| TO: | Honorable Vicki Truitt, Chair, House Committee on Pensions & Investments |
| FROM: | John S. O'Brien, Director, Legislative Budget Board |
| IN RE: | SB1846 by Duncan (Relating to funding for, and benefits provided under, the Teacher Retirement System of Texas.), As Engrossed |
| Fiscal Year | Probable Net Positive/(Negative) Impact to General Revenue Related Funds |
|---|---|
| 2008 | ($24,826,345) |
| 2009 | ($26,031,865) |
| 2010 | ($27,420,662) |
| 2011 | ($28,815,899) |
| 2012 | ($30,280,897) |
| Fiscal Year | Probable Savings/(Cost) from GENERAL REVENUE FUND 1 |
Probable Savings/(Cost) from EST OTH EDUC & GEN INCO 770 |
Probable Savings/(Cost) from TRS TRUST ACCOUNT FUND 960 |
Probable Revenue Gain/(Loss) from TRS TRUST ACCOUNT FUND 960 |
|---|---|---|---|---|
| 2008 | ($24,826,345) | ($1,233,130) | ($25,490) | $75,584,965 |
| 2009 | ($26,031,865) | ($1,294,787) | ($26,764) | $78,398,416 |
| 2010 | ($27,420,662) | ($1,359,526) | ($28,102) | $81,322,841 |
| 2011 | ($28,815,899) | ($1,427,502) | ($29,508) | $84,362,895 |
| 2012 | ($30,280,897) | ($1,498,877) | ($30,983) | $87,523,443 |
The bill would allow the rate of contributions to the Teacher Retirement System (TRS) retirement trust fund by active members to be increased to a rate up to 6.6 percent or decreased to a rate not lower than 6.0 percent in the General Appropriations Act consistent with contributions required to maintain the actuarial soundness of the fund. The bill would stipulate that the state contribution rate may not be lower than the active member contribution rate.
The bill would require local employers of employees covered by TRS other than institutions of higher education to contribute to the TRS retirement trust fund an amount between 0.25 and 0.75 percent of aggregate annual compensation of employees who are contributing TRS members. The bill would allow that employers may deduct contributions made by the employer for Social Security under the Federal Insurance Contributions Act from contributions to TRS required by the bill. The bill stipulates that the rate, within the range established by the bill, would be set in the General Appropriations Act. The sum of the rate of an employer's contribution under this provision and the rate of an employer's contribution to the TRS-Care, Retired School Employee Group Insurance Program, may not exceed 1 percent of aggregate payroll.
The bill would exempt school districts from return-to-work retiree employer surcharge payments for retirees who retired before September 1, 2005.
The bill would direct TRS to make a one-time supplemental benefit payment to eligible annuitants in September 2007 equal the amount of the regular annuity payment to which annuitants are entitled for August 2007.
Assuming the active member contribution rate remains at 6.4 percent, the provision that would provide a supplemental benefit to eligible annuitants in September 2007 would increase the state contribution rate required to achieve a 30-year funding period for the Retirement Trust Fund from 6.6 percent to 6.7 percent, based on the actuarial value of assets as of February 28, 2007. The incremental cost of increasing the state contribution rate from 6.6 percent to 6.7 percent is estimated at $26 million in fiscal year 2008 and $27 million in fiscal year 2009 in All Funds. The provisions of the bill would allow those costs to be funded through a combination of state and member contribution rates as long as the state contribution rate remains at least equal to the active member contribution rate. To the extent that the active member contribution rate may be adjusted to absorb a portion of the cost associated with the provisions of the bill, state cost could be reduced.
TRS estimates that the deduction for Social Security payments and the exemption for institutions of higher education would reduce revenue to the Retirement Trust Fund associated with the local employer contribution established by the bill by about 25 percent as compared with the revenue that would be generated by a similar contribution from the state. Assuming the local employer rate is established at the minimum 0.25 percent, the associated revenue to the Retirement Trust fund is estimated at $49.5 million in fiscal year 2008 and $51.0 million in fiscal year 2009.
If the state contribution rate to the TRS Retirement Trust Fund were established at 6.4 percent, TRS estimates that a 0.4 percent local employer rate would be required in order to achieve a 30-year funding period after accounting for the payment of the one-time supplemental benefit that would be provided by the bill.
Local employers would be required to contribute between 0.25 and 0.75 percent of aggregate total compensation for employees who are contributing TRS members to the TRS retirement trust fund. The sum of the rate of an employer's contribution under this provision and the rate of an employer's contribution to the TRS-Care, Retired School Employee Group Insurance Program, may not exceed 1 percent of aggregate payroll. Assuming the local employer rate is established at the minimum 0.25 percent, the associated cost to local employers is estimated at $49.5 million in fiscal year 2008 and $51.0 million in fiscal year 2009 statewide.
If the state contribution rate to the TRS Retirement Trust Fund were established at 6.4 percent, TRS estimates that a 0.4 percent local employer rate would be required in order to achieve a 30-year funding period after accounting for the payment of the one-time supplemental benefit that would be provided by the bill. The associated local cost of an 0.4 percent contribution is estimated at $79.2 million in fiscal year 2008 and $81.6 million in fiscal year 2009 statewide.
The bill would expand the number of TRS retirees for which hiring school districts would be exempt from return-to-work-related surcharges for pension and insurance.
| Source Agencies: | 323 Teacher Retirement System
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| LBB Staff: | JOB, KJG, UP, JSc
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