TO: | Honorable Bill Callegari, Chair, House Committee on Pensions |
FROM: | Ursula Parks, Director, Legislative Budget Board |
IN RE: | HB3356 by Callegari (Relating to contributions to, benefits from, and the administration of certain public retirement systems.), Committee Report 1st House, Substituted |
The bill would require local retirement plans' sponsors to adopt a funding policy designed to achieve a funding ratio of 100 percent, with contributions that are adequate to pay normal cost and amortize unfunded liabilities within 25 years (25 year funding). If plan actuarial valuations showed they did not achieve a 25 year funding level within 6 years, the plan sponsor would have to submit a corrective action plan to the Pension Review Board. This would have to be resubmitted every three years until the retirement plans were in compliance. Texas Municipal Retirement System and Texas County and District Retirement System are exempted from these requirements.
Additionally, local retirement plans would not be able to improve benefits unless plan contributions were at a 25 year funding level after the improvements. Larger plans would have to conduct actuarial experience studies at reasonable intervals, which could add some administrative costs to plans that are not currently conducting such studies.
Currently, public plans are not required by state or federal law to maintain any given level of funding. The current Governmental Accounting Standards Board (GASB) accounting requirements require plans to compare their contributions with an Annually Required Contribution (ARC) which is equivalent to a 30 year funding level.
Methodology:
The LBB estimates that the requirement that plans receive contributions at a 25 year funding level would mean that for most plans there would be approximately a 10 percent increase in the contributions applied to amortize the unfunded liability versus a 30 year funding level. For example, if a plan had a 12 percent normal cost and an additional 8 percent was required to amortize the liabilities in 30 years for a total of 20 percent, the plan would need to receive contributions of approximately 20.8 percent for a 25 year funding level.
Based on their most recent actuarial valuations posted to their websites, local impact to plans and employees from the bill for several retirement plans is estimated by Legislative Budget Board staff as follows:
City of Austin Employees Retirement System: Based on the 2011 valuation, their funding period is 27.1 years, with contributions of 16 percent of payroll. Under the bill, their contribution rate would increase to 16.2 percent, for an annual cost of approximately $0.9 million.
El Paso Firemen's Pension Fund: Based on the 2012 valuation, their funding period is 76 years with employer contributions of 18.5 percent of payroll. The employer 30 year funding level is 23.82 percent, which would cost the city $2.7 million. Under the bill, their contribution rate is estimated to increase to 25 percent, for an annual cost of approximately $3.2 million over current contributions.
Houston Municipal Employees Pension System: Based on the 2011 valuation, their funding period is 30.0 years, with contributions of 23.45 percent of payroll. Under the bill, their contribution rate would increase to 25.3 percent, for an annual cost of approximately $10.5 million.
Source Agencies: | 323 Teacher Retirement System, 325 Fire Fighters' Pension Commissioner, 327 Employees Retirement System, 304 Comptroller of Public Accounts
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LBB Staff: | UP, RB, EP, EMo, PFe, WM, TP, JJO, JW
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