Honorable Joan Huffman, Chair, Senate Committee on State Affairs
FROM:
John McGeady, Assistant Director Sarah Keyton, Assistant Director Legislative Budget Board
IN RE:
HB2763 by Flynn (relating to the police pension fund in certain municipalities.), Committee Report 2nd House, Substituted
No significant fiscal implication to the State is anticipated.
The bill would amend the Acts of the 75th Legislature, 1997 (Acts), to modify the police pension fund for the City of Galveston.
The bill would amend Section 1.04 of Acts to add certain definitions for the chapter.
The bill would amend Sections 2.02 and 2.03 of Acts to increase the number of trustees from seven to eight, to modify the composition of the board of trustees, to set the qualifications of a trustee, to modify the election procedure for trustees, and to detail training required to be a trustee.
The bill would add Section 2.10 of Acts to prohibit a new monetary benefit payable by the pension fund or the increase in the amount of a monetary benefit if that action would increase the unfunded actuarial liabilities of the pension fund beyond 25 years.
The bill would add Section 2.11 of Acts to require that the assumptions and methods adopted by the board and used to prepare an actuarial valuation comply with generally accepted accounting standards. Any assumed rate of return adopted by the board must be reviewed as part of each actuarial valuation conducted on or after January 1, 2020.
The bill would add Section 2.12 of Acts to require the board to adopt an assumed rate of return of seven percent for any actuarial valuation conducted on or after September 1, 2019 and before January 1, 2020.
The bill would amend Section 6.01 of Acts to set the member contribution to 12 percent of a member's monthly wages. This represents an increase from the statutory range of one to 10 percent; however, this change would conform with the existing level of member contribution as determined by the Board in March 2008.
The bill would amend Section 6.03 of Acts to set the contribution of the municipality to 18 percent of payroll and compensation for each member and details the method for calculating this contribution.
The bill would amend Section 6.04 of Acts to set certain procedures for reimbursement of the fund for negative financial impacts due to unilateral actions taken by the municipality including reductions in force.
The bill would amend Section 11.01 to modify certain voting thresholds to reflect a larger board, to specify certain elements of the pension plan that may be modified by a vote of the board, and to prohibit modification of contribution rates specified in the bill before January 1, 2025. If after this date the most recent actuarial valuation would recommend an actuarial determined contribution rate exceeding existing contribution rates the board would be required to increase contribution rates to this level by rule.
The bill would take effect immediately if it receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this bill does not receive the vote necessary for immediate effect, this bill would take effect September 1, 2019.
Local Government Impact
According to the City of Galveston, the current contribution by the city is 14.83 percent. The increase in municipal contribution in the bill would result in an anticipated increase in cost to the municipality of $503,080 in fiscal year 2020 and beyond. This would represent a 0.3 percent increase in the overall budget of the city and a 2.4 percent increase in the budget of the police department.
Under current PRB Pension Funding Guidelines, funding should be sufficient to cover the normal cost and to amortize the unfunded actuarial accrued liability over as brief a period as possible, but not to exceed 30 years, with 10 to 25 years being the preferable target range. According to this criteria, the Plan is currently actuarially unsound. The bill would improve expected future funding, and the unfunded actuarial accrued liability would be expected to be fully amortized in 30 years.