LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE, 76th Regular Session April 15, 1999 TO: Honorable Florence Shapiro, Chair, Senate Committee on State Affairs FROM: John Keel, Director, Legislative Budget Board IN RE: SB292 by Nixon, Drew (Relating to a self-directed investment option for participants in the Teacher Retirement System of Texas.), As Introduced ************************************************************************** * Estimated Two-year Net Impact to General Revenue Related Funds for * * SB292, As Introduced: negative impact of $(2,600,000) through the * * biennium ending August 31, 2001. * * * * The bill would make no appropriation but could provide the legal * * basis for an appropriation of funds to implement the provisions of * * the bill. * ************************************************************************** General Revenue-Related Funds, Five-Year Impact: **************************************************** * Fiscal Year Probable Net Positive/(Negative) * * Impact to General Revenue Related * * Funds * * 2000 $(1,600,000) * * 2001 (1,000,000) * * 2002 (1,000,000) * * 2003 (1,000,000) * * 2004 (1,000,000) * **************************************************** All Funds, Five-Year Impact: *************************************************************************** *Fiscal Probable Savings/(Cost) from Change in Number of State * * Year General Revenue Fund Employees from FY 1999 * * 0001 * * 2000 $(1,600,000) 20.0 * * 2001 (1,000,000) 20.0 * * 2002 (1,000,000) 20.0 * * 2003 (1,000,000) 20.0 * * 2004 (1,000,000) 20.0 * *************************************************************************** Fiscal Analysis The bill provides for an optional defined contribution plan, effective September 1, 2000. Members of the Teacher Retirement System (TRS) would be allowed to reallocate up to one-half (3.2% of payroll) of their current contributions to the retirement system into a new defined contribution plan that would provide investment choices through outside vendors. The Board of Trustees of TRS would reduce a participating member's annuity in proportion to the amount of member contributions that were diverted from the pension plan into the defined contribution plan. The TRS actuary projects that there would be no direct actuarial impact on TRS pension plan, but the system estimates that there would be a fiscal impact to agency operations. While outside vendors would provide the investment management services and could be paid from the account balances of the participants, there would still be administrative duties for TRS to perform. These duties would include developing communication and administration documentation, selecting investment organizations, and interacting with higher education institutions, local school districts, and their employees in processing plan participation decisions and changes. Methodology The TRS actuary assumed that the system could implement the legislation in a way that prevents any actuarial losses to the system. If this assumption is correct, there would not be any change to the state's contributions to the system. TRS estimate that first year start-up costs will be $1.6 million, with ongoing annual costs of $1 million. The agency also projects the need for an additional 20 FTEs. Local Government Impact No significant fiscal implication to units of local government is anticipated. Source Agencies: 323 Teacher Retirement System LBB Staff: JK, SD, SC