HB 1907 would amend the Texas Government Code and provide changes relative to the Teacher Retirement System of Texas (TRS) so that certified counselors who retired under Section 824.202 (a) or (a-1) and have been separated from service for at least 12 months can return to full-time employment as an employee for a school district or an open-enrollment charter school (other than a third-party entity) without TRS withholding their monthly benefit payment.  

The actuarial analysis states that counselors make up approximately 2% of the active population.  Based on membership information as of August 31, 2008, TRS has 801,455 active members and 56,300 terminated vested members.  Using the 2% estimate provided by the plan’s actuary, there are approximately 16,000 active members who are counselors and approximately 1,100 annuitants who were counselors.

According to the analysis prepared by the TRS actuarial consultants, because this bill modifies the “return to work” provisions to require a retiree to wait 12 months before returning to work, it is their opinion the bill would not impact the decision to retire for current active members.  Also, as part of the actuarial valuation, it is assumed that all retirees will be paid their pension for the entire year (unless they become deceased), so any suspensions of benefits result in an actuarial gain for the System at the following valuation.  As a result, given the small subset of members actually impacted by the bill, it is their opinion that this bill would have no material actuarial impact on the actuarial valuation of TRS. 

While passage of this bill would not currently impact the actuarial valuation of TRS, there would be an actual monetary cost to TRS if the bill is enacted.  As stated above, TRS experiences an actuarial gain when retirees have their pensions suspended.  In fiscal year 2008, members who had returned to work forfeited approximately $58 million in retirement benefits.  Any bill or combination of bills that would make some or all of these benefits payable would have a corresponding cost over time.  For example, in all currently forfeited benefits were made payable, TRS could pay out as much as $290 million more in benefits over the next five years.

The cost of this legislation by itself is much smaller due to the fact that counselors make up approximately 2% of the active population.  If counselors also make up 2% of the rehired retirees who are currently forfeiting pensions, TRS actuaries estimate the impact of this specific bill to be an additional payout of approximately $6 million over the next five years, which would average $1.2 million per year.  The PRB reviewing actuary estimates that the present value of an extra $1.2 million in annual benefits payable in perpetuity is about $15 million.  The bill does not provide for funding of the additional benefits. 

According to the actuarial analysis, the provisions of this legislation would not cause the TRS funding period to increase; therefore, it would not violate the TRS funding statutes. 

The analysis and calculations are based on the member data of TRS as of August 31, 2008, the actuarial value of assets updated as of February 28, 2009, and the actuarial assumptions and methods in use as of August 31, 2008 for valuing the actuarial condition of TRS.  Finally, this analysis is based on all other provisions of TRS in effect as of August 31, 2008.

According to the actuarial analysis, the bill, if enacted, would not have a material actuarial impact on TRS.

SOURCES: 

Actuarial Analysis by W. Michael Carter, FSA, Lewis Ward, Joseph P. Newton, FSA, Gabriel Roeder Smith & Company, Consultants and Actuaries, March 23, 2009.

Actuarial Review by Martin McCaulay, Deputy Executive Director/Actuary, Pension Review Board, April 2, 2009