Austin, Texas
April 2, 2019

Honorable Donna Campbell, Chair, Senate Committee on Veteran Affairs & Border Security
John McGeady, Assistant Director     Sarah Keyton, Assistant Director
Legislative Budget Board
SB1598 by Hall (Relating to hazardous duty pay for security officers employed by the Texas Military Department.), As Introduced

Projected as of August 31, 2019
Employees Retirement System of Texas (ERS)
Current  Proposed  Difference
Unfunded Actuarial Accrued Liability (millions) $11,956.60 $11.956.70 $0.10
Funded Ratio 70.10% 70.10% 0%
Amortization Period (years) Infinite Infinite N/A
31-Year Contribution Rate (as a % of payroll) 23.07% 23.07% 0.00%
Actuarial Soundness Unsound Unsound N/A

The Pension Review Board's actuarial review notes that the bill would increase payroll by approximately $53,000, which increases the expected cost of benefits to the plan but does not have an impact on costs when expressed as a percentage of payroll.

According to both statutory and the current PRB Pension Funding Guidelines, ERS is currently actuarially unsound and would remain unsound under the proposed bill
. Per the PRB Pension Funding Guidelines, funding should be sufficient to cover the normal cost and to amortize the UAAL over as brief a period as possible, but not to exceed 30 years, with 10 - 25 years being the preferable target range. ERS statute defines actuarial soundness, for purposes of making modifications to benefit and contribution levels, as no more than 31 years.

The actuarial analysis notes that the bill would not attempt to modify any of the benefit or contribution provisions of ERS that are identified in Section 811.006 of Texas Government Code and is therefore not subject to the amortization period requirements of Section 811.006.

The bill would amend Section 659.301 of the Texas Government Code to include security officers of the Texas Military Department among the state employees eligible to receive hazardous duty pay.

The bill would take effect September 1, 2019.

Allowing the Texas Military Department's security officers to receive hazardous duty pay could affect their retirement benefit because the new pay is considered compensation for benefit calculation purposes. According to the actuarial analysis, the bill would affect approximately 66 individuals and increase annual compensation by approximately $53,000 as of August 31, 2019.

The ERS analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the ERS actuarial valuation for August 31, 2018 and projected to August 31, 2019.

According to the PRB actuary, the actuarial assumptions, methods and procedures are reasonable for the purpose of this analysis. 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.

Actuarial Analysis by R. Ryan Falls, FSA, EA, MAAA, Gabriel, Roeder, Smith & Company, March 13, 2019.

Actuarial Review by Kenneth J. Herbold, ASA, EA, MAAA, Staff Actuary, Pension Review Board, March 13, 2019.

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 sufficient to cover the normal cost and to amortize the UAAL over as brief a period as possible, but not to exceed 30 years, with 10-25 years being the preferable target range.
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: