LEGISLATIVE BUDGET BOARD
Austin, Texas
 
ACTUARIAL IMPACT STATEMENT
 
84TH LEGISLATIVE REGULAR SESSION
 
March 29, 2015

TO:
Honorable Joan Huffman, Chair, Senate Committee on State Affairs
 
FROM:
Ursula Parks, Director, Legislative Budget Board
 
IN RE:
SB19 by Taylor, Van (Relating to the ethics of public officers and related requirements; creating criminal offenses.), As Introduced

ACTUARIAL EFFECTS
The bill would suspend (or reduce, as decided by a court) annuity payments to members of Texas public retirement systems who hold or have held an elective office who are convicted of a felony related to the members' 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), the proposal considered here does not attempt to modify any of the benefit or contribution provisions that could trigger the 31-year amortization limits as set in Government Code Section 811.006. As a result, it is the actuary's opinion that this proposal could be enacted while the State contributions to ERS remain less than the contribution amounts outlined in Section 811.006.

The actuarial review notes that the bill, if enacted, would not change the situation of the affected public retirement systems being actuarially sound or unsound.  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 and TRS have 31-year amortization limits set in their statutes.) No material impact is anticipated for Texas public retirement systems.

SYNOPSIS OF PROVISIONS
The bill would suspend (or reduce, as decided by a court) annuity payments to members of Texas public retirement systems who hold or have held an elective office who are convicted of a felony related to the members' performance of public service. The court convicting the public official must make affirmative findings determining that the offence committed was related to their public service. Payments would be restored if the conviction is overturned on appeal or the member meets the requirements for innocence under Section 103.001(a)(2) of the Civil Practice Remedies Code.
 
A retiree whose full annuity payments are 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.

A member, who is deemed ineligible to receive a service retirement annuity, is 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) are not 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.

These provisions apply only to an offense committed on or after the effective date of the bill.  
The bill contains other provisions relating to the ethics of public officers and related requirement. 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 elected public official members of Texas public retirement systems based on their conviction of a qualifying felony as described in the bill. 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 actuarial analysis provided by the ERS assumes no further changes are made to ERS.  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 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 would 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 Consultant, Gabriel, Roeder, Smith & Company, March 26, 2015;
Actuarial Review by Mr. Dan P. Moore, Staff Actuary, Pension Review Board, March 27, 2015
 
GLOSSARY
Actuarial Accrued Liability (AAL) - The portion of the PVFB that is attributed to past service.
Actuarial Value of Assets (AVA) - The smoothed value of system's assets.
Amortization Payments - The yearly payments made to reduce the Unfunded Actuarial Accrued Liability (UAAL).
Amortization Period - The number of years required to pay-off the unfunded actuarial accrued liability. The State Pension Review Board recommends that 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. An amortization period of 0-15 years is also a more preferable target. 
Actuarial Cost Method - A method used by actuaries to divide the Present Value of Future Benefits (PVFB) into the Actuarial Accrued Liability (AAL), the Present Value of Future Normal Costs (PVFNC), and the Normal Cost (NC).
Funded Ratio (FR) - The ratio of actuarial assets to the actuarial accrued liabilities.
Market Value of Assets (MVA) - The fair market value of the system's assets.
Normal Cost (NC) - The portion of the PVFB that is attributed to the current year of service. Present Value of Future Benefits (PVFB) - The present value of all benefits expected to be paid from the plan to current plan participants.
Present Value of Future Normal Costs (PVFNC) - The portion of the PVFB that will be attributed to future years of service.
Unfunded Actuarial Accrued Liability (UAAL) - The Actuarial Accrued Liability (AAL) less the Actuarial Value of Assets (AVA).


Source Agencies:
338 Pension Review Board
LBB Staff:
UP, EP, EMo, KFa