ACTUARIAL EFFECTS
The bill would make several administrative changes to the Texas Emergency Services Retirement System (TESRS), including two key additions that the actuarial analysis (AA) indicated could have a positive actuarial impact on the System. The AA indicates 1) the expansion of who would be allowed to participate would likely have an overall positive actuarial impact on the plan due to increased contributions and 2) the bill would provide the TESRS board sufficient latitude to adopt rules regarding how participating departments withdraw such that the impact to the plan would be neutral. The TESRS AA notes the majority of the other changes in the bill would be administrative in nature and have no actuarial impact on the condition of the system. None of the changes in the bill would have a direct impact on existing benefit or contribution levels.

Under the current Pension Review Board (PRB) Pension Funding Guidelines, funding should be adequate to amortize the unfunded actuarial accrued liability over a period which should not exceed 30 years, with 10 - 25 years being a more preferable target. TESRS statute defines actuarial soundness, for purposes of determining if State contributions are necessary, as no more than 30 years. TESRS is currently actuarially sound; under the bill, TESRS would continue to require State appropriations to be actuarially sound.

SYNOPSIS OF PROVISIONS
In addition to making various administrative changes, the bill would broaden the definition of "participating department" to include not-for-profit entities that perform emergency services and would expand the definition of eligible members to include any person who performs emergency or support services as a volunteer or paid emergency employee for a participating department.

The bill would also permit the TESRS Board of Trustees to adopt rules allowing a participating department to terminate participation from the System in "a manner that maintains an actuarially sound pension system."

The bill would take effect September 1, 2019.

FINDINGS AND CONCLUSIONS
The PRB actuarial review states that the changes would not have an immediate, direct impact on the plan but changes in participating departments' behavior could have an impact. In particular, the ability for an employer to terminate participation in the plan is a significant change in how the plan is administered. The TESRS board should have broad latitude to determine how the process should occur and how to define what would constitute "in a manner that maintains an actuarially sound pension system." The AA states the TESRS Board would adopt rules to likely require a lump sum contribution by the terminating department in order to offset any adverse effect on the System as a means to accomplish this goal.

However, the AR further states, the TESRS board should have broad authority regarding how to value the terminating liability and should not be constrained by the assumptions and methods used for determining the ongoing funding liability of the plan. If the TESRS board is not given broad latitude in setting these rules, the result could have a significant negative impact on the plan and future funding requirements by both participating departments and the State, due to the remaining parties needing to cover the costs of the terminating department.

The bill would not have an immediate, direct impact on any current members, but could impact current members whose departments elect to withdraw from participation in the future.

SOURCES
Actuarial Analysis by Mark R. Fenlaw, FSA, and Rebecca B Morris, ASA, Rudd and Wisdom, Inc., March 29, 2019.

Actuarial Review by Kenneth J. Herbold, ASA, EA, MAAA, Staff Actuary, Pension Review Board, April 1, 2019.