LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 75th Regular Session May 12, 1997 TO: Honorable Barry Telford, Chair IN RE: Senate Bill No. 1102, Committee Report 2nd House, Substituted Committee on Pensions and Investments By: Armbrister House Austin, Texas FROM: John Keel, Director In response to your request for a Fiscal Note on SB1102 ( Relating to systems and programs administered by the Employees Retirement System of Texas) this office has detemined the following: Biennial Net Impact to General Revenue Funds by SB1102-Committee Report 2nd House, Substituted No significant fiscal implication to the State is anticipated. This bill makes numerous changes to the statutes governing the Employees Retirement System (ERS), the Law Enforcement and Custodial Officers Supplemental Retirement Fund (LECOSRF), the Judicial Retirement System Plan One (JRS-1), and the Judicial Retirement System Plan Two (JRS-2), as well as the administration of the Uniform Group Insurance Program. Some of these changes affect the administration of ERS' programs and have no fiscal or actuarial impact. Among the changes that will have an actuarial impact are the increase in the benefits multiplier from 2.0% to 2.25% for ERS members, changes in retirement eligibility requirements, earlier retirement eligibility for certain employees of the Texas Workforce Commission, the Texas Department of Mental Health and Mental Retardation and the Texas Department of Human Services, rules regarding purchase of service credit for military service, and rules for receiving service credit for unused sick leave. The bill also directs the Board to authorize a supplemental payment to annuitants during the 1998 fiscal year if the actuary certifies that the amortization period would remain below 31 years. ERS projects that implementing the provisions of this bill would increase the actuarial liabilities of the ERS by $983.5 million, reducing the current actuarial surplus from $1.4 billion to $424 million. The normal cost for ERS would increase from 12.294% to 13.791%, or approximately $64 million a year. The combined state and employee contribution rate to the ERS is currently 12.0%, which is below the normal cost rate under current statute. At this contribution rate, if this bill were enacted the actuarial surplus would be eliminated in approximately 6 years and an unfunded liability would emerge that could not be amortized within the 31 years required by statute. To maintain the actuarial soundness of the fund once the surplus is depleted, the state's contributions for retirement would have to increase from 6.0% to at least 7.791%, an increase of approximately $77 million each year over the current contributions. This analysis assumes that the plan's experience matches the current assumptions, and that no actuarial gains or losses occur. Eligibility provisions for the Judicial Retirement System, Plans One and Two are changed to eliminate requirements relating to continuous service. There would be no change in the normal cost of JRS-2 and no change in the state's contribution rate. The changes related to JRS-1 are not expected to have a significant impact on the level of benefit payments under that program from the General Revenue Fund. No fiscal implication to units of local government is anticipated. Source: Agencies: 327 Employees Retirement System LBB Staff: JK ,PE ,SC