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

Under current TRS rules, with certain exceptions, a retiree is not entitled to service or disability retirement benefit payments for any month in which the retiree is employed in any position by a Texas Public Educational Institution. Exceptions include certain work as a substitute, certain work in positions other than a substitute on no more than on a half-time basis for the month, in one or more positions on as much as a full-time basis under some limitations as to when the work occurs, in a position other than as a substitute on no more than 1/2 time basis for no more than 90 days in a school year, if the retiree is a disability retiree, certain acute shortage positions, certain principal or assistant principal positions, and certain bus driver positions. For some of these exceptions, there must be a 12 month separation of service.

The existing suspension rules are apparently being avoided when retirees resume employment with Texas public educational institutions through "third-party entities." As a result, TRS is making benefit payments to certain retirees that would otherwise be suspended. The proposal extends the suspension of benefit rules to such third party entity arrangements. HB 2169 presents no additional impact on the Teacher Retirement System (TRS), in fact, TRS obligations may increase significantly if the proposal is not adopted.

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

• Specifies that a retired teacher who is hired by a "third-party entity" retained by a Texas public educational institution to provide personnel to the institution will not be entitled to monthly service or disability retirement benefit payments for any month in which the retiree is employed by that public education institution.

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 numbers above may change after the February 28, 2003 Actuarial Valuation update.

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.

• Actuarial Analysis by Lewis Ward, Consultant and W. Michael Carter, Actuary, Gabriel, Roeder, Smith & Company, March 13, 2003
• Actuarial Review by Mr. Richard E. White, Actuary, Milliman USA, Inc., 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.