Honorable Giovanni Capriglione, Chair, House Committee on Pensions, Investments & Financial Services
FROM:
Jerry McGinty, Director, Legislative Budget Board
IN RE:
HB4324 by Bell, Cecil (Relating to the purchase of service credit in the Employees Retirement System of Texas by members of the Texas military forces.), As Introduced
ACTUARIAL EFFECTS
The actuarial review states under the current Pension Review Board (PRB) Pension Funding Guidelines, funding should be sufficient to cover the normal cost and to amortize the unfunded actuarial accrued liability (UAAL) over as brief a period as possible, but not to exceed 30 years, with 10 - 25 years being the preferable target range. The Employees Retirement System of Texas (ERS) statute defines actuarial soundness, for purposes of making modifications to benefit and contribution levels, as less than 31 years. Under the bill, ERS would remain actuarially sound due to the current contribution structure that includes a legacy payment based on an actuarially determined contribution. However, it is possible that the legacy payment could increase if the bill is enacted.
SYNOPSIS OF PROVISIONS
The bill would allow members of ERS to purchase service credit for their time served as a member of the Texas military forces. Service in the Texas military forces would include active duty, state training, and any other duty. The bill would also allow the additional service credits to be purchased regardless of the amount of service credit the member currently has in ERS. Current law requires the member to have five years of service credit in ERS before they can purchase service credit for military service.
FINDINGS AND CONCLUSIONS
The actuarial analysis notes it is unknown how many members would be covered by the new definitions. As a result, the actuary is unable to determine the actuarial impact because it is unknown how much additional service purchase would result from the changes in the bill. It is also unknown how much additional purchase would result from the removal of the current requirement that ERS members have five years of service before they may purchase service credit for military service.
The actuarial review states additional service credits are purchased by members at a substantial discount to their value. Removing the requirement that ERS members have five years of service before they may purchase service credit for military service could encourage people with military service to seek short-term employment with ERS, purchase the service credits at a discount, and then terminate employment.
METHODOLOGY AND STANDARDS
An actuarial analysis must include a statement of the actuarial assumptions and methods of computation used in the analysis. Since the analysis was not numerical in nature, no assumptions and methods were used.
SOURCES
Actuarial Analysis by Actuary, Dana Woolfrey, FSA, EA, MAAA, and Joe Newton, FSA, EA, MAAA, Gabriel, Roeder, Smith, & Company, May 1, 2023. Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, May 1, 2023.