The Texas County and District Retirement System (TCDRS) is an agent multiple-employer system, which is an aggregation of over 500 single-employer plans, with pooled administrative and investment functions. For each employer, a separate account is maintained to assure that its contributions are used exclusively for the benefit of its employees.

The changes proposed by HB1984 that impact actuarial computations may impact individual employers within TCDRS by increasing or decreasing their obligations to the fund. These contemplated changes either potentially raise the employer's portion of the cost appropriate to the change or require that the change not impair the employer's ability to fund the obligations. The provisions for correcting administrative errors may result in actuarial losses, which are unpredictable, but are expected to be generally small.

HB1984, to be effective September 1, 2003, would provide the following changes:

Most provisions of the bill will have little material effect on the actuarial status of TCDRS. However, requiring the amortization of the unfunded accrued actuarial liability (UAAL) over a shorter period of time will likely strengthen the fund's actuarial standing.

The PRB actuary notes that alternative choices among benefit payment strategies are indicated to be actuarially equivalent, providing no gain or loss to the fund.

The actuarial valuation does not anticipate repayments of contributions for previously forfeited service. Therefore, there would be no immediate impact on the calculated liabilities. When a member makes a redeposit of contributions to restore credit, it is reflected in the next actuarial valuation as a gain or loss, generally a loss. The change in the service requirement will result in a small increase in this type of event. The TCDRS actuary does not believe this will have a material impact on the actuarial funding for TCDRS.

Since an actuarial valuation is performed for each employer, the impact of this bill needs to be reviewed based upon each subdivision in TCDRS, not just the system as a whole.

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the December 31, 2001 actuarial valuation of TCDRS. According to the PRB actuary, the actuarial assumptions and methods appear to be reasonable, except as otherwise noted. 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.

Actuarial Analysis by Ms. Karen I. Steffen, Actuary, Milliman USA, March 14, 2003

Actuarial Review by Mr. Thomas H. Shelby III, Actuary, T. H. Shelby & Company, March 19, 2003

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.