TO: | Honorable Craig Eiland, Chair, House Committee on Pensions & Investments |
FROM: | John S. O'Brien, Deputy Director, Legislative Budget Board |
IN RE: | HB73 by Eiland (Relating to public financing of public education employee retirement; making an appropriation.), As Introduced |
Fiscal Year 2007
Teacher Retirement System |
Current |
Proposed |
Difference |
State Contribution Employee Contribution Total Contribution |
6.00 % 6.40 % 12.40 % |
7.19 % 6.40 % 13.59 % |
+1.19% 0.0% +1.19% |
Normal Cost (% of payroll) |
10.40 % |
10.40 % |
0.0% |
Amortization Period (years) |
Infinite* |
N/A** |
0.0 |
*The current contribution rate is insufficient to amortize the unfunded liability over a 30-year period. Currently, based on the
**Not available in the actuarial analysis.
A Glossary of Actuarial Terms is provided at the end of this impact statement.
ACTUARIAL EFFECTS: HB 73 would increase the state contribution rate to the Teacher Retirement System (TRS) for fiscal year 2007 and beyond. The bill appropriates an additional $300 million for fiscal year 2007, which represents an estimated increase in the state contribution rate of 1.19% of payroll, bringing the total state contribution to an estimated 7.19% of payroll from the current state contribution rate of 6.0%. The amounts to be appropriated for fiscal year 2008 and beyond are projected to be sufficient to fund the liability of TRS.
SYNOPSIS OF PROVISIONS
This bill, to be effective immediately if receiving required votes or if not,
· Appropriate $300 million, an amount based on an estimated state contribution rate of 7.19% of payroll for fiscal year 2007 and an amount estimated to be sufficient to fund the liability of TRS for service retirement benefits, disability retirement benefits, and death benefits provided under Government Code for members, retirees, and beneficiaries for fiscal year 2008 and beyond. The bill removes the 10% statutory ceiling on state contributions to TRS.
FINDINGS AND CONCLUSIONS
HB 73 proposes to increase the state contribution to the Teacher Retirement System (TRS) for fiscal year 2007 and the state contribution rate for fiscal year 2008 and beyond. The amount specified to be appropriated for fiscal year 2007 is $300 million, which represents an estimated state contribution rate of 7.19% of payroll, an increase of 1.19% of payroll from the current state contribution rate of 6.0%. The amounts to be appropriated for fiscal year 2008 and beyond are to be sufficient to fund the liability of TRS.
According to the TRS actuary, the amortization period, based on the
METHODOLOGY AND STANDARDS
The analysis assumes no further changes are made to TRS and cautions that the combined economic impact of several proposals can exceed the effect of each proposal considered individually. The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the
SOURCES:
Actuarial Analyses by Lewis Ward & W. Michael Carter, Gabriel, Roeder, Smith & Co.
GLOSSARY OF ACTUARIAL TERMS:
Normal Cost-- the current annual cost as a percentage of payroll that is necessary to pre-fund pension benefits adequately during the course of an employee's career.
Net Asset / Net Liability--This is the difference between the Actuarial Value of Assets and the Actuarial Accrued Liability. A Net Asset (also called the "Overfunded Actuarial Liability) exists only when the Actuarial Value of Assets exceeds the Actuarial Accrued Liability, and is the amount of this excess. This only occurs when a plan is overfunded. A Net Liability (also called the Unfunded Actuarial Liability) exists only when the Actuarial Accrued Liability exceeds the Actuarial Value of Assets. This only occurs when a plan is underfunded.
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.
Source Agencies: | 338 Pension Review Board
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LBB Staff: | JOB, SR, JSc
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