According to the Employees Retirement System of Texas (ERS), assuming that the level dollar contribution structure which includes an anticipated $510 million legacy payment during fiscal year 2025 will continue, the lump sum appropriation of $1 billion would reduce the unfunded liability of the system as of August 31, 2025, from $13.4 billion to $12.4 billion.  Assuming the state continues the $510 million legacy payment, the additional $1 billion from the bill would save the state $2.5 billion over the long term and accelerate the time to full funding by two years.

 
The actuarial review states under the current Pension Review Board (PRB) Pension Funding Guidelines, funding should be adequate to amortize the unfunded actuarial accrued liability (UAAL) over a period which should not exceed 30 years as of September 1, 2025, and not to exceed 15 years after September 1, 2040. ERS statute defines actuarial soundness, for purposes of making modifications to benefit and contribution levels, as less than 31 years. ERS is currently actuarially sound, with an amortization period of 30 years. ERS would be projected to be fully funded by 2043 following the passage of the bill.

 
SYNOPSIS OF PROVISIONS
Among other provisions, the supplemental appropriations bill includes $1 billion from the General Revenue Fund to amortize the ERS unfunded liability in addition to the statutorily required legacy liability payment.
 
FINDINGS AND CONCLUSIONS
The actuarial analysis estimates a reduction in the ERS amortization period by approximately two years, reducing the time to full funding from 2045 to 2043 and saving the state approximately $2.5 billion over the long term.
 
METHODOLOGY AND STANDARDS
The ERS analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the ERS actuarial valuations for August 31, 2024, projected to August 31, 2025.

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 ERS 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 Dana Woolfrey, FSA, EA, MAAA, Thomas J. Bevins, ASA, MAAA, Joe Newton, FSA, EA, MAAA, Gabriel, Roeder, Smith & Company, March 30, 2025.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, March 30, 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 Pension Review Board recommends that funding be adequate to amortize the UAAL over a period which 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 (it 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.