LEGISLATIVE BUDGET BOARD
                                   Austin, Texas
         
                                   FISCAL NOTE
                               75th Regular Session
         
                                  April 14, 1997
         
         
      TO: Honorable Kenneth Armbrister, Chair            IN RE:  Senate Bill No. 1102, Committee Report 1st House, Substituted
          Committee on State Affairs                              By: Armbrister
          Senate
          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 1st House, Substituted
         
No fiscal implication to the State is anticipated.
         

         
 
The bill would make 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, and the Judicial Retirement 
System Plan Two, as well as the administration of the Uniform 
Group Insurance Program.   Many 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 increased annuity given to ERS members retiring in fiscal 
years 1997, 1998, and 1999, and changes in retirement eligibility 
requirements, rules regarding purchase of service credit for 
military service, and rules for receiving service credit for 
unused sick leave.

ERS projects that implementing the provisions 
of this bill would increase the actuarial liabilities of the 
ERS by $196.2 million, and increase the actuarial liabilities 
of the LECOSRF by $10.9 million.  The normal cost for ERS would 
increase from 12.305% to 12.480%, or approximately $7.5 million 
a year.  The normal cost for LECOSRF would increase from 2.358% 
to 2.389%, or approximately $300,000 a year.  Both funds currently 
have an actuarial surplus sufficient to absorb the increase 
in liabilities, and an increase in state contributions would 
not be required.

The bill would give the ERS Board of Trustees 
the authority to permanently increase the benefits formula multiplier 
from 2.0% to 2.25% if the actuary certifies that the system 
would remain actuarially sound, with an amortization period 
not exceeding thirty years.  The system has a sufficient net 
asset balance so the multiplier could be increased to some extent 
and meet the 30 year funding requirement.  The ERS actuary projects 
that a total increase to 2.25% could not be done under the current 
contribution rates; therefore, no formula increase was included 
in their analysis.  The actuary did not estimate to what extent 
the multiplier could be increased without violating the 30 year 
funding rule.

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.

This bill would transfer administration 
of the Optional Retirement Program  (ORP) from the Higher Education 
Coordinating Board (HECB) to the Employees Retirement System. 
 ERS funds could not be used to pay for the cost of administering 
the ORP, so an appropriation from the state would be necessary. 
 Currently, there is approximately 0.5 FTE at the Coordinating 
Board performing ORP responsibilities.  This analysis assumes 
that the appropriation to the HECB would be reduced by the same 
amount as the additional appropriation to ERS.

This bill 
would allow institutions of higher education to establish qualified 
governmental excess benefit arrangements that would increase 
benefits to some participants in the Optional Retirement Program 
(ORP).  The bill would not require institutions to develop these 
plans. The bill might increase costs to state government for 
additional ORP employer contributions that are limited under 
the current ORP structure.  It is unknown which institutions 
would establish an excess benefit plan, which participants would 
be included, and how much of the extra cost would come from 
state funds and how much from local funds.  This change would 
affect only participants making in excess of $160,000 in 1997 
(indexed for future years) and the extra cost would come from 
either or both state and local funds, depending on the source 
of salary.  The additional cost to the state would be 6% of 
the aggregated salary paid out of state funds that exceeded 
the $160,000 IRS limit.
          
The provision in the bill that would allow institutions of higher 
education to establish excess benefit plans might increase costs 
to public junior and community college districts for the additional 
ORP employer contributions that are limited under the current 
ORP structure.  It is unknown which institutions would establish 
an excess benefit plan, which participants would be included, 
and how much of the extra cost would come from state funds and 
how much from local funds.  The amount of extra cost would be 
6% of the aggregated salary paid that exceeded the $160,000 
IRS limit and that was paid out of local junior and community 
college funds.
          
   Source:            Agencies:   327   Employees Retirement System
                                         
                      LBB Staff:   JK ,JD ,SC