ACTUARIAL EFFECTS
The actuarial analysis provided by the Teacher Retirement System of Texas (TRS) provides two scenarios to give a range of possible outcomes if the bill passes. Based on the first scenario provided by the Legislative Budget Board with assumptions from the Texas Education Agency, if private school enrollment increases by 10 percent per year beginning in fiscal year 2027 and the TRS employee population remains level, the actuarial analysis projects the bill would increase the funding period by one year to 29 years. Under the second scenario, assuming continued increase in membership, the funding period could decline to 25 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. TRS statute defines actuarial soundness, for purposes of making modifications to benefit and contribution levels, as no more than 31 years. This bill does not make modifications to benefit or contribution levels.
TRS is currently actuarially sound, with an amortization period of 28 years. According to TRS, the impact of the bill alone, under current projections, would not make the fund actuarially unsound.
SYNOPSIS OF PROVISIONS
This bill would create an education savings account program which would provide annual funding for approved education-related expenses of children participating in the program. The funds would amount to 85 percent of the estimated statewide average amount of state and local funding per student in average daily attendance for the applicable school year. Additionally, there is potential for extra funding, not exceeding $30,000 annually, for students with disabilities, and a limit of $2,000 for home-schooled children.
The bill would take effect immediately if it received a two-thirds vote of both houses; otherwise, the bill would take effect September 1, 2025.
FINDINGS AND CONCLUSIONSThe 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. The actuarial analysis noted if recent Texas population and teacher headcount growth continues at even half of previous rates, the actual funding period would turn out to be shorter.
METHODOLOGY AND STANDARDS
The TRS analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the TRS actuarial valuation for August 31, 2024, updated for investment performance through 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.
SOURCESEmail from PRB, April 21, 2025.
Actuarial Analysis by Joseph P. Newton, FSA, EA, MAAA, GRS, April 3, 2025.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, April 4, 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).
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.