LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 76th Regular Session
  
                               May 21, 1999
  
  
          TO:  Honorable Sherri Greenberg, Chair, House Committee on
               Pensions & Investments
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  SB1130  by Armbrister (relating to programs and systems
               administered by the Employees Retirement System of
               Texas.), Committee Report 2nd House, Substituted
  
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*  No significant fiscal implication to the State is anticipated.        *
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The provisions of the bill relating to improved retirement benefits for
Employees Retirement System (ERS) members would have an actuarial cost,
but no additional state contributions would be required. Adding to the
membership of the Law Enforcement and Correctional Officers Supplemental
Retirement Program would increase the long term costs of the program by
approximately $1 million per year, however no contributions will be
needed in the short term.

Similarly, the increase in benefits and decrease in contributions for the
Judicial Retirement System II would have an actuarial cost, but no
additional state contributions would be required. Contributions to JRS II
would end after 20 years of service, this would decrease the average
member contribution rate from 6.0% to 5.41%; however as JRS II grows this
average contribution rate is anticipated to decrease to 5.04%. This long
term trend in decreased JRS II contributions may lead to a requirement
for additional state funds at some point in the future.

The provision requiring all employees to participate in premium
conversion would result in savings to the state. The savings from premium
conversion would result from reducing the taxable wages of state
employees by the amount of premiums converted. Social Security taxes
would not be paid on these premiums, resulting in savings on the order of
$1.1 million per year. This would not have a significant effect on
estimated Social Security expenditures of approximately $600 million per
year. There would also be savings to the employees who would not have to
pay Social Security or federal income taxes on these wages.

There are also provisions in the bill affecting insurance programs
administered by the ERS.  One provision would require that ERS estimate
the average expenditures from the state employee Uniform Group Insurance
Program anticipated for self-funded plans for a 60-day period during the
biennium.  ERS would then be required to set aside this amount as a
contingency reserve for the program.  Current statute requires a
contingency reserve equal to 10% of expected self-funded claims.  The
60-day period required by this bill would be the equivalent of a 16%
reserve level. Appropriations in the Conference Committee Report for HB
1, the General Appropriations Bill for the 2001-2001 biennium, are
currently sufficient to provide a 10% reserve level. The difference is
approximately $35 million. This analysis assumes ERS would make plan
design changes, possibly including adjusting co-pays or reducing
benefits, in order to meet the 16% reserve requirement.
  
Local Government Impact
  
No fiscal implication to units of local government is anticipated.
  
  
Source Agencies:   327   Employees Retirement System
LBB Staff:         JK, PE, WM