This Fiscal Note is not an official copy and should not be quoted or cited.
Fiscal Note - SB 0678 - PSRS COLA Cap & Additional Benefit For Retirees
L.R. NO. 2723-01
BILL NO. SB 678
SUBJECT: Public School Retirement System
TYPE: Original
DATE: January 30, 1996
FISCAL SUMMARY
ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED FY 1997 FY 1998 FY 1999
General Revenue $0 $0 or ($11,535,000) $0 or ($11,535,000)
Total Estimated
Net Effect on All
State Funds * $0 $0 or ($11,535,000) $0 or ($11,535,000)
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 ($11,535,000) $0 or ($11,535,000)
* 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 since two provisions
in the legislation would increase costs to the Public School Retirement
System, which could consequently increase the contribution rates for local
school districts in the future, the proposal could violate Article X, Section
21 of the Missouri Constitution.
Public School Retirement System (PSRS) officials also indicate that two
provisions of the proposal would result in costs to the System--increasing
the lifetime cost of living allowance (COLA) cap from 65% to 72% and removing
the $24,000 per year compensation cap on those members eligible for the ad
hoc $2 per month per year of service benefit increase. PSRS officials have
previously requested their actuary to perform an actuarial cost study on the
removal of the $24,000 compensation cap on the $2 monthly supplemental
benefits. That analysis indicates that this provision increases the System's
unfunded actuarial accrued liability from approximately $683,000,000 to
$714,000,000, an increase of $31,000,000. At the present contribution rate
of 10.5%, the number of years required to amortize the unfunded actuarial
accrued liability would increase from the current 16.5 years to 17.5 years.
Assuming that the current amortization period of 16.5 years is maintained,
Oversight calculated an estimated annual cost to local school districts from
this provision of $1,695,000, representing one-half of the annual cost
(members also contribute one-half).
PSRS officials indicate they have not requested an actuarial cost study of
the provision increasing the COLA cap to 72%. However, they have requested
an actuarial cost analysis for increasing the COLA cap to 75%. That analysis
indicated that increasing the COLA cap to 75% would result in an increase to
the System's unfunded actuarial accrued liability of $259,000,000, and PSRS
officials assume that the cost of increasing the COLA cap to 72% would be
somewhat less than that amount. Oversight estimated the total additional
cost of increasing the COLA cap to 72% at approximately $180,000,000, with
the estimated annual cost to local school districts from this provision of
$9,840,000, 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 actuary for PSRS also notes that the combination
of two or more benefit improvements may produce higher costs than that
determined based on independent evaluations of the proposals due to the
interaction of some benefit provisions.
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. The actuarial analysis of the 75% COLA cap indicates that a rate
increase would be required to fund the additional costs from that proposal,
even if the amortization period is extended to the maximum 30 years.
Oversight cannot determine if the 72% COLA cap proposal would require a
contribution rate increase. The annual costs determined by Oversight are
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. Total
annual costs are estimated at $11,535,000 for both provisions discussed
above. 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 * ($11,535,000) ($11,535,000)
FISCAL IMPACT - Local Government FY 1997 FY 1998 FY 1999
(10 Mo.)
LOCAL SCHOOL DISTRICTS
Costs-increased contributions * $0 $0 or $0 or
($11,535,000) ($11,535,000)
* 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
72%. It would also remove the $24,000 per year compensation cap on those
members eligible for the ad hoc $2 per month per year of service benefit
increase applicable to pre-May 26, 1994 retirees.
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