair IN RE: Senate BillNo. 1231 Committee on State Affairs By: Armbrister Senate Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on Senate Bill No. 1231 (Relating to the powers and duties of and systems and programs under the Employees Retirement System of Texas.) this office has determined the following: The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill. The bill would affect the transfer of service credits and benefit transfers between the Teacher Retirement System (TRS) and the Employees Retirement System (ERS), provide benefit increases to the Law Enforcement and Custodial Officer Supplemental Retirement Fund (LECOS) and ERS members, and make some changes in the Texas Employees Uniform Group Insurance Benefits Act. If enacted, major provisions (and their fiscal impacts, if any) would include: 1) A supplemental benefit payment (13th check) to ERS retirees in 1997, and a provision allowing the ERS board of trustees to continue this type of payment in any year which this payment would not immediately cause ERS to exceed the 31 year funding limit. At some point in the future this could affect the ability of the legislature to make adjustments in the state contribution rate or to adjust benefits or service credit allowances. 2) A benefit increase of 12.5 % for all current retirees who did not retire under the recent early retirement provisions which granted a 2.25% benefit multiplier, thereby granting all current retirees a 2.25% benefit multiplier. 3) Allowing ERS members to use sick leave credit for retirement eligibility, service, and projection of compensation for the calculation of average monthly compensation. Current law allows sick leave to be used only for service credits. This new provision would increase the normal cost by .305%, from 12.224 to 12.529%. If the legislature appropriated the normal costs of ERS in fiscal year (FY) 1998, the probable cost to the General Revenue Fund would be $7,566,215, and the cost to all other funds would be $5,389,633. In FY 1999 the probable costs would be $7,793,202 to General Revenue and $5,551,322 to all other funds. In FY 2000, the probable costs would be $8,026,998 to General Revenue and $5,717,861 to all other funds. Similar annual costs would continue as long as the provisions of the bill are in effect. 4) Adjusting the LECOS benefit formula to a constant 2.5 multiplier, increasing the limit on annuity payments from 80% to 100% of current compensation, and increasing the benefit for total occupational disability to automatically equal 100% of current compensation. This would significantly increase the normal cost, raising it by 1.154%, from 1.457% to 2.611%. If the legislature appropriated the normal costs of LECOS in FY 1998, the probable cost to the General Revenue Fund would be $13,978415. In FY 1999 the probable costs would be $14,397,768 to General Revenue. In FY 2000, the probable costs would be $14,829,701 to General Revenue. Similar annual costs would continue as long as the provisions of the bill are in effect. 5) Repealing the requirement that the LECOS appropriation be completely from the General Revenue Fund. This change would result in proportionality being applied to the appropriation. Assuming the new normal cost mentioned in 4), if the legislature appropriated the normal costs of LECOS in FY 1998, the probable savings to the General Revenue Fund would be $3,545,395, and the cost to all other funds would be $3,545,395. In FY 1999 the probable savings would be $3,651,757 in General Revenue and costs would be $3,651,757 to all other funds. In FY 2000, the probable savings would be $3,761,309 to General Revenue and costs would be $3,761,309 to all other funds. Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. 6) Allowing beneficiaries of a deceased member to purchase service if the credit would allow for a death benefit annuity. 7) Changing the guidelines for exchanging service credits between ERS and TRS. The fiscal implications cannot be determined. 8) Restricting the definition of a custodial officer for future members. This would result in future savings to General Revenue and other funds, but the amounts cannot be determined. 9) Exempting any self insured program of ERS from all insurance code except that which specifically targets the Texas Employees Uniform Group Insurance Benefits Act. The fiscal implications of this cannot be determined. 10) Allowing trustees to claim all incurred expenses, not just those which are necessary. 11) Giving the executive director investment authority; currently this authority is only given to the trustees. No fiscal implication to units of local government is anticipated. Source: Employees Retirement System LBB Staff: JK, RN, WM, DF