The Texas County and District Retirement System (TCDRS) is an agent multiple-employer system, which is an aggregation of over 550 single-employer plans, with pooled administrative and investment functions.  For each employer, a separate account is maintained to assure that its contributions are used exclusively for the benefit of its employees. 

ACTUARIAL EFFECTS:

The changes proposed by HB 1587 are not expected to have any material effect on the actuarial status of TCDRS. The TCDRS actuary determined that there will be only a small financial impact on the TCDRS as a whole and on its individual employers. As many of the benefit features in TCDRS are optional and dependent on the actions of the individual employer or employee, it is not possible to evaluate the cost for any one plan prior to knowing if the action will occur or not.

The most significant change proposed by HB 1587 is an increase in the survivor benefits for eligible members who die before retiring.  Current law gives the surviving beneficiary the choice of a refund of the deceased member’s contributions with interest or a monthly annuity for the beneficiary’s life, which is determined as if the member had retired with a joint and 100% survivor payment option and then died immediately.  The proposed change would offer the beneficiary the choice of a refund of the deceased member’s contributions with interest or a monthly annuity for the beneficiary’s life, which is actuarially equivalent to the sum of the deceased member’s accumulated contributions, current service credit, multiple matching credit, and allocated prior service credit.  Since the lifetime benefit for the surviving beneficiary under the proposed change would be based on only the life of the surviving beneficiary, while the benefit under the current law is based on the lives of the deceased member and the surviving beneficiary, the monthly benefit available to the beneficiary would be increased.

The TCDRS actuary estimated that if this provision had been reflected in the December 31, 2005 actuarial valuation of TCDRS, the aggregate contribution rate would have increased by 0.10% of payroll.  This estimate is based on the same assumptions as were used in the December 31, 2005 actuarial valuation, including the assumption regarding the election of the survivor annuity. 

SYNOPSIS OF PROVISIONS:

HB 1587, to be effective September 1, 2007, would provide the following changes:

·         Allows fixed rate plans to adopt benefit options. Fixed rate plans will be able to authorize all the options currently only available to variable rate plans. If a fixed rate plan authorizes increased benefits, it can remain a fixed rate plan.  These plans could now offer benefit increases like variable rate plans and the costs to them will be calculated the same.

·         Provide a survivor annuity benefit that is actuarial equivalent to the deceased member’s accrued benefit.

·         Allows present value payoffs for small benefits, including a lump sum payment of the account and corresponding employer matching dollars. TCDRS can provide payees with very small annuities some flexibility with their payment options.

·         Decreases the lower limit on CPI-based cost of living increases for retirees from 30% to 10% of the CPI.

·         Makes survivor annuities available with 4 years of service, in all instances for all employers.

·         Creates a provision for special retirement eligibility when and if circumstances warrant the need.

·         Allows employers with a matching rate greater than one to revert to a one-to-one match.

·         Makes several administrative changes, such as modifying the disability review process, giving TCDRS the ability to invest in futures and consolidating sections which refer to retirement options.

·         Revises the provisions which define the board’s authority to allow the board to determine what retirement options are available and to create and remove available options, lump sum payments or other alternate payments, allow an employer to set special retirement or vesting eligibility in specific circumstances, adopt rules regarding beneficiaries, set system-wide standards regarding recognition of service, define the calculation for prior service, and stipulate that the board can define the terms and standards to be applied by the medical board.

·         Clarifies that prior service monetary credit that is forfeited by a member’s election to withdraw funds cannot be reestablished.  Months of service can be reestablished but not the forfeited monetary credit.

·         Allows a person who returns to work to receive conditional prior service credit if returning within two years of that subdivision becoming a TCDRS plan participant and then remains an employee for six months after reemployment (Prior rules allowed persons who returned to work within five years but then required 5 years of uninterrupted re-employment).

·         Redefines board investment discussions to be briefing sessions and therefore not open to public disclosure.

·         Modifies the interest credits related to retirement section to provide partial year interest to member accounts only. 

·         Clarifies that multiple trusts can be named as beneficiary.

·         Modifies the confidentiality of information section to reflect that TCDRS cannot be compelled to compile certain lists of participant’s names, addresses and social security numbers and that TCDRS does not need to seek an opinion from the Attorney General in these cases.

FINDINGS AND CONCLUSIONS:

The changes proposed by HB 1587 are not expected to have any material effect on the actuarial status of TCDRS. The TCDRS actuary determined that there would be only a small financial impact on the TCDRS as a whole and on its individual employers. As many of the benefit features in TCDRS are optional and dependent on the actions of the individual employer or employee, it is not possible to evaluate the cost for any one plan prior to knowing if the action will occur or not. Since an actuarial valuation is performed for each employer, the impact of this bill would need to be reviewed based upon each subdivision in TCDRS, not just the system as a whole.

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 TCDRS. According to the PRB actuary, the actuarial assumptions, methods and procedures 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.

SOURCES:

Actuarial Analysis by Mr. Nick J. Collier, Actuary, Milliman USA, March 23, 2007

Actuarial Review by Mr. Mark R. Fenlaw, Actuary, Mr. Robert M. May, Actuary, Rudd & Wisdom, March 29, 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.