TO: | Honorable Robert Duncan, Chair, Senate Committee on State Affairs |
FROM: | John S. O'Brien, Deputy Director, Legislative Budget Board |
IN RE: | HB1579 by Kolkhorst (Relating to certain retired school employees and the powers and duties of the Teacher Retirement System of Texas.), Committee Report 2nd House, Substituted |
Teacher Retirement System |
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% |
31-year Funding Contribution Required |
8.11% |
6.12% |
-1.99% |
Normal Cost (% of payroll) |
11.72 % |
10.46 % |
-1.26% |
Unfunded Actuarial Accrued Liability (millions) |
$11,053.0 |
$8,530.0 |
$2,523.0 |
Amortization Period (years) |
Infinite |
Infinite |
0.0 |
|
|
A Glossary of Actuarial Terms is provided at the end of this impact statement.
ACTUARIAL EFFECTS: CSHB 1579 would decrease, by 1.26% of pay, the normal cost from 11.72% to 10.46% of payroll. The Unfunded Actuarial Accrued Liability (UAAL) would decrease by $2,523 million, from $11,053 million to $8,530 million. The current contribution rate necessary to amortize the UAAL over 30 years is 8.11% of payroll. Under the proposal, the 30-year contribution rate would decrease by 1.99% to 6.12% of payroll.
SYNOPSIS OF PROVISIONS
This bill, to be effective
· Require members, hired on or after
· Increase the minimum age required for an unreduced retirement benefit to age 60, adding a new reduced retirement benefit for members who have satisfied the Rule of 80, with a 3% reduction for each year under the age of 60. This provision will not apply to TRS members who have already met eligibility for retirement or who have, on or before
· Eliminate the early retirement subsidy provided by Section 824.202(c). This provision will not apply to TRS members who have already met eligibility for retirement or who have, on or before
· Increase the number of years included in the final average salary calculation from 3 years to 5 years. This provision will not apply to TRS members who have already met eligibility for retirement or who have, on or before
· Require a member to satisfy the rule of 90 to be eligible to elect a partial lump sum distribution. This provision will not apply to TRS members who have already met eligibility for retirement or who have, on or before
· Require local employers to pay contributions to TRS during the first 90 days of an employee’s employment. The Texas Constitution requires the state to make contributions of 6% or more for all members, so TRS would potentially receive double contributions for these members.
· Require employers of a TRS retiree to pay the member contribution and the employer contribution unless they were reported to TRS in January 2005.
· Provides a "13th check" or one-time supplemental payment on 1/1/2006 for those who retired before 9/1/2003, contingent on compliance with 831.006, Government Code, meaning that the funding period is within 31 years.
· Repeal the section, effective
FINDINGS AND CONCLUSIONS
CSHB 1579 proposes numerous changes to the Education Code and Government Code. The proposal would impact the benefit and contribution provisions of TRS. Certain provisions in the bill will not apply to TRS members who have already met eligibility for retirement or who have, on or before
The bill would require that new hires after
CSHB 1579 would decrease, by 1.26% of pay, the normal cost from 11.72% to 10.46% of payroll. The Unfunded Actuarial Accrued Liability (UAAL) would decrease by $2,523 million, from $11,053 million to $8,530 million. The current contribution rate necessary to amortize the UAAL over 30 years is 8.11% of payroll. Under the proposal, the 30-year contribution rate would decrease by 1.99% to 6.12% of payroll.
METHODOLOGY AND STANDARDS
The analysis assumes no further changes are made to TRS and cautions that the combined economic impact of several proposals can exceed the effect of each proposal considered individually. Except as otherwise noted, the analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the
SOURCES:
Actuarial Analysis by Lewis Ward & W. Michael Carter, Gabriel, Roeder, Smith & Co.
GLOSSARY OF ACTUARIAL TERMS:
Normal Cost-- the current annual cost as a percentage of payroll that is necessary to pre-fund pension benefits adequately during the course of an employee's career.
Net Asset / Net Liability--This is the difference between the Actuarial Value of Assets and the Actuarial Accrued Liability. A Net Asset (also called the "Overfunded Actuarial Liability) exists only when the Actuarial Value of Assets exceeds the Actuarial Accrued Liability, and is the amount of this excess. This only occurs when a plan is overfunded. A Net Liability (also called the Unfunded Actuarial Liability) exists only when the Actuarial Accrued Liability exceeds the Actuarial Value of Assets. This only occurs when a plan is underfunded.
Present Value of All Projected Benefits—The discounted value of all benefits expected to be paid to current plan participants. As a part of the actuarial valuation process, this total projected liability is allocated to past service (the Actuarial Accrued Liability), to current service (the Normal Cost), and to future sevice (the Present Value of Future Normal Costs).
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
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LBB Staff: | JOB, SR, WM
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