Honorable Sarah Davis, Chair, House Committee on General Investigating & Ethics
Ursula Parks, Director, Legislative Budget Board
HB500 by Geren (Relating to the effect of certain felony convictions of public elected officers.), As Introduced
ACTUARIAL EFFECTS The bill would add Section 810.002 to Chapter 810 of the Texas Government Code, which would make certain elected officials who are convicted of a qualified felony related to the member's performance of public service, ineligible for retirement annuity.
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. In addition, the Texas County & District Retirement System (TCDRS) and the Texas Municipal Retirement System (TMRS) have indicated the bill would not have a material impact on their respective system.
The Pension Review Board (PRB) believes the bill could potentially impact these and other Texas public retirement systems; however, it would not have a material impact on any system.
SYNOPSIS OF PROVISIONS The bill would add Section 810.002 of the Texas Government Code, which would make certain elected officials who are convicted of a qualified felony related to the member's performance of public service, ineligible for retirement annuity. A qualifying felony is defined as any felony involving bribery; embezzlement, extortion, or other theft of public money; perjury; coercion of public servant or voter; tampering with governmental record; misuse of official information; conspiracy or the attempt to commit any of these crimes; or abuse of official capacity. Domestic relations orders that are established prior to January 8, 2019 would not be affected by the proposed changes. A court may choose to reward half of the service retirement annuity that is forfeited by the member to an innocent spouse upon the conviction of a member for a qualifying felony. A member who is not eligible to receive a service retirement annuity under the proposal would be entitled to a refund of the member's retirement contributions, which includes any interest on those contributions. Payments would be restored, with interest, 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 and the member repays all refunded contributions and interest thereon. The provisions of this bill would apply to qualified offences committed on or after the effective date of the bill.
The provisions of this bill would be effective January 8, 2019.
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 as described in the proposed legislation.
The actuarial review further states that the bill, if enacted, would not change the situation of any affected Texas public retirement system 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.)
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, 2016 actuarial valuation, projected to August 31, 2017, of ERS. According to the PRB staff 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 R. Ryan Falls, FSA, EA, MAAA, Gabriel Roeder Smith & Company, January 30, 2017;
Actuarial Review by Kenneth J. Herbold, ASA, EA, MAAA, Staff Actuary, Pension Review Board, January 30, 2017
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).