Lawmakers, actuaries debate HB 2 pension changes as cost estimates rise

Lawmakers and retirement-system staff spent an extended session analyzing provisions in House Bill 2 that would change how average final compensation (AFC) and other benefit formulas are calculated and that would restore earlier definitions in effect before 2011.

The discussion centered on three linked provisions in HB 2: reverting AFC from a five‑year to a three‑year average; restoring certain end‑of‑career pay items (unused sick and vacation time, severance, longevity where applicable) into ‘‘earnable compensation’’ for Group 2 members; and removing a limit that capped pay‑above‑base used for AFC when that pay spiked only in final years. Retirement‑system staff said those elements together would increase benefit costs and that the items interact, so actuaries can’t simply add independent dollar impacts for each feature.

The session reviewed anecdotal examples and the actuary’s estimate. ‘‘We had one member recently who had a lot of forced overtime … his overtime was more than his base salary and his last 4 years,’’ said a retirement system presenter, noting how current rules limited the percent counted toward AFC. Staff explained that HB 2 would eliminate those limits for members who met new ‘‘vested‑by’’ dates, while existing members who retire earlier would remain under current rules.

Committee members pressed for detail on how the actuary allocated costs among the bill’s components. ‘‘When the actuary comes up with $237 million, do they give you a report that says due to this feature it’s $80 million, due to that feature it’s $20 million?’’ Representative [name recorded as] asked. Staff responded that many elements are interrelated and that the footnotes and the actuary’s explanation attempted to isolate the separate effect of the ‘‘special duty’’ pay rule removal (estimated at about $13.9 million in one estimate).

Speakers repeatedly raised practical questions about member behavior under the proposed language: whether members who previously retired could ‘‘un‑retire’’ and then re‑retire to claim higher benefits, and whether vested‑deferred members could wait for an effective date to obtain enhanced multipliers without returning to full‑service retirement. Retirement staff said the plain language did not expressly forbid some of those scenarios and that the governor’s office had indicated it did not intend to allow re‑retire/rehire strategies; staff recommended clarifying language to remove the ambiguity.

The committee reviewed a cost table comparing 2023 and 2025 versions of similar bills. Staff said intervening actuarial studies, census changes and differences in bill text (notably treatment of special‑duty pay and the maximum benefit rule) explain why the 2025 present‑value cost was higher than the 2023 estimate. ‘‘If you apply current actuarial assumptions to 2023, it might be higher,’’ staff said.

No final decision on HB 2 text or on funding was made during the segment recorded; the committee discussed asking the actuary for additional breakout detail and for explicit clarifying language to prevent unintended re‑retire/rehire strategies.

Ending: Staff said they would follow up with more detailed actuarial breakdowns and draft clarifying statutory language if members wished to make the sponsor’s intent explicit in the bill.

Sources: Remarks and explanations from the retirement system presentation and question‑and‑answer recorded during the House Finance Division I meeting on March 12, 2025.