LEGISLATIVE BUDGET BOARD
Austin, Texas
FISCAL NOTE, 77th Regular Session
March 24, 2001
TO: Honorable Dale B. Tillery, Chair, House Committee on
Pensions & Investments
FROM: John Keel, Director, Legislative Budget Board
IN RE: HB2447 by Isett (Relating to an optional defined
contribution retirement plan for persons eligible to
participate in the Teacher Retirement System of Texas.),
As Introduced
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* Estimated Two-year Net Impact to General Revenue Related Funds for *
* HB2447, As Introduced: negative impact of $(3,500,000) through *
* the biennium ending August 31, 2003. *
* *
* The bill would make no appropriation but could provide the legal *
* basis for an appropriation of funds to implement the provisions of *
* the bill. *
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General Revenue-Related Funds, Five-Year Impact:
****************************************************
* Fiscal Year Probable Net Positive/(Negative) *
* Impact to General Revenue Related *
* Funds *
* 2002 $(2,000,000) *
* 2003 (1,500,000) *
* 2004 (2,250,000) *
* 2005 (3,000,000) *
* 2006 (3,750,000) *
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All Funds, Five-Year Impact:
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*Fiscal Probable Savings/(Cost) from Change in Number of State *
* Year General Revenue Fund Employees from FY 2001 *
* 0001 *
* 2002 $(2,000,000) 32.0 *
* 2003 (1,500,000) 36.0 *
* 2004 (2,250,000) 40.0 *
* 2005 (3,000,000) 44.0 *
* 2006 (3,750,000) 48.0 *
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Fiscal Analysis
The bill would create an optional defined contribution retirement plan as
an alternative to the defined benefit pension plan administered by the
Teacher Retirement System (TRS) for public school employees. A newly
hired employee would have 90 days after the date of hire to make an
irrevocable election to join the defined contribution plan. The bill
does not appear to allow current employees to switch from the pension
plan to the proposed defined contribution plan. The state's 6.0%
retirement contribution, along with the member's 6.4% contribution would
be deposited to whichever plan the employee chose. Members that
terminate employment with fewer than 5 years of service would forfeit a
portion of their defined contribution account derived from state
contributions.
The first year start-up costs are estimated to total $2,000,000 and
require 32 additional full-time-equivalent employees. The ongoing
annual cost for operation is estimated at $1,500,000 in fiscal year
2003, increasing in subsequent years as the number of participants
increases. TRS would be responsible for selecting and maintaining the
list of approved vendors, distributing plan materials, collecting the
employee contributions remitted by the school districts, and allocating
the employee and state contributions among the investment vendors.
Methodology
The bill does not provide any mechanism for TRS to fund the
administrative costs of operating the defined contribution plan.
Therefore, it is assumed that General Revenue will be necessary to pay
for the administrative costs. The estimated costs of administration are
based on the current costs incurred by the Employees Retirement System
for administering the state's deferred compensation program, adjusted for
estimated participation levels.
TRS projects that the defined contribution plan will be an attractive
option to younger employees, who have a lower normal cost than older
employees. As a portion of these younger employees choose the defined
contribution plan over the pension plan, the overall normal cost of the
pension plan will increase. The combined state and employee
contributions will not be sufficient to cover the normal cost; as a
result, the fund's actuarial surplus will decrease. At some point in
the future, an increase in state and/or member contributions could be
required.
Local Government Impact
No significant fiscal implication to units of local government is
anticipated.
Source Agencies: 323 Teacher Retirement System
LBB Staff: JK, RB, SC