ACTUARIAL EFFECTS
According to the Teacher Retirement System (TRS), the bill creates a grant program under the Texas Education Agency (TEA) to reimburse school districts and charter schools for the TRS surcharge for rehired retired teachers with specified qualifications. The grant program provides for the employers to be reimbursed after they pay the current surcharge, so this provision should not impact TRS.
SYNOPSIS OF PROVISIONS
The bill would make changes to multiple sections of the Texas Education Code. There are four main sections of the bill with a potential impact on TRS funding:
Section 12 of the bill would add new Section 21.416 to the Education Code to establish a grant program to pay certain fees related to rehiring retired teachers.
Section 19 of the bill would amend Section 48.112(c) and (d) of the Education Code to increase pay under the Teacher Incentive Allotment for classroom teachers with certain designations.
Section 22 of the bill would repeal Section 825.4092(f) that currently prohibits surcharges related to rehiring retired teachers to be passed down to the retiree.
Changes to Sections 21.416 of the Education Code would take effect immediately if the bill received a vote of two-thirds of all the members elected to each house, otherwise they would take effect September 1, 2023. Changes to Section 48.112 of the Education Code would take effect September 1, 2023.
SOURCES
Email correspondence from TRS, May 17, 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.