Honorable Jane Nelson, Chair, Senate Committee on Finance
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
HB3898 by Anchia (relating to the funding of public retirement systems.), Committee Report 2nd House, Substituted
COST ESTIMATE
The bill would amend the Government Code to strengthen and clarify the funding policy and funding soundness restoration plan (FSRP) requirements and to align them with Pension Review Board (PRB) Pension Funding Guidelines.
SYNOPSIS OF PROVISIONS
The bill would amend Government Code Section 802.2011 to change existing funding policy provisions for systems that are not statewide retirement systems to require the sponsoring entity of a public retirement system to be included in funding policy development. The bill would require revision of the funding policy to reflect any significant changes that are a result of an FSRP, and the revised funding policy must include any automatic contribution or benefit changes designed to avoid the need for future revised FSRPs. A copy of the most recent funding policy must be posted online.
Additionally, the bill would amend Government Code Sections 802.2015 and 802.2016 to make several changes to the FSRP requirements. It would lower the FSRP amortization period trigger from 40 to 30 years for systems that receive three consecutive annual actuarial valuations or two consecutive valuations (if the system conducts valuations every two or three years) with amortization periods above the trigger. The bill would also introduce a tiered trigger. Effective September 1, 2025, if a system's amortization period is greater than 40 years, or greater than 30 years with a funded ratio below 65 percent, the FSRP requirement would be triggered immediately.
The bill would give public retirement systems two years rather than six months to develop an FSRP, but effective September 1, 2025, the bill would require the system to achieve a target amortization period of 30 years within two years, rather than within 10 years under the current provisions. If another FSRP is triggered within 10 years of adoption of the initial FSRP, the revised plan must target a 25-year amortization period. Revised FSRPs are not required if the amortization period is between 30 and 40 years; the system is implementing or will ultimately use an actuarial determined contribution rate; and the actuarial valuation shows that the system is expected to achieve full funding.
The bill would require an FSRP to be adopted by both the retirement system and its sponsoring entity at open meetings and it may not include items requiring future action. Additionally, it would allow a retirement system 90 days to submit an actuarial valuation as part of their ongoing reporting to the PRB which shows the combined impact of all changes under the adopted FSRP. If none was provided, the PRB may request a system to provide a separate analysis within 90 days of the request. The associated governmental entity may pay all or part of the cost.
Lastly, the bill would allow systems and their sponsors that have already developed an FSRP prior to the bill's effective date to continue working toward the targets previously established in statute unless a revised FSRP is triggered. If a revised FSRP is triggered, the 30-year amortization period target established by this bill would apply.
FINDINGS AND CONCLUSIONS
The bill does not have a direct actuarial impact because it does not propose to change the benefit structure or obligations of any systems. However, it would have a positive actuarial effect on the systems to the extent that the systems and their sponsoring entities adopt and adhere to a funding policy that is actuarially sound.