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SPONSOR: |
Kernan |
DATE TYPED: |
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HB |
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SHORT TITLE: |
Allow Return to Employment in Education |
SB |
283/aHEC |
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ANALYST: |
Neel |
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REVENUE
Estimated Revenue |
Subsequent Years Impact |
Recurring or
Non-Rec |
Fund Affected |
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FY03 |
FY04 |
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NFI |
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(Parenthesis ( ) Indicate Revenue Decreases)
Relates to:
HB 22, Educational Retirement Benefits
SB 136, Educational Retirement Benefits
SB 169, Increase Educational
Retirement Multiplier
SB 174, Amend Educational Retirement Act
SB 136, Educational Retirement Benefits
LFC files
Responses
Received From
Educational Retirement Board (ERB)
SUMMARY
Synopsis
of HEC Amendment
The House Education Committee amendment allows ERA members who:
… to begin employment at a local administrative
unit without suspending retirement benefits.
Synopsis
of Original Bill
Senate Bill 283 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 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:yr