ACTUARIAL EFFECTS
The actuarial review states under the current Pension Review Board (PRB) Pension Funding Guidelines, funding should be sufficient to cover the normal cost and to amortize the unfunded actuarial accrued liability (UAAL) over as brief a period as possible, but not to exceed 30 years, with 10 - 25 years being the preferable target range. The Teachers Retirement System of Texas (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 projects the funding period would decrease by approximately 6 months, with full funding occurring slightly earlier during fiscal year 2050 than currently projected, following the passage of this bill.
SYNOPSIS OF PROVISIONS
The bill would place regulations and taxes on the sale of cannabis. The bill also would establish a Public School Teachers Fund that would receive a portion of the proceeds of the taxation of cannabis. The Public School Teachers Fund would deposit half of its proceeds into a fund for teacher retirement support and the other half in a teacher salary support account.
The bill would provide additional funding to TRS through the Public School Teachers Fund.
The bill would take effect September 1, 2023.
FINDINGS AND CONCLUSIONS
The actuarial review states that the additional funding would benefit the fund and would not apply any additional costs. Any increased revenue would be a positive impact to the pension fund to help pay down the unfunded liability.
The actuarial analysis states, based on revenue estimates provided to TRS through the Legislative Budget Board, it is estimated the bill would likely provide an additional $6 million in funding in fiscal year 2025 and could eventually increase up to $50 million in fiscal year 2028, as shown in the chart below.
Fiscal Year
|
Revenue Transfer ($ in millions)
|
2025
|
$5.9
|
2026
|
$15.1
|
2027
|
$35.9
|
2028
|
$50.1
|
The actuarial analysis also states it is assumed that the amount in fiscal year 2028 would continue to grow in future years at a rate of three percent per year.
METHODOLOGY AND STANDARDS
The TRS actuarial analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the TRS actuarial valuation for February 28, 2023.
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, and Dana Woolfrey, FSA, EA, MAAA, Gabriel, Roeder, Smith, and Company, April 26, 2023.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, April 26, 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.