This Fiscal Note is not an official copy and should not be quoted or cited.
Fiscal Note - SB 0860 - Revision of PSRS Laws
L.R. NO. 3242-09
BILL NO. Truly Agreed to and Finally Passed HCS for SCS #2 for SB 860
SUBJECT: Public School Retirement System
TYPE: Original
DATE: May 7, 1996
FISCAL SUMMARY
ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED FY 1997 FY 1998 FY 1999
None $0 $0 $0
Total Estimated
Net Effect on All
State Funds $0 $0 $0
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 $0 or
($15,135,000) ($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.
According to JCPER officials, such a cost statement has been provided as
required.
Officials of the Office of Administration indicate that this proposal
contains language which would relieve the state from potential liability as a
result of any increased costs resulting to political subdivisions that could
violate Article X, Section 21 of the Missouri Constitution.
Public School Retirement System (PSRS) officials indicate that the provisions
increasing COLA caps for teacher and nonteacher retirees would have actuarial
impact. An actuarial cost analysis for increasing the COLA cap for teachers
to 75% and increasing the COLA cap for nonteachers to 65% 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. PSRS officials indicate that the remaining provisions in the
legislation would have no actuarial cost impact to the system.
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 not reflected potential costs to the state as a result of the possible
applicability of Article X, Section 21 of the Missouri Constitution, as this
proposal contains language that would eliminate the accrual of any benefit
that is determined by a court judgment to be in violation of Article X,
Section 21. Costs for school districts are shown to be $0 or ($15,135,000)
since if such a judgment is rendered, the school district would also be
relieved of any costs associated with the additional benefits.
Officials of the St. Louis Public School Retirement System indicate that the
provisions in the legislation affecting their system do not result in any
significant actuarial costs. Officials indicate that the cost-of-living
provisions would result in an additional contribution requirement of less
than 0.2% of covered payroll.
Kansas City Public School Retirement System officials assume that there would
be no fiscal impact on their system as a result of the legislation.
FISCAL IMPACT - State Government FY 1997 FY 1998 FY 1999
(10 Mo.)
$0 $0 $0
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%. The proposal would also eliminate the $24,000 cap for
determining a retired teacher's eligibility to receive an increase in his or
her monthly retirement allowance equal to the lesser of $60 or $2 multiplied
by the number of years of creditable service.
The legislation makes various changes in laws governing the Public School
Retirement System, including limiting the additional deposits program, and
revising the termination of membership provision to require five consecutive
years out of covered employment before membership is terminated. Certain
technical revisions regarding service credit purchases include an effective
date of July 1, 1998. Changes in section 169.050 RSMo relating to purchases
of service credit for which election is to be made prior to July 1, 1998
carry an emergency clause, and are to be effective immediately upon passage
and approval.
This legislation would allow members of the St. Louis Public School
Retirement System to purchase credit for service during periods of layoff.
It also establishes annual cost-of- living adjustments for retirees in the
system. The board of education and the system's board of trustees are
authorized to implement additional retirement benefits subject to certain
limitations.
The legislation would provide for political subdivisions or retirement
systems to seek declaratory judgments concerning the application of Article
X, Section 21 of the Missouri Constitution to the provisions of this act. If
the courts determine that any provision of the act constitutes a new activity
or service or increase in the level of activity or service beyond that
required by existing law, that provision would be considered void and any new
benefit required by the provision would not be payable to members.
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
St. Louis Public School Retirement System
Kansas City Public School Retirement System