·         Modifies the definition of Normal Retirement Date to include the attainment of 23 years of service  

·         Allows employees of the City of Austin who have met the eligibility requirements for retirement in COAERS and are working in a position required to participate in another City of Austin retirement system, to continue to work full-time for the City and draw a pension from COAERS

FINDINGS AND CONCLUSIONS:

HB 1979 amends several sections of the Vernon’s Texas Civil Statutes that apply to the City of Austin Employees’ Retirement System (COAERS). The bill modifies statutory retirement eligibility and changes statutes to allow employees of the City of Austin who have met the eligibility requirements for retirement in COAERS and are working in a position required to participate in another City of Austin retirement system, to continue to work full-time for the City while drawing a pension from COAERS.

If enacted, HB 1979 would modify the definition of Normal Retirement Date and Normal Retirement Age to include the attainment of 23 years of service.  This change encodes in statute that members are eligible for retirement after 23 years of service, regardless of age. This policy was adopted by the Board of Trustees about 10 years ago, and has been incorporated into actuarial valuations since that time, however the change has not been incorporated into Texas statutes. 

HB 1979 would also allow employees of the City of Austin who have met the eligibility requirements for retirement in COAERS and are working in a position required to participate in another City of Austin retirement system, to continue to work full-time for the City while drawing a pension from COAERS.  Due to the transfer of the PSEM department of the City of Austin from membership in COAERS to membership in APRS and with the recent addition of APRS to the PRP, the provision relating to transferred participants will impact dozens of the 4,561 current inactive members of COAERS. Although the changes made by HB 1979 would have no effect on the system’s normal cost; they are expected to add approximately $1.1 million in liability to the System. This will raise the 30-year funding costs of the System by approximately 0.02% of pay.

According to the actuarial analysis, although the cost was developed as a stand-alone bill, the impact of HB 1979 would be reduced from 0.02% of payroll to 0.01% of payroll if it is combined with the transfer of the PSEM department of the City of Austin from membership in COAERS to membership in APRS, and with APRS joining the PRP.

The System is currently actuarially unsound, and HB 1979, if enacted, will make the System slightly more actuarially unsound using the current 10% City contribution rate. The contribution rate is scheduled to increase to 12% on October 1, 2010, at which time the system would become actuarially sound, based on the December 31, 2007 actuarial valuation. On that basis, passage of the bill would make the System slightly less actuarially sound after October 1, 2010.

METHODOLOGY AND STANDARDS:

For this actuarial analysis, it has been assumed that all known members of the APRS, particularly those in PSEM, who currently have service with COAERS will retire from COAERS immediately upon attaining eligibility for normal retirement under COAERS.

The analysis assumes no further changes are made to City of Austin Employees’ Retirement System and cautions that the combined economic impact of several proposals can exceed the effect of each proposal considered individually. Except otherwise noted, the analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the December 31, 2008 actuarial valuation of COAERS. 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 Joseph P. Newton, Actuary, Gabriel Roeder Smith and Company, March 24, 2009

Actuarial Review by Mr. Martin McCaulay, Deputy Executive Director/Actuary, Pension Review Board, March 26, 2009

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 II benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.