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F I S C A L I M P A C T R E P O R T
SPONSOR Moore
DATE TYPED 1/27/05
HB 274
SHORT TITLE LFC Actuarial Analysis of Retirement Funds
SB
ANALYST Fernandez/Geisler
APPROPRIATION
Appropriation Contained Estimated Additional Impact Recurring
or Non-Rec
Fund
Affected
FY05
FY06
FY05
FY06
300.0
Non-Rec General Fund
(Parenthesis ( ) Indicate Expenditure Decreases)
SOURCES OF INFORMATION
LFC Files
SUMMARY
Synopsis of Bill
House Bill 274 appropriates $300.0 from the general fund to the Legislative Finance Committee
for the purpose of performing an actuarial analysis of the state’s retirement funds.
Significant Issues
Both PERA and ERB perform actuarial studies annually to determine if employer/employee con-
tributions and expected investment income over the long-term are sufficient to maintain the de-
fined benefit structure established by law. Especially for ERB, the estimate for unfunded liabil-
ity has risen sharply over the last couple of years.
During the interim the pension and investment subcommittee of the Legislative Finance Commit-
tee heard testimony and reviewed reports raising concerns of validity of conventional actuarial
studies. In particular, there are concerns that liabilities are understated for a variety of reasons
including smoothing of investment losses during extended market downturns, overstating poten-
tial investment returns and underestimating salary increases of active members. For example,
ERB’s assumptions regarding employee raises may have not accounted for the extraordinary in-
creases due to implementation of the three-tiered ladder.
The appropriation would provide for independent financial analysis for the legislature, public
employees and public retirees.