The bill would amend the Government Code to make certain members of the Texas Juvenile Justice Department (TJJD), Comptroller of Public Accounts (CPA), and Office of the Attorney General (OAG) eligible to receive benefits in the Law Enforcement and Custodial Officer Supplemental Retirement Fund (LECOS). The actuarial analysis provided by the Employees Retirement System of Texas (ERS) states the changes to pension compensation would increase the unfunded actuarial accrued liability (UAAL) of ERS by approximately $13.5 million and would increase the UAAL of LECOS by approximately $17.7 million.
The actuarial review states under the current Pension Review Board (PRB) Pension Funding Guidelines, funding should be adequate to amortize the UAAL over a period which should not exceed 30 years as of September 1, 2025, and not to exceed 15 years after September 1, 2040. ERS statute defines actuarial soundness, for purposes of making modifications to benefit and contribution levels, as no more than 31 years.
ERS is currently actuarially sound, with an amortization period of 30 years as of August 31, 2024. Additional funding would be necessary to maintain the 30-year funding period. The analysis states to offset the increase in the UAAL, the state would need to contribute a lump sum of approximately $26.4 million.
LECOS is currently actuarially sound, with an amortization period of 0 years as of August 31, 2024. The analysis indicates a $10.1 million contribution is needed to offset the new liability created by the provisions of the bill.
SYNOPSIS OF PROVISIONS
The bill would expand the definition of a custodial officer to include positions with TJJD, and of a law enforcement officer to include a peace officer commissioned by the CPA or OAG.
The bill would require TJJD to develop standards for eligibility for service credit as a custodial officer based on the need to encourage early retirement of persons whose duties are hazardous. Members would be eligible to retire and receive a service retirement benefit at age 55 with at least 10 years of creditable service as a law enforcement or custodial officer. Service earned before the effective date of the bill would count toward determining the benefits payable from LECOS for all eligible employees who were employed in a qualifying position on December 1, 2024. Members in the ERS cash balance tier would only have service credited on or after the effective date of the bill.
ERS would only be required to implement the provisions of the bill if the 89th Legislature appropriates money to the retirement system in an amount sufficient to cover the additional service credit earned prior to the effective date of the bill, without increasing the UAAL of ERS and LECOS. Under the provisions of the bill, ERS would publish a statement in the Texas Register by October 1, 2025 stating whether sufficient money has been appropriated to implement the provisions of the bill.
FINDINGS AND CONCLUSIONS
Changes made by this bill would apply to members of ERS employed by TJJD, CPA, or OAG as a law enforcement officer or custodial office, as applicable, regardless of whether they were hired before, on, or after the bill's effective date.
The actuarial analysis states the bill would impact approximately 1,661 juvenile justice officers and peace officers, but only the 827 in ERS groups 1, 2, or 3 would materially impact the UAAL. The 834 members of the cash balance tier (or group 4) would not be eligible for prior service before the effective date of the bill and would not impact the liabilities.
METHODOLOGY AND STANDARDS
The ERS analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the ERS and LECOS actuarial valuations for August 31, 2024
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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 and LECOS 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.
SOURCES
Actuarial Analysis by Joseph Newton, FSA, EA, MAAA, Dana Woolfrey, FSA, EA, MAAA, and Thomas J. Bevins, ASA, MAAA, Gabriel, Roeder, Smith & Company, 3/14/2025.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, 3/17/2025.
GLOSSARY
Actuarial Accrued Liability (AAL) -The current value of benefits attributed to past years.
Actuarial Value of Assets (AVA) - The value of assets used for the actuarial valuation. The AVA can be either the market value (MVA) or a smoothed value of assets.
Amortization Payments - The portion of the total contribution used to reduce the unfunded actuarial accrued liability (UAAL).
Amortization Period - The specified length of time used when calculating the amortization payment portion of an actuarially determined contribution, or as the time it would theoretically take to fully fund the UAAL or fully recognize a surplus. The State Pension Review Board recommends that funding be adequate to amortize the UAAL over a period which should not exceed 30 years as of September 1, 2025, and not to exceed 15 years after September 1, 2040.
Funded Ratio (FR) - The ratio of actuarial assets to the actuarial accrued liabilities.
Unfunded Actuarial Accrued Liability (UAAL) - The difference between the actuarial accrued liability and the actuarial value of assets; therefore, the UAAL is the amount that is still owed to the fund for past obligations.