LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session April 7, 1997 TO: Honorable Barry Telford, Chair IN RE: House Bill No. 2644, Committee Report 1st House, Substituted Committee on Pensions and Investments By: Telford House 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-Committee Report 1st House, Substituted 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 18.3 years, from 5.8 years to 24.1 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 12 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. Adding salary supplements for drivers education courses to the base member compensation upon which benefits are based will add approximately $100 million in unfunded actuarial liabilities and increase the normal cost of the plan by 0.03%; at current payroll rates this is an additional $5 million per year. The active insurance program would lower the minimum health insurance premiums paid by the employer/district to 75 percent of the employee only health premium. The bill would also allow participating districts to have a separate health insurance plan. These provisions should enhance participation in the plan. The active and retiree health insurance plans would be authorized to contract directly with health maintenance organizations and provider organizations as well as administrators. 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 21 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. Adding teacher salary supplements for driver's education courses to the salary base would require increased contributions. This salary would be above the state minimum salaries for teachers, so the increased contributions 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 that district. Source: Agencies: LBB Staff: JK ,PE ,WM