*Based on the October 1, 2007 Actuarial Valuation

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

ACTUARIAL EFFECTS:

According to the actuarial analysis and based on the results of the October 1, 2007 actuarial valuation, SB 1628 would decrease, by 0.34%, the normal cost of the San Antonio Fire and Police Pension Fund (SAFPPF) from 25.08% to 24.76%. The proposal would increase the unfunded actuarial accrued liability from $183.0 million to $193.0 million, a total increase of $10.0 million. The proposal would extend the expected period to amortize the unfunded actuarial accrued liability by 0.24 years, from 8.70 years to 8.94 years.

SYNOPSIS OF PROVISIONS:

SB 1628 would, effective October 1, 2009, provide the following changes:

·       Allow members to buy back up to six months of their probation time, with members paying 100%  of the cost; 

·       Provide a 100% of CPI COLA to all members who retired between October 1, 1997 and September 30, 1999, up to 8%, and 75% of CPI above 8%;

·       Extend the 4-year DROP option to 5 years;

·       Increase the benefit for marriage after retirement spouses from $2,500 to $15,000;

·       The minimum age for marriage after retirement widows to receive a benefit is 55, with no COLA before age 55;

·       Remove the requirement for disability retirees to provide a copy of their tax return once they become 65 years of age;

·       Allow Police/Fire chiefs to opt out;

·       Amend a family code reference in Section 6.06;

·       Correct Section 5.03(a-1)(4) from subsection (e) to (d);

·       Estates will be entitled to 13^th and 14^th checks; and

·       Change the surviving spouse/dependent children benefit from 50%/50% to 75%/25%.

FINDINGS AND CONCLUSIONS:

The proposed legislation would allow members to buy back up to six months of their probation time, with members paying 100% of the cost, provide COLAs to all members who retired between October 1, 1997 and September 30, 1999, extend the 4-year DROP option to 5 years, and increase the benefit for marriage after retirement spouses from $2,500 to $15,000.  Other provisions in the bill include removing the requirement for disability retirees to provide a copy of their tax return once they reach the age of 65, changing the surviving spouse/dependent child benefit from 50%/50% to 75%/25%, as well as provisions making administrative changes.

According to the actuarial analysis and based on the results of the October 1, 2007 actuarial valuation, SB 1628 would decrease, by 0.34%, the normal cost of the San Antonio Fire and Police Pension Fund (SAFPPF) from 25.08% to 24.76%. The proposal would increase the unfunded actuarial accrued liability from $183.0 million to $193.0 million, a total increase of $10.0 million. The proposal would extend the expected period to amortize the unfunded actuarial accrued liability by 0.24 years from 8.70 years to 8.94 years.

The PRB reviewing actuary used the results of the October 1, 2008 actuarial valuation to project the actuarial impact of SB 1628. Based on the projections, SB 1628 would decrease, by 0.34%, the normal cost of the San Antonio Fire and Police Pension Fund (SAFPPF) from 26.10% to 25.76%. The proposal would increase the unfunded actuarial accrued liability from $254.1 million to $264.9 million, a total increase of $10.8 million. The proposal would extend the expected period to amortize the unfunded actuarial accrued liability by 0.16 years from 12.03 years to 12.19 years.

METHODOLOGY AND STANDARDS:

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the October 1, 2007 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. 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.

SOURCES:

Actuarial Analysis by Leon F. Joyner Jr., Actuary, Segal, March 18, 2009

Actuarial Review by Mr. Martin McCaulay, Deputy Executive Director/Actuary, Pension Review Board, March 19, 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.