LEGISLATIVE BUDGET BOARD
Austin, Texas
 
ACTUARIAL IMPACT STATEMENT
 
78TH LEGISLATIVE REGULAR SESSION
 
March 16, 2003

TO:
Honorable Allan Ritter, Chair, House Committee on Pensions & Investments
 
FROM:
John Keel, Director, Legislative Budget Board
 
IN RE:
HB229 by Grusendorf (Relating to contributions by school districts and the state to the Teacher Retirement System of Texas for members whose salaries exceed statutory minimums.), As Introduced


Teacher Retirement System (TRS)

Current

Proposed

Difference

State Contribution

Employee Contribution

Total Contribution

6.00 %

6.40 %

12.40 %

6.00 %

6.40 %

12.40 %

0.0 %

0.0 %

0.0 %

Normal Cost (%of payroll)

12.67 %

12.67 %

0.0 %

Unfunded Actuarial Accrued Liability (millions)

$ 3,287

$ 3,287

$0

Amortization Period (years) as of 08/31/2002

infinite

infinite

0.0

A Glossary of Actuarial Terms is provided at the end of this impact statement.

ACTUARIAL EFFECTS:

According to the Teacher Retirement System (TRS) actuary, HB 229 only impacts how the required state contribution is split between the State and the employer. The bill does not change the total employer contribution to be received by TRS, therefore no actuarial impact is expected.

SYNOPSIS OF PROVISIONS:

This bill, to be effective September 1, 2003, would provide the following changes:

FINDINGS AND CONCLUSIONS:

Under current law, employing districts pay the stateís contribution on the portion of the memberís salary in excess of the statutory minimum salary. The proposal revises the definition of the statutory minimum salary. As revised, the total TRS contribution for affected members remains unchanged. The proposal merely reallocates the contribution between the state and the employing district.

METHODOLOGY AND STANDARDS:

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the August 31, 2002 actuarial valuation of TRS. According to the PRB actuary, the actuarial assumptions and methods appear to be reasonable. All actuarial projections have a degree of uncertainty because they are based on the probability of occurrence of future contingent events. Accordingly, actual results will be different from the results contained in the analysis to the extent actual future experience varies from the experience implied by the assumptions. Except as otherwise noted, the conclusions contained in the analysis seem reasonable.

SOURCES:

GLOSSARY OF ACTUARIAL TERMS:

Normal Cost-- the current cost as a percentage of payroll that is necessary to pre-fund pension benefits adequately during the course of an employee's career.

Unfunded Liability-- the amount of total liabilities that are not covered by the total assets of a retirement system. Both liabilities and assets are measured on an actuarial basis using certain assumptions including average annual salary increases, the investment return of the retirement fund, and the demographics of retirement system members.

Amortization Period-- the number of years required to pay-off the unfunded liability. Public retirement systems have found that amortization periods ranging from 20 to 40 years are acceptable. State law prohibits changes in TRS, ERS, or JRS-2 benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.



Source Agencies:
338 Pension Review Board
LBB Staff:
JK, WM