LEGISLATIVE BUDGET BOARD
                                   Austin, Texas
         
                                   FISCAL NOTE
                               75th Regular Session
         
                                  May 27, 1997
         
         
      TO: Honorable Bob Bullock            Honorable James E. "Pete" Laney
          Lieutenant Governor                Speaker of the House
          Senate
          Austin, Texas
         
         
         
         
         FROM:  John Keel, Director    
         
In response to your request for a Fiscal Note on HB2644 ( relating 
to systems and programs administered by the Teacher Retirement 
System of Texas) this office has detemined the following:
         
         Biennial Net Impact to General Revenue Funds by HB2644-Conference Committee Report
         
No fiscal implication to the State is anticipated.
         

         
 
The bill would make numerous changes to the Teacher Retirement 
System (TRS) governing statutes, change the normal retirement 
age plus service eligibility to a rule of 80, and provide a 
75% CPI catch-up ad hoc annuity increase for current retirees. 
Insurance related provisions include some of the major recommendations 
of the Value Health Management study, affecting both the active 
and retiree health insurance plans. The bill would require no 
increase in state retirement contributions since the current 
state plus member contribution is sufficient to pay for the 
increased normal costs and amortize the resulting unfunded actuarial 
liability within 30 years. However the funding period would 
increase by 18.9 years, from 5.8 years to 24.7 years.

The 
75% CPI catch-up is the third installment out of a 4 biennia 
schedule intended to increase retirement annuity payments so 
that they are greater than or equal to the retiree s original 
annuity, when adjusted by the CPI. Retirees who retired prior 
to 1971 have already "caught up", and will receive an additional 
5% increase from this provision.  The increase in unfunded  
actuarial liabilities from this provision is approximately $1.3 
billion.

Currently, an active TRS member can retire at age 
50 with 30 years of service, age 60 with 20 years of service, 
or age 65 with 5 years of service. Section 15 of the bill would 
allow unreduced retirement benefits for any combination of age 
and service adding up to 80. The increase in unfunded actuarial 
liabilities from this provision is approximately $460 million. 
This provision also increases the actuarial normal cost of the 
plan by 0.07%; at current payroll rates this is an additional 
$11 million per year.

The bill would create a Deferred Retirement 
Option Plan (DROP), which would allow teachers with 25 or more 
years of service to "retire" under current eligibility standards, 
and continue working for up to 5 years. They would have a monthly 
annuity payment equal to 79% of the usual retirement annuity 
payment go into a special DROP account. The proceeds of this 
would be paid out at retirement as a lump sum or as periodic 
installments. This plan would greatly increase retirement rates 
at ages earlier than usual, but paying only 79% of the usual 
annuity makes this portion of the bill cost neutral.

TRS 
would be authorized to self-fund the retiree health insurance 
program. Long-term care could be included as a component of 
the current plan, or as a separate insurance plan. To the extent 
the cost was not borne by the retirees, this could have a large 
cost to the fund. The state would be specifically authorized 
to raise its contribution above the current 0.5 percent of payroll 
without increasing the active member contribution.

Section 
30 of the bill would require TRS to allow retirees to have membership 
dues for a nonprofit association of retired school employees 
withheld from their monthly annuity payments. TRS would then 
be responsible for sending these dues to the nonprofit association 
every month.

Current statute requires that school districts 
provide health insurance coverage comparable to the coverage 
provided under the Uniform Group Insurance Program (UGIP), but 
does not define "comparable coverage." The bill would direct 
TRS to make rules and determine whether the insurance programs 
provided are comparable, and lists several factors that TRS 
should consider in this determination. Implementing these provisions 
would require TRS to incur additional administrative expenses 
to be paid from the retired school employees group insurance 
trust fund, but these would not be significant.

Currently, 
the majority of school districts certify to TRS that their plans 
are comparable to UGIP. The number of school districts that 
would fail to meet the definition of comparability that TRS 
would establish is not known. Local units of government may 
incur additional costs if their insurance coverage is deemed 
not comparable and they change their plan to meet the standards 
established by TRS rules.

Adding teacher salary supplements 
up to $5,000 for driver's education to the salary base would 
require increased contributions. This salary would be above 
the state minimum salaries for teachers, so the increased costs 
would be borne by local school districts. The total cost across 
the state would be approximately $360,000 per year. This would 
be allocated by district in proportion to the number of driver's 
education courses taught in the district. 

          
   Source:            Agencies:   
                                         
                      LBB Staff:   JK ,JD ,WM