Honorable Joan Huffman, Chair, Senate Committee on State Affairs
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.), Committee Report 2nd House, Substituted
The bill would amend the Government Code to make disclosure and reporting requirement changes for public retirement systems. The bill does not propose to change the benefit structure or obligations of any systems.
The bill would require a public retirement system to notify its sponsoring entity if it receives an actuarial valuation indicating the system's actual contributions are insufficient to achieve an amortization period of 40 years or less. Should the system's amortization period exceed 40 years over several valuations, the public retirement system and its sponsoring entity would be required to formulate and adopt a funding soundness restoration plan that is developed in accordance with the system's governing statute and that is designed to achieve and maintain, by the tenth anniversary of the date on which the final version of the plan is agreed to, an amortization period of no more than 40 years.
Under the bill, a public retirement system and its sponsoring entity would be required to revise the funding soundness restoration plan if the system's actuarial valuation shows that the amortization period exceeds 40 years and the previous funding soundness restoration plan was not adhered to.
The Employees Retirement System of Texas, the Teacher Retirement System of Texas, the Texas County and District Retirement System, the Texas Municipal Retirement System, and the Judicial Retirement System of Texas Plan Two would be exempt from the funding soundness restoration plan requirement.
For the Fort Worth Employees' Retirement Fund, governed by Article 6243i, Revised Statutes, the bill provides for the City of Fort Worth to independently formulate, adopt, and revise as necessary, the funding soundness restoration plan, if required to do so.
A copy of the plan and any change to the plan must be submitted to the State Pension Review Board (PRB) within 31 days of the date the plan or change is agreed to. Additionally, the PRB must be notified every two years of any updates to the progress made towards improved actuarial soundness.
If required to do so, a public retirement system shall adopt a funding soundness restoration plan based on the most recent actuarial valuation study no later than November 1, 2016. The bill, if enacted, would require that the first actuarial valuation study conducted on or after the effective date of the bill must include a recommended contribution rate.
Additionally, the bill would require an actuarial valuation of a public retirement system to include a recommended contribution rate needed for the system to achieve and maintain an amortization period of no more than 30 years.
The bill would also require a public retirement system with assets of at least $100 million or greater to conduct an actuarial experience study once every five years. Public retirement systems subject to this actuarial experience study must conduct the first actuarial experience study no later than September 1, 2016. Public retirement systems that conducted an actuarial experience study after August 31, 2011, and on or before the effective date of this Act would be required to conduct the first actuarial experience study required by this bill no later than the fifth anniversary of the date of the preceding study.
The bill would take effect immediately if it receives the required votes; otherwise, it would take effect on September 1, 2015.
Under the bill, for a system with an amortization period of greater than 40 years, a funding soundness restoration plan would be designed to achieve a contribution rate that would be sufficient to amortize the system's unfunded actuarial accrued liability (UAAL) within 40 years. Under the current PRB Guidelines for Actuarial Soundness, funding should be adequate to amortize the UAAL over a period which should not exceed 40 years, with 15-25 years being a more preferable target. Accordingly, the bill, if enacted, would have a positive actuarial effect on the systems subject to the bill, to the extent that systems and their sponsoring entities formulate and adhere to a funding soundness restoration plan that is actuarially sound.
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.