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