This Fiscal Note is not an official copy and should not be quoted or cited.
Fiscal Note - SB 0822 - Increases PSRS Teacher & Nonteacher COLA Caps
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