NOTE: As provided in LFC policy, this report is
intended only for use by the standing finance committees of the
legislature. The Legislative Finance Committee does not assume
responsibility for the accuracy of the information in this report when used for
other purposes.
The most recent FIR
version (in HTML & Adobe PDF formats) is available on the Legislative
Website. The Adobe PDF version includes
all attachments, whereas the HTML version does not. Previously issued FIRs and attachments may be
obtained from the LFC in
F I S C A
L I M P A C T R E P O R T
|
SPONSOR: |
Heaton |
DATE TYPED: |
|
HB |
22/aHLC/aSEC |
||
|
SHORT TITLE: |
Educational Retirement Benefits |
SB |
|
||||
|
|
ANALYST: |
Neel |
|||||
REVENUE
|
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
|
|
FY03 |
FY04 |
|
|
|
|
|
NFI |
|
|
|
|
|
|
|
|
|
(Parenthesis ( ) Indicate Revenue Decreases)
Relates to:
SB 136, Educational Retirement Benefits
SB 169, Increase Educational
Retirement Multiplier
SB 174, Amend Educational Retirement Act
SB 136, Educational Retirement Benefits
SOURCES
OF INFORMATION
LFC files
Responses
Received From
Educational Retirement Board (ERB)
SUMMARY
Synopsis
of SEC Amendment
The Senate Education amendment allows ERA members who:
- are
retired prior to
- are
now reemployed with a local administrative unit;
- have
not suspended service since retirement,
to continue employment without suspending
retirement benefits. It basically
grandfathers in those who are already retired under the Return-to-Work program.
Synopsis
of HLC Amendment
The House Labor and Human Resources Committee amendment requires that summer or other scheduled breaks not be included as part of the 90-day lay out requirement.
Synopsis
of Original Bill
House Bill 22 amends
the “Return to Work” provision in the Educational Retirement Act, which passed
in the 2001 legislative session (Laws 2001, ch. 283, § 2.), to allow retirees
retired prior to January 1, 2001 to return to employment with a school district
without the loss of their respective retirement benefits. The retirees are prohibited from employment
as an employee or contractor by a school district for at least 90 days prior to
reemployment and must be previously retired for a minimum of 12 months.
Significant
Issues
According to ERB, the 90 day layout period is
required by IRS regulations and cannot be part of a break or vacation period. The layout period must be consistent with a
resignation, termination and rehire.
FISCAL IMPLICATIONS
ERB does not note a
fiscal impact
OTHER SUBSTANTIVE ISSUES
Actuarial Valuation. The unfunded actuarial
accrued liability (UAAL) calculation is used to help assess a pension fund’s
status and progress toward accumulating the assets needed to pay benefits as
due. It is the difference between total
actuarial liabilities and the total actuarial value of assets. The funding period (or amortization period) is
measured in years and is the time it takes to finance the unfunded actuarial
liabilities under the current funding policy. General Accounting Standards
Board (GASB) Statement No. 25 states amortization periods for UAALs should not
exceed the estimated total service life of the employee group. GASB believes that period, for most employee
groups, is not more than 30 years.
As the below table
illustrates ERB’s funding period now stands at 27.2 years, up from last year’s
funding period of 12.5 years. The
increased funding period is due in part to a combination of higher salaries and
investment losses. ERB’s percent funded declined from 91.9 percent to 86.8
percent as of
At the end of FY02
ERB’s actuarial report deferred $1.58 billion in investment losses. This equates to approximately $395 million in
losses being absorbed the Educational Retirement Fund (ERF) for each of the
next four years. Based on the ERF value
of $5.6 billion, the fund will need
to
return 7 percent to maintain its current value not to mention the long-term
actuarial growth assumption of 8 percent.
Compounding ERB’s
investment and liability losses are cash-flow constraints with it being it
being a mature fund. Designation as a
mature fund is defined as paying out more in benefits than the fund receives in
contributions from its members. ERB
received $328.6 million in FY02 contributions, while paying $396 million in
benefits and refunds. Therefore there was a net loss in the fund of $68 million
for normal operation of the fund.
TECHNICAL ISSUES
The original “Return to Work” legislation was designed to
induce teachers to return to the classroom to help ameliorate the teacher
shortage in
SN/prr