The actuary for the Employees' Retirement System (ERS) finds that the effect of HB459 would not have a material effect on the actuarial soundness of ERS or the Law Enforcement and Custodial Officers' Supplemental Retirement System (LECOSRF), based upon the benefit provisions, data, actuarial assumptions and actuarial funding methods.

This bill, to be effective September 1, 2003, would provide the following changes:

• Increases the amount of vacation leave that an employee can accumulate by one hour per month and increases the amount of hours of accumulated vacation leave that can be carried over from one year to the next by 12 hours over the current amounts.

HB459 would increase the amount of vacation leave that an employee can accrue and accumulate by a relatively small amount. Currently, the actuarial valuations of ERS and LECOSRF assume that the total accumulated unused sick leave and annual leave of employee class members will increase credited service at retirement by 2.3%. The ERS actuary's conclusions are based upon the assumption that the changes proposed in HB459 would not materially increase the amount of additional service attributable to unused accumulated leave at retirement. The analysis considers only those changes contained in the proposal and cautions that the combined economic impact of several proposals currently under consideration could exceed the economic impact of each such proposal considered individually.

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the August 31, 2002 actuarial valuations of ERS and LECOSRF. All actuarial projections have a degree of uncertainty because they are based on the probability of occurrence of future contingent events. Accordingly, actual results will be different from the results contained in the analysis to the extent actual future experience varies from the experience implied by the assumptions.

Actuarial Analysis by Steven R. Rusher, Actuary, Towers Perrin, February 27, 2003

Normal Cost-- the current cost as a percentage of payroll that is necessary to pre-fund pension benefits adequately during the course of an employee's career.

Unfunded Liability-- the amount of total liabilities that are not covered by the total assets of a retirement system. Both liabilities and assets are measured on an actuarial basis using certain assumptions including average annual salary increases, the investment return of the retirement fund, and the demographics of retirement system members.

Amortization Period-- the number of years required to pay-off the unfunded liability. Public retirement systems have found that amortization periods ranging from 20 to 40 years are acceptable. State law prohibits changes in TRS, ERS, or JRS-2 benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.