Projected for Fiscal Year 2008

*The current contribution rate is insufficient to amortize the unfunded liability over a 31-year period. Currently, the total contribution rate necessary to maintain a 31-year funding period is 13.30% of payroll. Under the proposal, the required 31-year amortization rate does not change.

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

ACTUARIAL EFFECTS:

According to the Employees Retirement System (ERS) actuary, HB 1722 would have no impact on the total normal cost of ERS, nor would the bill impact the UAAL of the system. The current contribution rate is insufficient to amortize the unfunded liability over a 31-year period. Currently, the total contribution rate necessary to maintain a 31-year funding period is 13.30% of payroll. Under the proposal, the required 31-year amortization rate does not change.

SYNOPSIS OF PROVISIONS

This bill, to be effective September 1, 2007, would provide the following changes:

·         Elected officials convicted of a felony become ineligible to receive retirement, disability retirement and death benefits from ERS. Those elected officials that are in payment status when convicted of a felony would forfeit future payments from ERS. Affected elected officials would be allowed to receive a distribution of their accumulated member contributions, to the extent this amount exceeds benefits already paid. The forfeiture of benefits would only apply to offenses committed after September 1, 2007.

FINDINGS AND CONCLUSIONS

HB 1722 proposes to prevent payment of retirement, disability retirement and death benefits to elected officials that are convicted of a felony. Elected officials in payment status when convicted of a felony would forfeit future payments from ERS. Affected elected officials would be allowed to receive a distribution of their accumulated member contributions, to the extent this amount exceeds benefits already paid. The forfeiture of benefits would only apply to offenses committed after September 1, 2007.

HB 1722 would have no impact on the total normal cost of ERS, nor would the bill impact the UAAL of the system. The actuarial analysis states that the current ERS actuarial assumptions do not explicitly recognize felony convictions, nor is there sufficient data or information to support the addition of a felony conviction assumption in future valuation of plan liabilities. The analysis further states that only one elected official could have been affected by the provisions of the bill in the last 15 years.

The current contribution rate is insufficient to amortize the unfunded liability over a 31-year period. Currently, the total contribution rate necessary to maintain a 31-year funding period is 13.30% of payroll. Under the proposal, the required 31-year amortization rate would not change.

METHODOLOGY AND STANDARDS

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the August 31, 2006 actuarial valuations of ERS. The analysis assumes no further changes are made to ERS.  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 Analyses by Kim M. Nicholl & S. Lynn Hill , Buck Consultants  March 6, 2007.

Actuarial Review by Mr. Richard E. White, & Robert L. Schmidt, Actuaries, Milliman, March 19, 2007

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.

Unfunded Actuarial Accrued 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.