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

HB 2631 would leave the normal cost of the Teacher Retirement System (TRS) unchanged at 12.67%. The unfunded actuarial liability (UAAL) would increase by $9 million, from $10,085 million to $10,094 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.

The state contribution rate necessary to achieve a 30-year funding period is 8.94% of pay based on the August 31, 2002 actuarial valuation, and updated for the actuarial value of assets as of February 28, 2003. 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:

• Change the definition of salary and wages used in determining a member’s final average salary.

Currently, payments received by an employee in a school year, for teaching a driver education and traffic safety course outside of regular classroom hours, that exceed $5,000 are excluded from the definition of salary and wages for the purposes of determining a member’s final average salary, benefits, and the contributions payable to TRS. This bill would eliminate this exclusion. Under the proposal, all such payments would be considered for both member contributions and for the purpose of determining benefits.

The TRS actuary's analysis is based upon the assumption that the bill will impact 1,000 members. The analysis is based on the assumptions that employees are currently earning $8,000 per school year for teaching the classes, thus the bill would increase their salary and wages for benefit and contribution purposes by an average of $3,000. The analysis assumes no further changes are made to TRS and cautions that the combined effect of several changes can exceed the effect of each change considered individually.

There are currently $19.2 billion in deferred asset losses from FY 2001, FY 2002, and the first half of FY2003, which have not yet been recognized in the actuarial value of assets. Market value of assets was $68.6 billion, while actuarial value of assets was $82.3 billion on February 28, 2003. As these losses are recognized in future valuations, the effect will be to increase the required contributions.

• Actuarial Analysis by Lewis Ward, Consultant and W. Michael Carter, Actuary, Gabriel, Roeder, Smith & Company, March 27, 2003
• Actuarial Review by Mr. Richard E. White, Actuary, Milliman USA, Inc., March 28, 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.