LEGISLATIVE BUDGET BOARD
Austin, Texas
 
ACTUARIAL IMPACT STATEMENT
 
82ND LEGISLATIVE REGULAR SESSION
 
May 17, 2011

TO:
Honorable Vicki Truitt, Chair, House Committee on Pensions, Investments & Financial Services
 
FROM:
John S O'Brien, Director, Legislative Budget Board
 
IN RE:
SB812 by Zaffirini (Relating to the resumption of employment by certain retirees within the Texas Municipal Retirement System.), Committee Report 2nd House, Substituted


Established in 1947, the Texas Municipal Retirement System (TMRS) is the statewide system, which administers retirement, disability, and death benefits for employees of those Texas cities which voluntarily elect to participate in the system.  The plan of each of the 837 participating cities is separately funded; funding is provided by employee contributions at a percentage of compensation selected by the city, and by employer contributions actuarially determined as necessary to provide the level of benefits selected. 

 

ACTUARIAL EFFECTS:

 

The provisions of CSSB 812 would, if enacted, allow an individual who has retired from a TMRS city, and who becomes re-employed by that same city after at least eight years since the date of retirement to receive an additional benefit on top of the benefits earned during the time of re-employment.

 

According to the Actuarial Analysis, the bill, if enacted, would likely affect a small number of members, which would be a slight cost to the re-employing cities. The funding requirements and cost impact are the responsibility of the member cities of TMRS; therefore, the changes under CSSB 812 are not expected to have an actuarial impact on TMRS as a system. In addition, the changes proposed by CSSB 812 are not expected to have any material effect on the actuarial status of TMRS; nor would there be any long-term actuarial impact expected on any TMRS municipality or on TMRS in total.

 

There would be a slight cost impact to the individual re-employing city (not the System as a whole). Because the annual actuarial valuation assumes all retirees will continue to be paid monthly benefits until death, any suspended benefit payments produce an actuarial gain in the following yearís valuation. Therefore, the lump sum payment of previously forfeited payments, both prior to and after the effective date of CSSB 812, if passed, would generate an actuarial loss equivalent to the cumulative value of the prior yearís actuarial gains. 

 

SYNOPSIS OF PROVISIONS:

 

CSSB 812, to be effective immediately if receiving required votes or if not, September 1, 2011, would provide the following changes:

 

 

CSSB 812 applies only to a member of TMRS who terminates employment with the personís re-employing municipality on or after the effective date of CSSB 812, if passed.

 

 

 

FINDINGS AND CONCLUSIONS:

 

Currently, TMRS retirement benefits are suspended upon full-time retiree re-employment with the same employer, with an additional benefit accruing during the re-employment period based only on the memberís contributions made during the period. The provisions of CSSB 812 would, if enacted, allow an individual who has retired from a TMRS city, and who becomes re-employed by that same city after at least eight years since the date of retirement to receive a lump-sum payment of suspended benefits for the re-employment period upon subsequent (final) retirement. Any additional benefit accruals due to the contributions and interest into the new account established upon returning to work would be separately accounted for as under current law.

 

The funding requirements and cost impact are the responsibility of the member cities of TMRS; therefore, the changes under CSSB 812 are not expected to have an actuarial impact on TMRS as a system. In addition, the changes proposed by CSSB 812 are not expected to have any material effect on the actuarial status of TMRS; nor would there be any long-term actuarial impact expected on any TMRS municipality or on TMRS in total.

 

Because the annual actuarial valuation assumes all retirees will continue to be paid monthly benefits until death, any suspended benefit payments produce an actuarial gain in the following yearís valuation. Therefore, the lump sum payment of previously forfeited payments, both prior to and after the effective date of CSSB 812, if passed, would generate an actuarial loss equivalent to the cumulative value of the prior yearís actuarial gains. According to the Actuarial Analysis, there are only six members in the entire System currently working for the same TMRS city from which they retired and returned to work for that city 96 or more months after their effective date of retirement. The value of the suspended benefits for these members is about $250,000, which could be viewed as the current cost of the bill. The PRB estimated present value of future gains forgone in perpetuity from future suspended payments and future retirees would be about $1.1 million (based on $77,388 annual annuity now suspended using the 7.00% assumed rate of return). Based on these two components, the estimated cost of the bill as a present value is $1.35 million.

 

METHODOLOGY AND STANDARDS:

 

The analyses rely on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the December 31, 2009 actuarial valuation of TMRS. The analysis assumes no further changes are made to TMRS and cautions that the combined economic impact of several proposals can exceed the effect of each proposal considered individually. 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 Mr. Mark R. Randall, Executive Vice-President, and Mr. Joseph P. Newton, Senior Consultant, Gabriel, Roeder, Smith & Company, April 21, 2011.

Actuarial Review by Mr. Daniel P. Moore, Staff Actuary, Pension Review Board, April 22, 2011.

 

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.

 

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.



Source Agencies:
338 Pension Review Board
LBB Staff:
JOB, WM