ACTUARIAL EFFECTS:

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 in order to resume full-time employment with no loss of monthly annuity payments, it is their opinion the bill will 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 die, 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 will 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 2010, members who had returned to work forfeited approximately $52 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, if all currently forfeited benefits were made payable, TRS could pay out as much as $260 million more in benefits over the next five years.

The PRB reviewing actuary estimates that the present value of an extra $52 million in annual benefits payable in perpetuity would be about $600 million.  The bill does not provide for funding of the additional benefits. 

According to the actuarial analysis, the bill, if enacted, would not have a material actuarial impact on TRS. However, the analysis also states that their calculations are based upon assumptions regarding future events, which may or may not materialize, and hence, advises to bear in mind that actual results could deviate significantly from their projections, depending on actual plan experience. 

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

SYNOPSIS OF PROVISIONS:

HB 3353 would provide the following changes regarding return-to-work retiree provisions:

·         Allow a service retiree who retired on or before January 1, 2011, to work full-time in a Texas public educational institution with no loss of monthly annuity payments. Additionally, service retirees who retired on or before January 1, 2011, resumed employment after retirement and whose benefit payments were suspended under Section 824.601 would be entitled to the resumption of the monthly benefit payments. The said monthly benefit payments shall be resumed on the first payment date occurring on or after the effective date of this bill. However, the aforementioned return-to-work retirees entitled to the resumption of monthly benefit payments would not be entitled to recover the past suspended benefit payments. 

·         Allow service retirees who retire after January 1, 2011, and have been separated from service with all Texas public educational institutions for at least 12 full consecutive months immediately after retiring, to resume full-time employment with no loss of monthly annuity payments. Currently, a return-to-work retiree will forfeit the annuity payment for any additional month the retiree works in excess of a period of six months, in a school year.

·         Eliminates other exceptions  to the loss of monthly annuity under Section 824.601(b) for working in Texas public educational institutions, including working full-time as a teacher in an acute shortage area after a 12-month break in service after retirement; working as a principal or assistant principal full-time after a 12-month break in service after retirement; working as a bus driver full-time; or working as a faculty member in a professional nursing program after a 12-month break in service after retirement.  

The provisions of this bill will take effect immediately if it receives a vote of two-thirds of all the members elected to each house.  If this bill does not receive the vote necessary for immediate effect, it would take effect September 1, 2011.

FINDINGS AND CONCLUSIONS:

Currently, service retirees have to wait for one full calendar month after retirement before returning to work with an employer covered by TRS. Additionally, a full-time position is limited to a period of six-months of a school year that begins after the retiree’s effective date of retirement. A return-to-work retiree will forfeit the annuity payment if the retiree works in a full-time position in any month in the same school year in which the retiree retired or if the retiree works in excess of a period of six months in a school year. However, there are several exceptions to the aforementioned provision.

The proposed bill provides for a service retiree who retired on or before January 1, 2011, to work full-time in a Texas public educational institution with no loss of monthly annuity payments. Additionally, service retirees who retired on or before January 1, 2011, resumed employment after retirement and whose benefit payments were suspended would be entitled to the resumption of the monthly benefit payments. The bill would also allow service retirees who retire after January 1, 2011, and have been separated from service with all Texas public educational institutions for at least 12 full consecutive months immediately after retiring, to resume full-time employment with no loss of monthly annuity payments.  

According to the actuarial analysis, the bill, if enacted, would not have a material actuarial impact on TRS. However, the analysis also states that their calculations are based upon assumptions regarding future events, which may or may not materialize, and hence, advises to bear in mind that actual results could deviate significantly from their projections, depending on actual plan experience. 

METHODOLOGY AND STANDARDS:

The analysis and calculations are based on the member data of TRS as of August 31, 2010, the actuarial value of assets updates as of February 28, 2011, and the actuarial assumptions and methods in use as of August 31, 2010 for valuing the actuarial condition of TRS. Finally, this analysis is based on all other provisions of TRS in effect as of August 31, 2010. 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 Analysis by Lewis Ward and Joseph P. Newton, Actuaries, Gabriel Roeder Smith & Company, March 29, 2011.

Actuarial Review by Mr. Dan P. Moore, Staff Actuary, PRB, April 15, 2011

GLOSSARY OF ACTUARIAL TERMS:

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 II benefits or state contribution rates if the result is an amortization period exceeding 30.9 years.