SYNOPSIS OF PROVISIONS
This bill would create an education savings account (ESA) program which would provide funding for certain approved education-related expenses of participating children. A child would be eligible to participate in the ESA program if the child would be eligible to attend public school or enroll in a public school's prekindergarten program under certain statutes. 
 
FINDINGS AND CONCLUSIONS

The TRS analysis for the actuarial effects of the bill focuses on the percent of payroll that is contributed based on active employee payroll in public education, as that is the payroll source that could be impacted by TRS members moving out of TRS-covered employment as a result of employment through an education savings account program. 

The TRS actuary assumes that increasing private school enrollment would represent a shift of approximately 24,500 students from public to private schools annually, resulting in an estimated shift of 2,450 teachers from TRS-covered public school to non-TRS-covered private school employment. These employees represent approximately 0.25 percent of the total active members in TRS. This would cause TRS-covered payroll to grow slower than the 2.9% annual pace currently assumed, and therefore the contributions received would grow more slowly than currently projected. This slower rate of growth would add one year to the 28-year funding period, but the TRS pension fund would remain actuarially sound per the statutory definition.

According to TRS, if a level headcount of active TRS members is maintained, it would not have an impact on the expected funding progress for the retirement system, as the TRS actuarial valuation methodology already assumes a level headcount. The actuarial review states that active TRS members have increased each of the last four fiscal years, from 918,545 in fiscal year 2021 to 970,874 in fiscal year 2024. Due to the increasing TRS headcount, there is capacity for outflow of teacher employment from public schools to private schools without causing a reduction in active TRS members. The actual TRS member headcount will ultimately depend on the population growth of Texas.

 
METHODOLOGY AND STANDARDS
The TRS analysis relies on the participant data, financial information, and benefit structure for fiscal year 2024, and actuarial assumptions and methods used in the TRS actuarial valuations for February 28, 2025.
 
According to the PRB staff 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, GRS, March 7, 2025.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, March 7, 2025.
 
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 a period that should not exceed 30 years as of September 1, 2025, and not to exceed 15 years after September 1, 2040.
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.