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

ACTUARIAL EFFECTS:

SB 1777 would increase, by 0.12%, the normal cost of the San Antonio Fire and Police Pension Fund (SAFPPF), from 25.00% to 25.12%. The proposal would increase the unfunded actuarial accrued liability from $204.4 million to $257.0 million, a total increase of $52.6 million. The analysis indicates that the actuarial accrued liability (AAL) for Retired and Vested Terminated members would increase by $37.6 million and the AAL for Active members would increase by $15.0 million.  The proposal would extend the expected period to amortize the unfunded actuarial accrued liability by 3.77 years from 10.67 years to 14.44 years. The PRB actuary indicated the bill may increase the level and incidence of retirement among benefiting members. This increase in the level and incidence of retirement would likely lead to larger increases in obligations and amortization periods than those shown in the analysis. According to the PRB actuary, the analysis does not provide the information it should regarding this contingency.

SYNOPSIS OF PROVISIONS:

SB 1777 would, effective October 1, 2007, provide the following changes:

·         Increase the guaranteed pension payout from 5 years to 10 years, less the number of DROP payments.

·         Change the multiplier for years of service for service years 21-27 from 4.5% to 5.0% and for service years 28-30 from 3.0% to 2.0% for members who retire on or after October 1, 2007.

·         Increases the annual Cost-of-Living Adjustment for members who retired between October 1, 1993 and September 30, 1997. The COLA is changed from 75% of the increase in the Consumer Price Index (CPI) to 100% of CPI up to 8% and 75% of CPI above 8%.

·         Amend the “Spouse after Retirement” provision to include the benefit to persons retired due to disability and effectively provide no reductions in benefits.

·         Extend the Back DROP selection from 3 to 4 years.

·         Remove the 5 year requirement to qualify for a refund of contributions without interest.

·         Provide a $200 per month increase to the annuities of all retirees who retired prior to October 1, 1989.

·         Provide a minimum benefit of $1,850 per month to all retirees.

·         Provide for a catastrophic disability benefit, with the amount of the pension being 87.5% of the member’s average total salary.

·         Makes other clarifying and administrative changes.

FINDINGS AND CONCLUSIONS:

The proposed legislation would change the multiplier for certain years of service, improve COLAs to certain members, set a minimum benefit of $1,850 per month and provide a $200 per month increase to the annuities paid members who retired prior to October 1, 1989.  Other provisions in the bill include changes to the DROP and disability retirements, as well as provisions making administrative changes.

SB 1777 would increase the normal cost of the San Antonio Fire and Police Pension Fund and would increase the unfunded actuarial accrued liability. The analysis indicates that the actuarial accrued liability (AAL) for Retired and Vested Terminated members and Active members would also increase.  The proposal would extend the expected period to amortize the unfunded actuarial accrued liability by 3.77 years from 10.67 years to 14.44 years. The PRB actuary states that more analysis on the possibility of changes in retirement patterns should be conducted.

METHODOLOGY AND STANDARDS:

The analysis provided by the SAFPPF actuary indicates that they have assumed that 20% of unmarried retirees would marry in order to take advantage of the surviving spouse benefit provided by SAFPPF. The analysis assumes no further changes are made to SAFPPF 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 October 1, 2006 actuarial valuation of SAFPPF. According to the PRB actuary, the actuarial assumptions, methods, procedures, and conclusions appear to be reasonable, except as otherwise noted. 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 Leon F. Joyner Jr., Actuary, Segal, March 26, 2007

Actuarial Review by Mr. Richard E. White, Actuary, and Mr. Robert L. Schmidt, Actuary, Milliman USA, Inc., April 9, 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.