LEGISLATIVE BUDGET BOARD
Austin, Texas
 
ACTUARIAL IMPACT STATEMENT
 
78TH LEGISLATIVE REGULAR SESSION
 
April 8, 2003

TO:
Honorable Frank Madla, Chair, Senate Committee on Intergovernmental Relations
 
FROM:
John Keel, Director, Legislative Budget Board
 
IN RE:
SB1696 by Wentworth (Relating to the issuance of obligations by political subdivisions of the state to pay unfunded liabilities to public pension funds.), As Introduced

SB1696 amends Subtitle C, Title 4 of the Local Government Code to allow a political subdivision to issue obligations to fund all or part of an unfunded pension liability, given that the political subdivision enters into a written agreement with the public retirement system having fiduciary responsibility for overseeing investment assets. These Pension Obligation Bonds, when used as a method of funding a system's unfunded actuarial liability, provide immediate funds while transferring the liability from a debt owed to the pension fund to one owed to the bond holders. Pension systems should be aware that any savings from this debt refinancing must be spent wisely or it might impact future funding schedules. The funding of a pension plan depends on maintaining its targeted assumptions into the future. When capital markets provide interest rates that are lower than the actuarial rate assumption, pension obligation bonds can provide necessary capital and cash flow. If investment return does not meet the assumptions, new unfunded liabilities will be generated. Because of these market-driven effects, the bill, if enacted will have an unknown actuarial impact on public pension systems.



Source Agencies:
338 Pension Review Board
LBB Staff:
JK, WM