L.R. NO. 3147-01 BILL NO. SB 822 SUBJECT: Public School Retirement System TYPE: Original DATE: February 5, 1996 FISCAL SUMMARY ESTIMATED NET EFFECT ON STATE FUNDS FUND AFFECTED FY 1997 FY 1998 FY 1999 General Revenue $0 $0 or ($15,135,000) $0 or ($15,135,000) Total Estimated Net Effect on All State Funds* $0 $0 or ($15,135,000) $0 or ($15,135,000) ESTIMATED NET EFFECT ON FEDERAL FUNDS FUND AFFECTED FY 1997 FY 1998 FY 1999 None $0 $0 $0 Total Estimated Net Effect on All Federal Funds $0 $0 $0 ESTIMATED NET EFFECT ON LOCAL FUNDS FUND AFFECTED FY 1997 FY 1998 FY 1999 School Districts* $0 $0 or ($15,135,000) $0 or ($15,135,000) * Depends on applicability of Article X, Section 21 of the Missouri Constitution. FISCAL ANALYSIS ASSUMPTION Officials of the Joint Committee on Public Employee Retirement (JCPER) have reviewed this proposal and determined that it represents a substantial proposed change in future plan benefits as defined in Section 105.660(5). Therefore, an actuarial cost statement must be provided prior to final action on this legislation by either legislative body or committee thereof. Officials of the Office of Administration indicate that if the costs of this proposal result in an increase in the contribution rates for local school districts, the proposal could violate Article X, Section 21 of the Missouri Constitution. Public School Retirement System (PSRS) officials have requested an actuarial cost analysis for increasing the COLA cap for teachers to 75% and increasing the COLA cap for nonteachers to 65%. That analysis indicated that increasing the COLA cap from 65% to 75% for teachers would result in an increase of $259,000,000 to the System's unfunded actuarial accrued liability, increasing it from $683,000,000 to $942,000,000. Oversight calculated the estimated annual cost to local school districts from this provision to be $14,406,000, assuming that the current amortization period of 16.5 years is maintained and representing one-half of the annual cost (members also contribute one- half). The actuarial analysis indicated that if the amortization period is increased to the maximum of 30 years, the contribution rate would increase from the current 10.5% to 10.6%. The analysis indicated that increasing the COLA cap for nonteachers from 56% to 65% would increase the System's unfunded actuarial accrued liability by $16,410,000. The Nonteachers Retirement System currently has a negative unfunded actuarial accrued liability (surplus) of ($2,799,000), and this proposal would result in an unfunded actuarial accrued liability of $13,611,000. Oversight calculated the estimated annual cost of this provision to be $729,000, assuming an amortization period of 30 years (there is no current amortization period provided since the system is in a surplus position) and representing one-half of the annual cost (members also contribute one-half). Total annual costs calculated for both provisions are $15,135,000. The Board of Trustees of PSRS has the option of extending the amortization period up to 30 years in lieu of approving a contribution rate increase for members. Oversight has estimated annual costs at amounts intended to approximate additional costs to local school districts if their required contributions are increased as a result of the legislation. Costs are reflected beginning in FY 1998, since the contributions for FY 1997 will have been determined prior to the effective date of this legislation. Oversight has also reflected potential costs to the state as a result of the possible applicability of Article X, Section 21 of the Missouri Constitution. FISCAL IMPACT - State Government FY 1997 FY 1998 FY 1999 (10 Mo.) GENERAL REVENUE FUND Costs-potential reimbursement to local $0 $0 or $0 or school districts * ($15,135,000) ($15,135,000) FISCAL IMPACT - Local Government FY 1997 FY 1998 FY 1999 (10 Mo.) LOCAL SCHOOL DISTRICTS Costs-increased contributions * $0 $0 or $0 or ($15,135,000) ($15,135,000) * Depends on applicability of Article X, Section 21 of the Missouri Constitution. DESCRIPTION This legislation would increase the lifetime cost of living allowance (COLA) cap for retired teachers in the Public School Retirement System from 65% to 75% and would increase the COLA cap for nonteacher members of the System from 56% to 65%. This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space. SOURCES OF INFORMATION Joint Committee on Public Employee Retirement Office of Administration Public School Retirement System