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

ACTUARIAL EFFECTS:

HB 1318 would decrease, by .019% of payroll, the normal cost of the Austin Police Retirement System (APRS) from 21.734% to 21.715% of payroll. The proposal would also decrease the unfunded actuarial accrued liability (UAAL) by $80,000, from a total of $153.25 million to $153.17 million. The bill would increase the contribution rate, by 0.029% of payroll, for the Retiree Death Benefit fund from 0.081% of payroll to 0.11% of payroll. The bill would increase, by 0.04 years, the number of years required to amortize the UAAL from 32.98 years to 33.02 years.

SYNOPSIS OF PROVISIONS:

HB 1318, to be effective September 1, 2007, would provide the following changes:

·         Provide that interest credited to members’ contributions occurs only for members who are vested (have ten or more years of service). Interest already credited to accumulated contributions of members who have not vested would remain credited.

·         Authorize the board to reimburse a board member or employee for, or insure against, liability for legal expenses incurred as a result of action taken in an official capacity.

·         Adds requirements regarding the confidentiality of information in APRS’ records.

·         Set the interest rate charged to members for various service buyback provisions at 8%.

·         Set the rate at which members can purchase “permissive service credit” to be cost-neutral to APRS in the aggregate, as well as allow the purchase by certain deceased members’ designated beneficiaries and allow this purchase to based on lower rates by deferring the actual date when retirement benefits would begin.

·         Increase the lump sum death benefit from $7,500 to $10,000 for the i) minimum death benefit payable upon death of a member not eligible to retire, ii) the death benefit payable upon death of a member eligible to retire, and iii) the death benefit payable upon the death of a retiree.

·         Limit persons applying for disability retirement to members who are making contributions to APRS, but allow for persons who go on non-pay status to apply to the Board for extended eligibility.

·         Prohibit mandatory rollovers without a member’s consent unless the member or former member is at least 70 and1/2 years of age.  

FINDINGS AND CONCLUSIONS:

HB 1318 would make several changes to APRS, including changes to lump sum death benefit payments, credited interest on members’ contribution as well as administrative changes. The changes in the bill would have a small, offsetting actuarial effect on the financial condition of APRS. According the to the APRS actuary, enactment of this bill would leave APRS actuarially sound and in about the same actuarial condition.

HB 1318 would decrease, by .019% of payroll, the normal cost of the Austin Police Retirement System (APRS) from 21.734% to 21.715% of payroll. The proposal would also decrease the unfunded actuarial accrued liability (UAAL) by $80,000, from a total of $153.25 million to $153.17 million. The bill would increase the contribution rate, by 0.029% of payroll, for the Retiree Death Benefit fund from 0.081% of payroll to 0.11% of payroll. The bill would increase, by 0.04 years, the number of years required to amortize the UAAL from 32.98 years to 33.02 years.

The net effect of the changes to the normal cost contribution rate and the Retiree Death Benefit fund would decrease the overall contribution rate available to amortize the UAAL from 9.185% of payroll to 9.175% of payroll. This, combined with decreases to the UAAL due to plan changes, would result in an increase in the amortization period by 0.04 years.

METHODOLOGY AND STANDARDS:

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the December 31, 2005 actuarial valuation of APRS, adjusted to reflect recently adopted changes of APRS. According to the PRB actuary, the actuarial assumptions and methods appear to be reasonable.  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. Finally, the analysis assumes no further changes are made to APRS and cautions that the combined effect of several changes can exceed the effect of each change considered individually.

SOURCES:

Actuarial Analysis by Robert M. May, Actuary, and Mark R. Fenlaw, Actuary, Rudd & Wisdom, Inc., February 23, 2007.

Actuarial Review by Mr. Richard E. White, Actuary, and Mr. Robert Schmidt, Actuary, Milliman, March 2, 2007.

GLOSSARY OF ACTUARIAL TERMS:

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.