LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session March 17, 1997 TO: Honorable Barry Telford, Chair IN RE: House Bill No. 1780 Committee on Pensions and Investments By: Greenberg House Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on HB1780 ( Relating to the purchase of service credit in the Employees Retirement System of Texas and the Teacher Retirement System of Texas.) this office has detemined the following: Biennial Net Impact to General Revenue Funds by HB1780-As Introduced Implementing the provisions of the bill would result in a net negative impact of $(278,000) to General Revenue Related Funds through the biennium ending August 31, 1999. Fiscal Analysis House Bill 1780 would expand the purchase of service credit options for Employee Retirement System (ERS) employees and allow for a payroll deduction for purchase of credit with the Teachers Retirement System (TRS). Active members of both systems would gain more flexibility in their purchase of credit options. ERS employees would be allowed a simple monthly payment option over a period not to exceed five years. The bill would require ERS to provide additional information to members regarding the costs of purchasing service. The bill would allow ERS to base the interest rate used to calculate the cost of purchasing service on actuarial recommendations. ERS anticipates additional service credits would be purchased and would cost the system an additional $8 million per year. This cost assumes the interest rate was left at the current 5%. Current costs to ERS for the purchase of service credit are $17 million per year. If instead the interest rate was raised to the actuarial interest rate (currently at 8%,) there would be some additional revenue for ERS which would partially offset the additional costs. TRS expects no significant fiscal impact from passage of the bill. Methodolgy The ERS actuary anticipates additional service credit purchases would be made. When these are made for service which has not been previously established (such as military service), the state must make an additional contribution. The cost to the state to make these additional contributions is estimated to be $229,000 per year. The method of finance is provided by using estimated 1998 ERS retirement state contributions. The probable fiscal implications of implementing the provisions of the bill during each of the first five years following passage is estimated as follows: Five Year Impact: Fiscal Year Probable Probable Probable Probable Change in Number Savings/(Cost) Savings/(Cost) Savings/(Cost) Savings/(Cost) of State from General from State from all GR from Federal Funds Employees from Revenue Fund Highway Fund Dedicated Funds FY 1997 0001 0006 NEW-DED 0555 1998 ($139,000) ($33,000) ($12,000) ($44,000) 0.0 1998 (139,000) (33,000) (12,000) (44,000) 0.0 2000 (139,000) (33,000) (12,000) (44,000) 0.0 2001 (139,000) (33,000) (12,000) (44,000) 0.0 2002 (139,000) (33,000) (12,000) (44,000) 0.0 Fiscal Year Probable Savings/(Cost) from Other State Funds OTHER-OTH 1998 1999 (1,000) 2000 (1,000) 2001 (1,000) 2002 (1,000) Net Impact on General Revenue Related Funds: The probable fiscal implication to General Revenue related funds during each of the first five years is estimated as follows: Fiscal Year Probable Net Postive/(Negative) General Revenue Related Funds Funds 1998 ($139,000) 1999 (139,000) 2000 (139,000) 2001 (139,000) 2002 (139,000) Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. No fiscal implication to units of local government is anticipated. Source: Agencies: 304 Comptroller of Public Accounts 323 Teacher Retirement System and Optional Retirement Program 327 Employees Retirement System LBB Staff: JK ,PE ,WM