LEGISLATIVE BUDGET BOARD

Austin, Texas

FISCAL NOTE, 82ND LEGISLATIVE REGULAR SESSION

April 25, 2011

TO:	Honorable Vicki Truitt, Chair, House Committee on Pensions, Investments & Financial Services
FROM:	John S O'Brien, Director, Legislative Budget Board
IN RE:	HB2261 by Zedler (Relating to the computation of retirement benefits by a public retirement system.), As Introduced

No significant fiscal implication to the State is anticipated.

The bill would exclude overtime from the salary base used for calculation of pension benefits. Overtime is already excluded for the Employees Retirement System. The Teacher Retirement System (TRS) does not specifically include overtime in their calculations, but acknowledges that some employers may include overtime in their salaries. So TRS could have some savings from the proposal, but the amounts are unknown.

Local Government Impact

Local governments would likely face relatively small short-term costs and significant long-term savings if the bill were implemented.

Local governments would experience long-term savings associated with reduced retirement payments. Savings would vary depending on the number of employees, current record-keeping practices and amount of paid overtime. Savings to local governments could potentially be significant, even if the proposal were not applied retroactively. Applying the overtime restriction retroactively could be in conflict with the Texas Constitution, Article 16, Section 66 which protects against the impairmant of a member's accrued benefit.

Texas Municipal Retirement System (TMRS) estimated one-time costs of $780,000 to pay the equivalent of nine full-time employees for one year to implement the provisions of the bill; these costs would be passed on to local governments. TMRS uses a savings-based plan rather than a traditional defined benefit plan – benefits are calculated over the entire term of employment, rather than a specific period of time. Additionally, cities report total compensation to TMRS when calculating benefits. TMRS noted that their analysis assumes that the overtime exclusion applies retrospectively – future retirees would still face overtime exclusion for compensation, requiring identifying overtime payments for all past work of retiring employees; if it were determined that overtime exclusion did not apply retroactively costs would be considerably lower and would not be significant.
 
Texas County and District Retirement Systems (TCDRS) is also a savings-based plan that doesn’t currently distinguish between regular pay and overtime. TCDRS anticipates costs of $30,000 to implement the provisions of the bill. TCDRS noted that this analysis assumes that the overtime exclusion would not apply retroactively; costs would likely be higher if it were determined that it would.

Source Agencies:

323 Teacher Retirement System, 327 Employees Retirement System

LBB Staff:

JOB, AG, SD, WM, KKR