Honorable Dan Flynn, Chair, House Committee on Pensions
FROM:
Ursula Parks, Director, Legislative Budget Board
IN RE:
HB3310 by Paul (Relating to the funding policies, actuarial valuations, and reporting requirements of certain public retirement systems.), As Introduced
House Bill 3310 would amend Chapter 802 of the Government Code to make disclosure and reporting requirement changes for public retirement systems. The bill would require an actuarial valuation of a public retirement system to include an actuarially determined contribution (ADC).
Additionally, HB 3310 would require a public retirement system and its sponsoring entity to formulate and adopt a funding policy that would enable the system to achieve and maintain actuarial soundness. An adopted funding policy would establish a funding level based on the ADC. The retirement system and its sponsoring entity, in consultation with the system's actuary, would be required to develop the ADC needed to achieve and maintain an amortization period (years to amortize an unfunded liability) that is in accordance with the Pension Review Board's (PRB) Guidelines for Actuarial Soundness. A retirement system would be required to submit a copy of the policy to the PRB.
If a public retirement system receives three consecutive annual actuarial valuations, or two consecutive valuations (if the system conducts valuations every two or three years), that indicate a funding level insufficient to meet the requirements of the funding policy, the system and the sponsoring entity would be required to develop a written plan with specific measures to restore funding to a level adequate to achieve and maintain the amortization period adopted in the funding policy. The bill would require that a copy of this plan be submitted to the PRB.
The bill would require a public retirement system with assets of at least $100 million or greater to conduct an actuarial experience study once every five years. Most statewide retirement systems would be exempt from the funding policy requirements.
A public retirement system would adopt a funding policy based on the most recent actuarial valuation study no later than November 1, 2016. HB 3310 would require that the first actuarial valuation study conducted on or after the date the funding policy is adopted must include an actuarially determined contribution. The bill would take effect immediately if it receives the required votes; otherwise, it would take effect on September 1, 2015.
To fulfill the provisions of HB 3310, public retirement systems would have to adopt a funding policy with a funding level that would enable a system to achieve and maintain an amortization period that is in accordance with the PRB's Guidelines, which currently establish a maximum amortization period of 40 years, with a preferable target of 15-25 years. The bill would have a positive actuarial effect on the systems to the extent that systems and their sponsoring entities adopt and adhere to a funding policy that is actuarially sound.
The bill would not change the benefit structure or obligations of any systems.
Retirement systems subject to the experience study requirement under the bill may have to incur additional administrative costs with regards to conducting an actuarial experience study.