ACTUARIAL EFFECTS
The actuarial analysis states that the bill would be expected to increase total payroll of the Teacher Retirement System of Texas (TRS) by approximately $1.5 billion the first year and approximately $2 billion per year after five years. This is estimated to increase the unfunded actuarial accrued liability (UAAL) by $1.8 billion.
The actuarial review states under the current PRB Pension Funding Guidelines, 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 to 25 years being the preferable target range. TRS statute defines actuarial soundness, for purposes of making modifications to benefit and contribution levels, as less than 31 years. TRS is currently actuarially sound, with an amortization period of 27 years. The actuarial analysis states the funding period would be expected to increase by one year, and the increase in the UAAL would mostly be offset by increased contributions that would accompany the increase in payroll.
SYNOPSIS OF PROVISIONS
The bill would make changes to multiple sections of the Texas Education Code, including but not limited to, increases to the state's minimum salary schedule for teachers and other specified positions.
Section 21.402 of the Education Code would be amended to redefine the minimum salary schedule for all classroom teachers, full-time librarians, full-time school counselors, and full-time school nurses from a minimum monthly schedule to a highest annual minimum.
In addition to the increased annual minimum salaries, a school district or open-enrollment charter school would also have to increase the average total compensation for classroom teachers, full-time librarians, full-time school counselors, and full-time school nurses based on the difference between salaries paid before and after the effective date of the bill. This calculation could not include compensation to new hires that would increase the ratio of employees to enrolled students from the preceding year's ratio.
This increase in compensation could also be satisfied by providing a one-time bonus payment during the 2024-2025 school year in an amount equal to the difference between compensation in the 2023-2024 school year and the amount they would have earned if they had followed the previously described compensation increase, or by increasing their compensation in the 2023-2024 school year by at least $8,000 more than what their compensation was for the 2022-2023 school year.
The bill would be effective September 1, 2024.
FINDINGS AND CONCLUSIONS
The actuarial analysis states the actual cost will depend on how the actual salary increases are distributed. If teachers with more service receive a higher portion of the allotment then the UAAL will likely increase by slightly more than $1.8 billion. However, if shorter service or lower paid teachers end up with a higher portion, the UAAL increase could be slightly less.
METHODOLOGY AND STANDARDS
The TRS analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the TRS actuarial valuations for August 31, 2022.
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 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
Actuarial Analysis by Joseph P. Newton, FSA, EA, MAAA, and Dana Woolfrey, FSA, EA, MAAA, Gabriel, Roeder, Smith & Company, April 18, 2023.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, April 18, 2023.
GLOSSARY