ACTUARIAL EFFECTS:

HB 1577 would suspend (or reduce, as decided by a court) annuity payments to members of Texas public retirement systems who are convicted of a felony or a class A or class B misdemeanor related to the member’s performance of public service. The proposed legislation could only decrease benefits and the changes in the bill would slightly decrease the cost of the plan, but may not have any material impact on a public retirement system.

According to the actuarial analysis provided by the Employees Retirement System of Texas (ERS), 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 any of the affected plans: ERS, the Law Enforcement and Custodial Officer Supplemental Retirement Fund (LECOSRF), the Judicial Retirement System of Texas Plan One (JRS I), and the Judicial Retirement System of Texas Plan Two (JRS II).

No material impact is anticipated for other Texas public retirement systems.

SYNOPSIS OF PROVISIONS:

The bill would suspend (or reduce, as decided by a court) annuity payments to members of a Texas public retirement system who are convicted of a felony or a class A or class B misdemeanor related to the member’s performance of public service. Payments would be restored if the conviction were overturned on appeal or the member met the requirements for innocence under Section 103.001(a)(2) of the Civil Practice Remedies Code. A retiree whose full annuity payments were resumed would be entitled for reimbursement of the annuity payment withheld during the period of suspension or an active member would be entitled to the restoration of all service credits accrued before the conviction. If a member’s payments were not fully resumed, the member would be eligible to accrue service credit toward a retirement annuity if the member successfully completed a period of community supervision or were completely discharged from a term of confinement. Service credits could only be included if earned before the conviction of the offense or after completion of community supervision or term of confinement. Service credits would be determined by the court. A member, who was deemed ineligible to receive a service retirement annuity, would be entitled to a refund of the member’s retirement contributions, not including interest on those contributions. Benefits payable to an alternate payee under Chapter 804 (QDROs) would not be affected by the member’s ineligibility to receive a service retirement annuity. The provisions of this bill would apply to qualified offences committed on or after the effective date of the Act.

The provisions of this bill would be effective September 1, 2013.

FINDINGS AND CONCLUSIONS:

The actuarial review states that the bill would potentially impact a small number of Texas public retirement system members based on their conviction of a qualifying felony or class A or B misdemeanor as described in the proposed legislation. 

The actuarial review further states that the bill, if enacted, will not change the situation of any affected Texas public retirement system being actuarially sound or unsound.

The bill is not anticipated to have a material actuarial impact on any public retirement system.

METHODOLOGY AND STANDARDS:

The actuarial analysis provided by the ERS 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, 2012 actuarial valuation of ERS.  According to the PRB actuary, the actuarial assumptions, methods and procedures used in the analysis 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 David L. Driscoll, Buck Consultants, March 12, 2013;

Actuarial Review by Mr. Dan P. Moore, Staff Actuary, Pension Review Board, March 21, 2013

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.