LEGISLATIVE BUDGET BOARD
Austin, Texas
 
ACTUARIAL IMPACT STATEMENT
 
80TH LEGISLATIVE REGULAR SESSION
 
April 18, 2007

TO:
Honorable Vicki Truitt, Chair, House Committee on Pensions & Investments
 
FROM:
John S. O'Brien, Director, Legislative Budget Board
 
IN RE:
SB247 by Ellis (Relating to prohibiting the investment of state funds in certain private business entities doing business in Sudan.), As Engrossed


SB247 would require both the Employee Retirement System of Texas (ERS) and the Teacher’s Retirement System of Texas (TRS) to divest a portion of their holdings of public securities of various companies engaged in active business in Sudan. The bill’s effect is limited for several reasons: losses caused by divestiture are capped at 0.3 percent, only publicly traded securities are affected, and indirect holdings (mutual or hedge funds) are exempted from divestment.  Finally, these effects are of an indeterminable length because this law terminates if Congress revokes sanctions, the genocide is judged to have ended, or this type of law interferes with U.S. foreign policy.

 

The Pension Review Board (PRB) believes the primary purpose of a retirement system is to provide benefits to its annuitants.  The assets of a public retirement fund are held in trust for those annuitants, and investments should be made prudently to ensure the soundness of the fund and to provide maximum return on the tax dollars contributed by the state or municipality to those funds.

 

It is the position of the PRB that a change in the historic approach of Texas public retirement systems from primary emphasis on fund growth and security to emphasis on attainment of a social or political goal – however compelling the issue – could entail greater risk, volatility, and cost for the systems.  Care must be taken to ensure that the soundness of Texas public pension funds is maintained.

 

The bill does not affect the funding or benefits of a public retirement fund, so does not have a traditional actuarial impact. Additionally, it is unclear that requiring systems to change up to 0.3 percent of their investment holdings would have a substantial impact on their estimated long-term investment gains, though they would have some additional trading costs and administrative costs to implement the bill. The TRS actuary states that proposals like this may make it more difficult for them to earn their assumed 8.0 percent investment return. 



Source Agencies:
338 Pension Review Board
LBB Staff:
JOB, WM