LEGISLATIVE BUDGET BOARD
Austin, Texas
 
ACTUARIAL IMPACT STATEMENT
 
80TH LEGISLATIVE REGULAR SESSION
 
May 19, 2007

TO:
Honorable Kim Brimer, Chair, Senate Committee on Administration
 
FROM:
John S. O'Brien, Director, Legislative Budget Board
 
IN RE:
HB3609 by Talton (Relating to membership and service credit in the Employees Retirement System of Texas for certain employees. ), Committee Report 2nd House, Substituted

Projected for Fiscal Year 2008

EMPLOYEES' RETIREMENT SYSTEM

Current

Proposed

Difference

State Contribution

Employee Contribution

Total Contribution*

6.45 %

6.00 %

12.45 %

6.45 %

6.00 %

12.45 %

0.0%

      0.0%

0.0%

Normal Cost (% of payroll)

11.98 %

11.98 %

0.00%

Unfunded Actuarial Accrued Liability(millions)

$1,031.2

$1,031.7

$0.5

Funded Ratio

95.7%

95.7%

0.0%

Amortization Period (years)

Infinite

Infinite

0.0

*Under current law, a total contribution rate of 12.94% of payroll is needed for fiscal year 2008 to achieve a 31-year funding for ERS under the requirements of Section 811.006 of Texas Government Code. Under the proposal, the total contribution rate needed to achieve a 31-year funding for fiscal year 2008 does not change.

 

ACTUARIAL EFFECTS:

 

HB 3609 as substituted would not change the projected normal cost rate of ERS for fiscal year 2008. The fiscal year 2008 estimated ERS unfunded accrued actuarial liability (UAAL) would increase approximately $500,000. The proposal also would not change the 31-year contribution requirement for ERS. These estimates do not include the cost to the system for providing the elected class service to appointed or elected officers of the Senate.

 

SYNOPSIS OF PROVISIONS:

 

HB 3609 as substituted, to be effective immediately if receiving the required votes and if not, September 1, 2007, would provide the following:

 

 

FINDINGS AND CONCLUSIONS:

 

HB 3609 as substituted would allow a person who retired from the employee class with more than 14 years of service credit, and who resumed employment with a house of the legislature, not as an employee of an individual member, to apply for and receive an additional employee class retirement annuity on account of the period served in that position after retirement. To receive the additional annuity, the person must pay employee contributions, without interest, for the period of service after retirement, and the post-retirement service with the legislature must not extend beyond January 1, 2007.

 

According to the analysis, one annuitant is known to be eligible for the additional benefits in the proposed bill. The analysis further states that it is possible that other, yet unidentified, annuitants may be eligible for the benefits proposed under the bill. The ERS actuary thus estimated the costs of providing benefits to ten additional annuitants. Thus, the results of the analysis are based on the estimated data for the one known affected member and the ten hypothetical affected members. The ERS actuary states that the proposed bill improves benefits and increases the actuarial costs of ERS; therefore, to comply with the funding requirements of Texas Government Code Section 811.006, total contributions needed for ERS would need to be 12.94% of payroll for fiscal year 2008. While no increase in the actuarially sound contribution rate is shown in the analysis, presumably there is an increase that does not show up due to rounding.

 

The analysis does not include any estimates for the provision of elected class service for members of ERS who are appointed or elected officers of the Texas Senate with at least 20 years of service. The impact of this provision is not estimated to be significant at the plan level, but will likely be significant at the individual level. 

  

METHODOLOGY AND STANDARDS:

 

The analysis assumes no further changes are made to ERS 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 February 28, 2007 update to the August 31, 2006 actuarial valuation of ERS. Note- there has been no review of the actuarial standards by the PRB actuary.

 

SOURCES:

 

Actuarial Analysis by Kim M. Nichol, Actuary, Buck Consultants, April 24, 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.

 

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:
LBB Staff:
JOB, WM