Based on the August 31, 2016 projected to August 31, 2017 Actuarial Valuation

Employees Retirement System of Texas (ERS)	Current	Proposed	Difference
Employer Contribution	10.00%	10.00%	0.00%
Employee Contribution	9.50%	9.50%	0.00%
Total Contribution	19.50%	19.50%	0.00%
Normal Cost (% of payroll)	12.28%	12.25%	-0.03%
Unfunded Actuarial Accrued Liability (millions)	$9,481.90	$9,494.50	$12.60
Amortization Period (years)	38	38	0

ACTUARIAL EFFECTS
The bill would not change the amortization period of the Employees Retirement System of Texas (ERS) from 38 years. Although the bill would have a material impact on future elected class members benefits, it would not have a large impact on ERS as a whole since the elected class represents a small portion of all members in ERS. The bill would cause a decrease in the cost of benefits provided by ERS to future elected class members. It would not affect benefits promised to current members, and as such, the value of the total projected benefits at retirement is unchanged.

According to the ERS actuarial analysis, the bill would decrease the normal cost rate by 0.03 percent of payroll, from 12.28 percent to 12.25 percent, and increase the actuarial accrued liability (AAL) and unfunded actuarial accrued liability (UAAL) by $12.6 million. The analysis also states that the modest increase in the AAL would be far outweighed by the decrease in the normal cost rate for future elected class members.

The actuarial analysis found that the bill would not attempt to modify any of the benefit or contribution provisions identified in Section 811.006, and as such, could be enacted while the State contributions to ERS remain less than the contribution amount required for the system to meet the statutory 31-year amortization limit.

SYNOPSIS OF PROVISIONS
The bill would create Section 814.013(c), Government Code, which states that the standard service retirement annuity for service in the elected class of membership, all of which was earned as a member of the legislature, would be an amount equdit in that class, times two percent oy the Act would be applicable only for a person who is first eligible to become a member of the elected class on or after September 1, 2017.

The bill would be effective September 1, 2017.

FINDINGS AND CONCLUSIONS
The bill would reduce service retirement benefits for certain elected class members who first enter the elected class on or after September 1, 2017. Under the bill, the salary figure used for computing benefits would be frozen at $140,000, the 2017 pay level for a district judge, and there would not be post-retirement adjustments to the benefit level, as there are now. The multiplier would also be reduced from 2.3 percent to 2.0 percent.

The actuarial review noted that ERS is currently actuarially sound.  The bill, if enacted, will not change the amortization period of ERS from 38 years. The actuarial review also found that the actuarial analysis prepared by Gabriel, Roder, Smith & Company (GRS) is a reasonable estimate of the changes due to the bill.

The bill, if enacted, would decrease the cost of benefits provided by ERS to certain future members of the elected class. Because the bill would reduce benefits, it would result in a small cost savings. The actuarial analysis states that the bill would have a material impact on future elected class member benefits. The bill would not affect benefits promised to current members.

The ERS actuarial analysis also estimates that the bill would reduce the actuarially sound contribution rate from 20.17 percent to 20.16 percent of payroll.

METHODOLOGY AND STANDARDS
The ERS analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the ERS actuarial valuations for August 31, 2016 projected to August 31, 2017. According to the PRB actuaries, 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. This analysis is based on the assumption that no other legislative changes affecting the funding or benefits of ERS will be adopted. It should be noted that when several proposals are adopted, the effect of each may be compounded, resulting in a cost that is greater (or less) than the sum of each proposal considered independently.

SOURCES
Actuarial Analysis by Ryan Falls, FSA, EA, MAAA, Gabriel, Roder, Smith & Company, March 16, 2017.
Actuarial Review by Kenneth J. Herbold, ASA, EA, MAAA, Staff Actuary, Pension Review Board, April 7, 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.
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)