*The current contribution rate is insufficient to amortize the unfunded liability over a 30-year period. Currently, the total contribution rate necessary to maintain a 30-year funding period is 13.00% of payroll. Under the proposal, the required 30-year amortization rate would increase by 0.10% of payroll to 13.10%, the amount of total contribution in the proposed bill.

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

ACTUARIAL EFFECTS:

CSHB 1105 would not increase the normal cost of the Teacher Retirement System (TRS). The unfunded actuarial accrued liability would increase under the proposal by $410 million, from $12.060 billion to $12.470 billion. Currently, a total contribution rate of 13.00% of payroll is necessary to amortize the unfunded actuarial accrued liability over 30 years. The proposed change would require an increase to 13.10% of payroll to amortize the unfunded actuarial accrued liability over 30 years. CSHB 1105, if enacted, would not violate TRS funding statutes as the proposal would increase total contributions to 13.10% of payroll.

SYNOPSIS OF PROVISIONS

This bill, to be effective September 1, 2007, would provide the following:

·         Require a minimum state contribution of at least 6.7%, with a maximum state contribution of not more than ten percent.

·         Provide a supplemental payment for eligible annuitants in an amount equal to their monthly benefit, paid no later than September 2007.

FINDINGS AND CONCLUSIONS

CSHB 1105 would require a minimum state contribution of at least 6.7%, with a maximum state contribution of not more than ten percent. The bill also would provide a supplemental payment for eligible annuitants in an amount equal to their monthly benefit, paid no later than September 2007. All retirees and beneficiaries who have retired on or before December 31, 2006 would be eligible for the supplemental payment, except disability retirees with less than 10 years of service credit, members in the deferred retirement option program, retiree survivor beneficiaries receiving a survivor annuity in an amount fixed by statute, and active survivor beneficiaries receiving a survivor annuity in an amount fixed by statute.

CSHB 1105 would not increase the normal cost of the Teacher Retirement System (TRS). The unfunded actuarial accrued liability would increase under the proposal by $410 million, from $12.060 billion to $12.470 billion. Currently, a total contribution rate of 13.00% of payroll is necessary to amortize the unfunded actuarial accrued liability over 30 years. The proposed change would require an increase to 13.10% of payroll to amortize the unfunded actuarial accrued liability over 30 years. CSHB 1105, if enacted, would not violate TRS funding statutes as the proposal would increase total contributions to 13.10% of payroll.

METHODOLOGY AND STANDARDS

The analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the August 31, 2006 actuarial valuation of TRS, as well as the February 28, 2007 actuarial valuation update.  The analysis assumes no further changes are made to TRS.  According to the PRB actuary, the actuarial assumptions, methods, and procedures 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.

SOURCES:

Actuarial Analyses by Lewis Ward & W. Michael Carter, Actuaries, Gabriel, Roeder, Smith & Co. March 27, 2007.

Actuarial Review by Mr. Richard E. White, & Robert L. Schmidt, Actuaries, Milliman, March 27, 2007

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.

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.