Honorable Jim Murphy, Chair, House Committee on Pensions, Investments & Financial Services
FROM:
John McGeady, Assistant Director Sarah Keyton, Assistant Director Legislative Budget Board
IN RE:
HB9 by Bonnen, Greg (Relating to the contributions to and benefits under the Teacher Retirement System of Texas.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for HB9, As Introduced: an impact of $0 through the biennium ending August 31, 2021.
The bill would make no appropriation but could provide the legal basis for an appropriation of funds to implement the provisions of the bill.
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2020
$0
2021
$0
2022
($332,128,548)
2023
($433,607,780)
2024
($543,469,240)
2025
($662,268,879)
2026
($790,596,591)
Fiscal Year
Probable Savings/(Cost) from General Revenue Fund 1
Probable Revenue Gain/(Loss) from TRS Trust Account Fund 960
2020
$0
$0
2021
$0
$0
2022
($332,128,548)
$518,950,856
2023
($433,607,780)
$677,512,156
2024
($543,469,240)
$849,170,688
2025
($662,268,879)
$1,034,795,123
2026
($790,596,591)
$1,235,307,174
Fiscal Analysis
The bill would amend the Government Code to increase state contributions to the Teacher Retirement System (TRS) for public and higher education retirement benefits.
The bill would provide that if the state were to reduce its contribution rate from rates required by the bill, the required 7.7 percent employee contribution rate for that fiscal year would be decreased by 0.1 percent for each 0.1 percent the state reduces its contribution rate.
The bill would require the state to contribute to TRS the following percentages of aggregate annual compensation for all members during each fiscal year: 6.8 percent for fiscal year 2020, 6.8 percent for fiscal year 2021, 7.8 percent for fiscal year 2022, 8.05 percent for fiscal year 2023, 8.3 percent for fiscal year 2024, 8.55 percent for fiscal year 2025, and 8.8 percent per year thereafter.
The bill would require TRS to provide a onetime supplemental payment of a retirement or death benefit to certain annuitants during the 2020-21 biennium, contingent upon receipt of an additional appropriation from the state equal to the cost of the payment. The payment would equal the lesser of $2,400 or the gross annuity payment to which the annuitant is entitled for the month preceding the month when TRS issues the payment.
Methodology
This analysis estimates the bill would have no cost in the 2020-21 biennium but would result in a cost of $765.7 million in General Revenue for the 2022-23 biennium.
Based on fiscal year 2018 TRS payroll data, this analysis assumes public and higher education covered payroll would total $34.1 billion and $9.6 billion, respectively, in fiscal year 2020. This analysis assumes that these amounts would increase annually by 4.1 percent and 5.6 percent, respectively, based on projected payroll growth trends. The bill would increase the current 6.8 percent state contribution rate for fiscal year 2019 by 1.0 percentage point in fiscal year 2022 and by an additional 0.25 percentage points each fiscal year from 2023 to 2026. Applying these rate increases to the assumed payroll results in estimated additional total state contributions of $519.0 million in fiscal year 2022, $677.5 million in fiscal year 2023, increasing to $1,235.3 million in fiscal year 2026. These amounts would represent additional revenues to TRS Trust Account Fund 960. Final contribution amounts would vary based on actual payroll growth.
TRS assumes 64.0 percent of the total additional state contributions would be paid by General Revenue Funds, and the remaining 36.0 percent would be funded by increased payments from public and higher education employers pursuant to Government Code, Chapter 825. These employer payments, which offset General Revenue, include the Statutory Minimum Contribution, contributions for new TRS members for the first 90 days of employment, federal funds and private grants, Educational and General Funds, non-Educational and General Funds, and contributions for employees of community colleges. Using the TRS assumption of 64.0 percent of the state's contribution being paid by General Revenue results in additional state costs of $332.1 million in fiscal year 2022, $433.6 million in fiscal year 2023, increasing to $790.6 million in fiscal year 2026. However, actual General Revenue costs would vary based on the actual growth of payroll and employer payments offsetting General Revenue.
TRS estimates that the bill would reduce the funding period, or time to pay off the unfunded actuarially accrued liability, of the TRS Trust Account Fund 960 to 32 years as of August 31, 2019. This analysis therefore assumes that the supplemental payment provided by the bill would not be issued, as current law prohibits the creation of new monetary benefits payable by the pension fund unless the funding period would be less than 31 years after the benefit was established. However, if the bill were amended to reduce the funding period below 31 years, TRS assumes the cost to provide a onetime supplemental payment of a retirement or death benefit to certain annuitants under the bill would total $658.0 million in General Revenue in fiscal year 2020.
Local Government Impact
This analysis assumes the bill would result in additional retirement costs statewide for public education employers beginning in the 2022-23 biennium. Based on fiscal year 2018 TRS payroll data, this analysis assumes payments from public education employers would represent 20.0 percent of the increased state contributions, totaling an estimated $102.1 million in fiscal year 2022, $133.3 million in fiscal year 2023, increasing to $243.0 million in fiscal year 2026. Actual costs would vary based on the actual payroll amounts.
This analysis further assumes additional payments from community colleges would represent 2.0 percent of the increased state contributions, resulting in statewide additional costs to community colleges estimated to be $8.8 million in fiscal year 2022, $11.5 million in fiscal year 2023, increasing to $21.0 million in fiscal year 2024. Actual costs would vary by employer based on actual payroll amounts.