Projected as of August 31, 2019

Employees Retirement System of Texas	Current	Proposed	Difference
Unfunded Actuarial Accrued Liability (millions)	$11,956.60	$11,656.60	($300.00)
Funded Ratio	70.10%	70.90%	0.80%
Amortization Period (years)	Infinite	Infinite	N/A
31-Year Total Contribution Rate (% of payroll)	23.07%	22.81%	-0.26%

Projected as of August 31, 2019

Teacher Retirement System of Texas	Current	Proposed	Difference
Unfunded Actuarial Accrued Liability	N/A*	N/A*	($300.00)
Funded Ratio	N/A*	N/A*
Amortization Period (years)	99	92	-7
30-Year Total Contribution Rate (% of payroll) **	17.27%	17.24%	-0.03%

*Not available
**Calculated by PRB based on the increase in contribution rates provided by TRS's AA.

ACTUARIAL EFFECTS
The bill would provide supplemental appropriations of $300 million each to ERS and TRS from the Economic Stabilization Fund for the fiscal year ending August 31, 2019.  

Employees Retirement System of Texas (ERS): The actuarial analysis for ERS indicates that the $300 million contribution would improve the expected funded ratio from 70.1% to 70.9% and decrease the annual contribution necessary to amortize the unfunded actuarial accrued liability as a level percentage of payroll over 31 years from 9.29% to 9.03%. The bill would have no impact on the cost of the benefits or expected contributions to the plan outside of the one-time appropriation.

The Pension Review Board's (PRB) actuarial review states that ERS is currently actuarially unsound. Under the bill, funding levels would improve slightly, however, ERS would remain actuarially unsound.

Teacher Retirement System of Texas (TRS): The actuarial analysis (AA) for TRS indicates that the unfunded accrued actuarial accrued liability would be $300 million lower than projected as of August 31, 2019. In addition, the AA notes the expected funding period would decrease from 99 to 92 years and the additional annual contribution necessary to fund the plan over a 30-year period would decrease from 1.84% to 1.81% of payroll.

PRB's actuarial review notes that the AA for TRS references the February 28, 2019 valuation update which has not been published yet. Therefore, the PRB was unable to verify the reasonableness of the baseline values utilized for TRS' analysis or the reasoning for assuming a 1% growth in the active population; however, based on the values provided and the active member growth assumption, the reductions in funding period and contribution requirements appear reasonable.

The PRB's actuarial review states that TRS is currently actuarially unsound. Under the bill, funding levels would improve slightly, however, TRS would remain actuarially unsound.

SYNOPSIS OF PROVISIONS
The bill would appropriate $300 million each to ERS and TRS from the Economic Stabilization Fund in addition to amounts previously appropriated for the state's fiscal year ending August 31, 2019.

If passed, the bill would take effect immediately.

FINDINGS AND CONCLUSIONS
Under the current PRB Pension Funding Guidelines, funding should be adequate to amortize the unfunded actuarial accrued liability over a period which should not exceed 30 years, with 10 - 25 years being a more preferable target. ERS and TRS statutes define actuarial soundness, for purposes of making modifications to benefit and contribution levels, as no more than 31 years. According to both statutory and PRB criteria, ERS and TRS are currently actuarially unsound. 

The actuarial review notes that the bill would provide a onetime supplemental appropriation of funds to ERS and TRS. As such, neither system would incur costs associated with implementing the bill. The bill would have no direct impact on any members of the systems.

METHODOLOGY AND STANDARDS
ERS: The actuarial assumptions and methods for ERS are the same as those used by GRS for the August 31, 2018 actuarial valuation.

TRS: The actuarial assumptions and methods for TRS are generally the same as those used by GRS for the August 31, 2018 actuarial valuation except: 1) assets are valued assuming a loss of -0.48% for the six-month period ending February 28th, 2019; and 2) active membership is assumed to grow by 1% from 2018 to 2019. The PRB is unable to comment on the reasonableness of these two assumptions.

Except as otherwise noted above for TRS, according to the PRB actuary, the actuarial assumptions, methods and procedures are reasonable for the purpose of this analysis. 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. This analysis is based on the assumption that no other legislative changes affecting the funding or benefits of ERS or TRS will be adopted. It should be noted that when several proposals are adopted, the effect of each may be compounded, resulting in a cost that is greater (or less) than the sum of each proposal considered independently.

SOURCES
ERS Actuarial Analysis by R. Ryan Falls, FSA, EA, MAAA, GRS, February 22, 2019.
TRS Actuarial Analysis by Daniel Siblik, ASA, and Joseph P. Newton, FSA, GRS, March 8, 2019.
Actuarial Review by Kenneth J. Herbold, ASA, EA, MAAA, Staff Actuary, Pension Review Board, March 8, 2019.

GLOSSARY
Actuarial Accrued Liability(AAL) -The portion of the PVFB that is attributed to past service.
Actuarial Value of Assets (AVA)- The smoothed value of system's assets.
Amortization Payments - The yearly payments made to reduce the Unfunded Actuarial Accrued Liability (UAAL).
Amortization Period - The number of years required to pay off the unfunded actuarial accrued liability. The State Pension Review Board recommends that funding should be sufficient to cover the normal cost and to amortize the UAAL over as brief a period as possible, but not to exceed 30 years, with 10-25 years being the preferable target range.
Actuarial Cost Method - A method used by actuaries to divide the Present Value of Future Benefits (PVFB) into the Actuarial Accrued Liability (AAL), the Present Value of Future Normal Costs (PVFNC), and the Normal Cost (NC).
Funded Ratio (FR) - The ratio of actuarial assets to the actuarial accrued liabilities.
Market Value of Assets (MVA) -The fair market value of the system's assets.
Normal Cost (NC) - The portion of the PVFB that is attributed to the current year of service.
Present Value of Future Benefits (PVFB) - The present value of all benefits expected to be paid from the plan to current plan participants.
Present Value of Future Normal Costs (PVFNC) - The portion of the PVFB that will be attributed to future years of service.
Unfunded Actuarial Accrued Liability (UAAL) - The Actuarial Accrued Liability (AAL) less the Actuarial Value of Assets (AVA).