Honorable Dan Flynn, Chair, House Committee on Pensions
FROM:
Ursula Parks, Director, Legislative Budget Board
IN RE:
HB681 by Sheets (Relating to the eligibility for service retirement annuities of certain persons, including elected officials convicted of certain crimes.), As Introduced
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.
SYNOPSIS OF PROVISIONS HB 681 would prohibit certain elected class members convicted of a qualifying felony on or after September 1, 2015, from receiving a service retirement annuity from ERS. 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.
Members ineligible to receive a service retirement annuity under the proposal would be entitled to a refund of their retirement contributions, including interest earned on those contributions. HB 681 also provides for a resumption of future annuity payments for these members whose conviction is overturned. Benefits payable to an alternate payee (QDRO's) are not affected by the member's ineligibility to receive a service retirement annuity. The provisions of this bill would be effective September 1, 2015.
FINDINGS AND CONCLUSIONS According to the actuarial analysis, the bill would have no effect on the ERS Actuarial Accrued Liability (AAL), Unfunded Actuarial Accrued Liability (UAAL), Normal Cost Rate, or any other projected August 31, 2015 actuarial valuation results.
The actuarial review states that the bill would potentially impact a small number of ERS members based on their conviction of a qualifying felony. The actuarial review also states that ERS is currently actuarially unsound. The bill, if enacted, would not change the amortization period of ERS from infinite. Under the current PRB guidelines for actuarial soundness, funding should be adequate to amortize the unfunded actuarial accrued liability over a period which should never exceed 40 years, with 15-25 years being a more preferable target. (ERS has a 31-year amortization limit set in its statute.)
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 in the ERS actuarial valuation for August 31, 2014 and mid-year valuation as of February 28, 2015. 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 Mr. R. Ryan Falls, Senior Consulting Actuary and Mr. Joseph P. Newton, Senior Consulting Actuary, Gabriel, Roeder, Smith & Company, March 18, 2015. Actuarial Review by Mr. Daniel P. Moore, Staff Actuary, Pension Review Board, March 20, 2015.