Summary of Report 03-027

March 2003

Report Number 03-027

In our audit report dated February 19, 2003, we issued a qualified opinion regarding whether the basic financial statements of the Office of the Fire Fighters' Pension Commissioner (Commission) for the fiscal year ended August 31, 2002, were materially correct in accordance with accounting principles generally accepted in the United States of America.

The Texas Statewide Emergency Services Personnel Retirement Fund Board of Trustees (Board) did not approve the actuarial report that an actuary issued for the Texas Statewide Emergency Services Personnel Retirement Fund (Fund) for fiscal year 2002 because that report contained incorrect actuarial calculations and estimates.  

We issued a qualified opinion because, without an approved actuarial report specifying whether the Fund was sound, it would have been impractical for us to determine the exact amount (if any) that the State might have been statutorily required to contribute to the Fund.   In addition, the absence of an approved actuarial report prevented us from making any conclusions regarding the accuracy or reasonableness of (1) the basic financial statement disclosures related to the actuarial estimates and (2) other required supplementary information for the Texas Statewide Emergency Services Retirement Act (TSESRA).  

In addition to issues involving the actuarial report, the Commission faces other serious issues that could negatively affect the Fund:

• The Fund's investment income has consistently decreased during the last three years from $5,020,684 in fiscal year 2000 to negative $3,584,035 in fiscal year 2002.   If stock market conditions do not improve and contributions from the governing bodies of participating fire departments remain the same, the Fund may not be able to meet future benefit payments.

• If the Fund is not able to meet future benefit payments, it would be deemed actuarially unsound.   If this is the case, the maximum amount that the State would be required to contribute to the Fund, under statute, could be as high as $605,956 for fiscal year 2002.    

Without an approved actuarial report, it is not possible to know whether the Fund was actuarially sound at the end of fiscal year 2002.   However, it is important to note that if an actuary ultimately deems the Fund unsound, the maximum state contribution required by statute still may not be enough to make the Fund actuarially sound.    

• Total net assets of the Fund have been decreasing for the past three years.   Total net assets were $35,877,664 at the end of fiscal year 2000 but decreased to $29,815,693 by the end of fiscal year 2002.

• Total member contributions to the Fund from participating governing bodies have increased 8.5 percent in the last two years.   However, Fund benefit payments and administrative expenses increased by 15 percent in the last two years.

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