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 net funding period would not be expected to change due to the increase in 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 current actuarial model includes an assumption for how salaries for individual members and overall pay will grow over time. While there is the potential that the salary increases in the bill would exceed the current assumption, it is believed that the impact to TRS would be modest.
 
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 3, 2023.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, April 3, 2023.
 
GLOSSARY

Actuarial Accrued Liability (AAL) -The current value of benefits attributed to past years.
Actuarial Value of Assets (AVA) - The value of assets used for the actuarial valuation. The AVA can be either the market value (MVA) or a smoothed value of assets.
Amortization Payments - The portion of the total contribution used to reduce the unfunded actuarial accrued liability (UAAL).
Amortization Period - The specified length of time used when calculating the amortization payment portion of an actuarially determined contribution, or as the time it would theoretically take to fully fund the UAAL or fully recognize a surplus. 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 -An actuarial cost method is a way to allocate pieces of a participant's total expected benefit to each year of their working career. In other words, it is a technique to determine how much of the present value of future benefits (PVFB) to assign to past service (AAL) vs. future service (present value of future normal costs, or PVFNC).
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) - Computed differently under different actuarial cost methods, the normal cost generally represents the current value of benefits attributed to the present year. The employer normal cost equals the total normal cost of the plan reduced by employee contributions.
Present Value of Future Benefits (PVFB) - The current value of all benefits expected to be paid from the plan to current plan participants.
Present Value of Future Normal Costs (PVFNC) - The current value of benefits attributed to the present year and all future years (includes the normal cost as the first year).
Unfunded Actuarial Accrued Liability (UAAL) - The difference between the actuarial accrued liability and the actuarial value of assets; therefore, the UAAL is the amount that is still owed to the fund for past obligations.