A Glossary of Actuarial Terms is provided at the end of this impact statement.

Over time, the provision for immediate membership will cause a slight increase in normal cost estimated at 0.03% of payroll, for new members of the San Antonio Fire and Police Pension Fund (SAFPPF). The actuary for SAFPPF states the provisions of HB1153 would have no significant, immediate impact on the accrued actuarial liability, normal cost, or amortization period for the fund.

The SAFPPF actuary stated the low occurrence of prior service repurchase, disability retirement due to military service injury or illness, and increase in the minimum pre-1971 disability pension is not expected to have a material actuarial impact the fund.

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

• Recruits would become members and contribute immediately upon satisfying statutory requirements, rather than after a 60-day waiting period. The two month waiting period would continue to apply in the case of City contributions for memberships effective after September 30,2003 and before October 1, 2005.
• Prior members who re-enter SAFPPF may repurchase prior service credit by paying previously refunded member contributions plus interest.
• Injury or disease incurred while on military service will no longer preclude a member from being eligible for a disability retirement.
• The minimum disability pension for certain prior disability retirees is increased.

From year to year, the obligations of SAFPPF will be larger under the proposal than under current law. The buy back provision will produce actuarial losses to SAFPPF. These losses will likely not be significant at the Plan level, but could be significant when viewed from the perspective of a member who exercises the feature. Also, providing disability benefits for military service related conditions will also produce actuarial losses.

The SAFPPF actuary certifies that the changes specified in HB1153 would allow the SAFPPF to remain actuarially sound. The Pension Review Board (PRB) actuary cautions that the amortization period can often change substantially from one year to the next in response to relatively small changes in the unfunded actuarial accrued liability. A combination of actuarial losses over the next couple of years could easily extend the amortization period (currently 23.2 years) beyond 31 years. The potential for future actuarial losses exists under current law, and such potential is increased by the proposal.

As of October 1, 2002, a $199 million unrecognized loss exists, representing the difference between the actuarial and the market value of SAFPPF assets. This loss will be recognized over the next 4 to 5 years absent offsetting gains from assets during this period. The analysis considers only those changes contained in the proposal and cautions that the combined economic impact of multiple proposals might exceed the economic impact of each proposal considered individually.

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the October 1, 2002 actuarial valuation of SAFPPF. According to the PRB actuary, the actuarial assumptions and methods appear to be reasonable, except as otherwise noted. 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 Wesley A. Pieper, Actuary, and Charles E. Campbell, Jr., Actuary, Towers Perrin, March 5, 2003

Actuarial Review by Mr. Richard E. White, Actuary, Milliman USA, Inc., March 6, 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.