Austin, Texas
April 6, 2003

Honorable Allan Ritter, Chair, House Committee on Pensions & Investments
John Keel, Director, Legislative Budget Board
HB514 by Griggs (Relating to the payment of retirement benefits to certain retirees of the Teacher Retirement System of Texas who are employed as classroom teachers.), As Introduced

Teacher Retirement System (TRS)




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 %

13.10 %

+0.43 %

Unfunded Actuarial Accrued Liability (millions)

$ 3,287

$ 5,996


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




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


The proposal would increase the Teacher Retirement System (TRS) normal cost by 0.43% of payroll, from 12.67% of payroll to 13.10% of payroll. The unfunded actuarial liability (UAAL) would increase by $2,709 million, from $3,287 million to $5,996 million. Since the funding period of TRS exceeds 30.9 years, passage of this bill without additional funding would violate statutory requirements. Because the TRS normal cost is greater than the current contribution rate and the UAAL is greater than zero both before and after the change, the funding period would remain infinite.

State contribution rates of 7.15% of pay under the current structure, and 8.32% under the proposed structure will amortize the unfunded actuarial accrued liability over 30 years. The current state/member contribution rate will never result in the complete amortization of the unfunded actuarial accrued liability for either the current or the proposed structures.


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


In valuing the actuarial impact of this bill, the TRS actuary assumed that approximately 40% of the TRS membership are certified teachers and that all eligible certified teachers will retire at their earliest unreduced retirement age and return to work after a two-month separation from service. Certain additional assumptions were made relating to the number of members who may be expected to benefit under this proposal and their rates of retirement.

There are currently $16 billion in deferred asset losses from FY 2001 and FY 2002, which have not yet been recognized in the actuarial value of assets. Market value of assets was $71.7 billion, while actuarial value of assets was $86 billion on August 31, 2002. As these losses are recognized in future valuations, the effect will be to increase the required contributions. The analysis considers only those changes contained in the proposal and cautions that the combined economic impact of several proposals currently under consideration could exceed the economic impact of each such proposal considered individually.

The TRS actuary expressed concern that the analysis does not account for all asset losses from FY2001 and FY2002 in the actuarial value of assets. The current estimate stands at $16 billion in deferred asset losses. As of August 31, 2002, the market value of assets totaled $71.7 billion, while the actuarial value of assets totaled $86.0 billion.

The creation of additional actuarial liabilities and additional contribution requirements will only add to the strain on the State’s budget outlook. If, due to external budget and revenue issues, the increased contribution requirements are not met, the long-term funding position of TRS will be hurt.

The actuarial impact discussed above has not been updated for the results of the February 28, 2003 actuarial valuation update. This update identified an additional actuarial unfunded liability of $6.8 million (for a total of $10,085 million), and a required state contribution rate of 8.94% in order to keep the system actuarially sound. These amounts are under current law, and would be increased by roughly the amounts identified above under the bill. An updated actuarial anlaysis of the proposal would be advisable before final passage of the bill. 


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.



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: