|Date Requested:March 10, 2005
Time Requested:01:08 PM
| FUND(S) |
DSRS Fund 2150
Sources of Revenue
Legislation creates:Neither Program nor Fund
Effect this measure will have on costs and revenues of state government.
| Actuarial Note Regarding Pension Legislation
The Bill provides that new members of DSRS first entering the Plan on or after July 1, 2005 shall not be eligible for member loans from DSRS under the loan program.
Closing the loan program to new members does not impact the current Normal Cost nor the Actuarial Accrued Liability of DSRS. There is therefore no direct cost impact at the present time of the change.
Over time the elimination of the loan program on a prospective basis will reduce and eventually eliminate the administrative costs of the loan program.
|Effect of Proposal||Fiscal Year|
|1. Estmated Total Cost||0||0||0|
|Repairs and Alterations||0||0||0|
|2. Estimated Total Revenues||0||0||0|
3. Explanation of above estimates (including long-range effect):
There is an unintended aspect of the loan program. An outstanding loan must be repaid at retirement. Such repayment must be made either in cash or through a reduction in the retiring member’s monthly retirement benefit.
Effectively, if applied as a benefit reduction, the loan repayment is a partial lump sum distribution of the loan amount. If a loan is taken out just prior to retirement, then it effectively is a partial lump sum option up to the maximum loan amount of $8,000 results.
The partial lump sum option has several issues that the Bill eliminates for new members:
1. The ability to spend up to $8,000 of the retirement benefit value up front at retirement.
2. The partial lump sum cashout adversely impacts the cash flow of the plan by providing the large benefit at retirement.
3. The lump sum reduces the retirement benefit for life, making it more difficult for the benefit to be sufficient into retirement.
4. Any retiree increase based on a percent of total benefit results in the member who took the partial lump sum in receiving a smaller retiree benefit increase.
5. Any minimum benefit for retirees approved through legislation provides a disproportionate increase to a member with a lower benefit due to the partial lump sum cashout.
| Bill is intended to eliminate the unintended issues resulting under the loan program.
Loans are not generally included in governmental pension programs.