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F I S C A L I M P A C T R E P O R T

SPONSOR SFC

DATE TYPED 3/9/05

HB

SHORT TITLE Actuarial Soundness of Certain Public Funds

SB 724/SFCS

ANALYST Wilson

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$0.1 Recurring

Various

Relates to Appropriation in the General Appropriation Act

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

$0.1 Recurring

Various

SOURCES OF INFORMATION

LFC Files

SUMMARY

Synopsis of Bill

The Senate Finance Committee substitute for Senate Bill 724

If, at the beginning of a fiscal year,

a fund administered by the Risk Management Division (RMD) is not actuarially sound, the total

amount of contributions to be assessed state agencies and participating local public bodies for

that fund during that fiscal year shall equal not less than 110% of the total incurred claims

against that fund in the fiscal year before the preceding fiscal year.

Significant Issues

RMD contracts for actuarial and benefits consulting services annually. These reports are used in

developing the risk coverage or group health benefit premiums. Additionally, GSD’s independ-

ent auditors incorporate the actuarial reports in the annual financial audit.

It might be prudent to allow RMD to use sound actuarial principles to determine premium rates

instead of legislating requirements.

Senate Bill 724/SFFCS -- Page 2

FISCAL IMPLICATIONS

The premiums are adjusted to cover administrative and anticipated claims costs. The risk cover-

age premium rates are developed annually by RMD in consultation with a contracted actuary and

benefits consultant. The risk coverage premiums are based on a five-year rolling average of

claims payments and projected risk. These risk coverage premiums, through the annual budget

request process become the basis for legislative appropriation discussions.

It is not possible to determine the fiscal impact of this bill as RMD would probably raise the

premiums by the 10% required in this bill without enactment of the bill.

DW/lg