ACTUARIAL EFFECTS
The bill would create a supplemental program retirement fund to provide retirement benefits for certain law enforcement officers in the Teacher Retirement System of Texas (TRS). Eligible members of the program would receive an increase of 0.5 percent to their benefit multiplier, but would contribute an additional 0.5 percent of their salary. The state contribution rate would also increase by 1.5 percent of member salary.
The actuarial analysis states the dollar amount of state contributions is projected to be $5.6 million for fiscal year 2026 and $5.8 million for fiscal year 2027, in addition to what the state currently pays. The total actuarial value of past service for current peace officers is $88 million. The additional contributions would not be expected to fully finance the
unfunded actuarial accrued liability (UAAL) over time. The actuarial review states the TRS actuary recommends $77 million in up front funding to address this.
The actuarial review states under the current Pension Review Board (PRB) Pension Funding Guidelines, funding should 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. TRS statute defines actuarial soundness, for purposes of making modifications to benefit and contribution levels, as no more than 31 years. TRS is currently actuarially sound, with an amortization period of 28 years. The funding period for the supplemental program retirement fund would be dependent on yet to be determined appropriations set by the legislature.
SYNOPSIS OF PROVISIONS
The bill would create a supplemental program within TRS for members whose service is in a position that requires an officer license issued by the Texas Commission on Law Enforcement.
The supplemental benefit would add 0.5 percent to the standard TRS service multiplier, applied to years of service as a law enforcement officer. The maximum benefit would be 100 percent of final average pay. Members would be eligible to retire at age 57, any age with 25 years of service credit, or when age and service combined equal 80. Members retiring before the age of 57, even when meeting the rule of 80 requirement, would have their annuity actuarily reduced by five percent for each year under 57.
Members would pay increased contributions of 0.5 percent of pay and the state would contribute 1.5 percent of pay.
FINDINGS AND CONCLUSIONS
The bill would impact law enforcement officers who are members of TRS.
According to the actuarial analysis, the bill does not explicitly state if current active peace officers in TRS will be granted past service for benefits and retirement eligibility. Since the bill gives value for previous years when no contributions were made, the supplemental fund could have a UAAL at its inception. The TRS actuary recommends an additional $77 million to finance the UAAL and pay for new benefit accruals.
The actuarial analysis further states the benefits through the supplemental plan have an all-or-nothing eligibility standard, because a member would either receive a benefit of 12.5 percent of salary if they attain 25 years of peace officer service, a benefit of 50 or 100 percent of salary if they qualify for an occupational disability benefit, or nothing. This causes the plan to have a higher range of possible outcomes than a typical pension plan. If the program were instead administered through the main TRS pension trust fund, the risk would be meaningfully mitigated, and a $37 million appropriation would be sufficient to cover the cost of past service.
METHODOLOGY AND STANDARDS
The TRS analysis relies on the participant data, benefit structure and actuarial assumptions and methods used in the TRS actuarial valuations for August 31, 2024, and financial information as of February 28, 2025. The actuary notes that it is possible that over time, demographic experience will change for law enforcement officers in TRS and they recommend closely monitoring this group going forward.
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, Gabriel, Roeder, Smith and Company, April 20, 2025.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, April 21, 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 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 (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.