In response to your request for an Actuarial Impact Statement on Committee Substitute for CSHB 246 (relating to the eligibility for service retirement annuities of certain elected officials convicted of certain crimes) within the Employees Retirement System of Texas (ERS) the Pension Review Board has determined the following:

ACTUARIAL EFFECTS:

According to the actuarial analysis, benefits could only decrease under the proposed legislation, and the changes in the bill would decrease the cost of the plan, but have no material impact on ERS.

SYNOPSIS OF PROVISIONS:

CSHB 246 would prohibit certain elected class members convicted of a qualifying felony on or after September 1, 2011, from receiving a service retirement annuity from the retirement system. The proposed section would apply only to members of the legislature and statewide elected officials (except JRS I or JRS II members), as members of the elected class of the ERS. A qualifying felony is defined as any felony involving bribery; embezzlement, extortion, or other theft of public money; perjury; or conspiracy or the attempt to commit any of the aforementioned crimes arising directly from the official duties of such elected office. 

Members ineligible to receive a service retirement annuity under the proposal would be entitled to a refund of their retirement annuity contributions, including interest earned on those contributions. CSHB 246 also provides for a resumption of future annuity payments for these members whose conviction is overturned.

The provisions of this bill would be effective September 1, 2011.

FINDINGS AND CONCLUSIONS:

According to the actuarial analysis, benefits could only decrease under the proposed legislation, and the changes in the bill would decrease the cost of the plan, but have no material impact on ERS. The actuarial review states that the proposed bill would potentially impact a small number of ERS members based on their conviction of a qualifying felony; hence, there is no cost increase, and no material cost decrease due to the bill. Additionally, based on the information provided by ERS, CSHB 246 would have no significant fiscal impact on ERS.  

METHODOLOGY AND STANDARDS:

The analysis assumes no further changes are made to ERS and cautions that the combined economic impact of several proposals can exceed the effect of each proposal considered individually.  The ERS analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the August 31, 2010 actuarial valuation of ERS.  According to the PRB actuary, the actuarial assumptions, methods and procedures used in the analysis appears 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 Richard A. Mackesey & R. Ryan Falls, Actuaries, Buck Consultants, March 4, 2011.

Actuarial Review by Mr. Daniel P. Moore, Staff Actuary, Pension Review Board, March, 25, 2011.

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.