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 ************************************************************************** * No significant fiscal implication to the State is anticipated. * ************************************************************************** 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