| TO: | Honorable David Dewhurst , Lieutenant Governor, Senate Honorable Tom Craddick, Speaker of the House, House of Representatives |
| FROM: | John S. O'Brien, Deputy Director, Legislative Budget Board |
| IN RE: | SB1176 by Armbrister (Relating to systems and programs administered by the Employees Retirement System of Texas.), Conference Committee Report |
| Fiscal Year | Probable Net Positive/(Negative) Impact to General Revenue Related Funds |
|---|---|
| 2006 | $6,025,673 |
| 2007 | $6,460,063 |
| 2008 | $6,587,265 |
| 2009 | $6,717,210 |
| 2010 | $6,859,954 |
| Fiscal Year | Probable Savings from GENERAL REVENUE FUND 1 |
Probable Savings from GR DEDICATED ACCOUNTS 994 |
Probable Savings from FEDERAL FUNDS 555 |
Probable Savings from OTHER SPECIAL STATE FUNDS 998 |
|---|---|---|---|---|
| 2006 | $6,025,673 | $594,741 | $2,067,335 | $76,679 |
| 2007 | $6,460,063 | $637,775 | $2,145,818 | $82,352 |
| 2008 | $6,587,265 | $650,531 | $2,188,735 | $83,999 |
| 2009 | $6,717,210 | $663,542 | $2,232,509 | $85,679 |
| 2010 | $6,859,954 | $676,812 | $2,277,159 | $87,392 |
| Fiscal Year | Probable Savings from STATE HIGHWAY FUND 6 |
|---|---|
| 2006 | $1,876,007 |
| 2007 | $2,016,498 |
| 2008 | $2,056,828 |
| 2009 | $2,097,964 |
| 2010 | $2,139,924 |
The bill would make various changes to the Employees Retirement System (ERS). One provision would make the current 90-day delay in eligibility for new state employees permanent; it is currently set to expire at the end of fiscal year 2005. Members would not be eligible for disability benefits unless they were contributing at the time of disability. Members choosing to reestablish service credit would pay interest at the rate of 10 percent, instead of the current 5 percent. Service credit for Texas governmental employers for retirement eligibility purposes would no longer be allowed, unless it was through the Proportionate Retirement Program. The credit purchase option, which currently allows members to establish up to 60 months of equivalent membership service, is reduced to only allow members to establish up to 36 months of equivalent membership service.
The bill would extend a 10 percent benefit factor increase for members of the Judicial Retirement System Plan I (JRS I) and Judicial Retirement System Plan II (JRS II) who were visiting judges within a year of their retirement, as per current statute, to those who retired prior to fiscal year 2002, when this provision became effective.
The retirement provisions affecting ERS are anticipated to reduce the normal cost and the actuarial accrued liability of ERS. The ERS actuary estimates an actuarially sound funding rate would be reduced by 0.223 percent, from 7.044 percent of pay to 6.821 percent, in fiscal year 2006, and by 0.235 percent from 7.129 percent of pay to 6.894 percent in fiscal year 2007. Both of these reduced rates are greater than the current contribution rate of 6.0 percent, and the rate of 6.45 percent in the General Appropriations Act adopted by the Conference Committee. The savings shown in the tables for retirement provisions reflect the reduction to an actuarially sound contribution rate described above: 0.232 percent in 2006 and 0.235 percent in 2007 and future years, which translates to $6.2 million General Revenue savings in FY 2006 ranging to $7.3 million in FY 2007. The ERS retirement contributions in the General Appropriations Act reflect savings of $16.0 million in All Funds savings from not making contributions to ERS for newly hired employees at a 6 percent contribution rate. The long-term savings from implementing this permanently, as reflected in this fiscal note, are much lower. Most of the state contribution for these employees would not go towards paying a pension for them, since fewer than 15% of them will retire with the state, so more than 85 percent of the funds remain with the plan and lower the cost of paying pensions for other members. The long-term savings as calculated by the ERS actuary for just this provision would be approximately $5 million per year.
The proposal would add Section 812.006 to Government Code, which would allow certain persons who are currently members of the Optional Retirement Program (ORP), but with at least three years of prior service credit in ERS, to end participation in ORP and rejoin ERS, so long as there is a favorable Internal Revenue Service Ruling. The provision, if implemented, would not have a significant actuarial impact on ERS. ERS indicates that the provision would conflict with Section 811.006 of Government Code, which prohibits crediting a new type of service if the funding period is over 30 years.
The fiscal impact for the judicial increase is shown as the estimated increase in annual annuity payments for JRS Plan I judges. Since the plan is not advance funded, but pay-as-you-go funded, the benefit increase is a cost to the General Revenue Fund ranging from $390,000 in FY 2006 to $420,000 in FY 2007. This impact would be greater if there were a separate increase in judicial salaries. No appropriation authority for this provision is included in the Conference Committee Report for the Appropriations Act.
| Source Agencies: | 327 Employees Retirement System
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| LBB Staff: | JOB, SR, WP, WM
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