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On Friday, Nov. 10, the TRS Board of Directors was briefed on the current financial health of the TRS system. Each Aug. 31, the pension fund is subject to an actuarial valuation – a look at its long-term fiscal status.
For the last several years, the fund has been technically underfunded, though basically still actuarially sound, largely because of severe investment losses from the early 2000s. As a result, the fund could not afford benefit increases for current retirees; it has now been nearly six years since retirees saw an increase in their monthly annuities.
Now that the economy and investment returns have improved, the system is beginning to recover and is closer to being able to afford a benefit increase. Last year the state would have had to increase its contribution from the current 6% to 7.19% in order to bring the system’s funding period to 30 years (see box above for explanation); because of the continued investment gains, the new actuarial valuation has resulted in a slightly lower figure of 7.02%.
Even better news: the actuarial firm conducting the study predicts that (assuming continued economic growth) the fund should be in a pattern of increasing good health.
However, this news is tempered by the realization that even if the state chose to increase its contribution rate to 7.02% (or to increase its contribution to a slightly lower level, and increase active member contributions as well), that would still not be enough to allow the system to afford a benefit increase, but only improves the funding period to the benchmark 30 years. A benefit proposal would require additional funding either through further increases in the contribution rate or an appropriation from the state.
It is important to note that the Legislature could choose to directly fund a “thirteenth check” benefit increase for retirees without increasing the state’s contribution rate to TRS; such a proposal would cost the state $450 million.
TCTA strongly supports an increase in retiree benefits and believes that the state should increase its contribution rate now that such an increase is warranted, as was the expectation when legislators lowered the contribution rate to the constitutional minimum of 6% nearly twelve years ago. In the upcoming session, TCTA will advocate for these increases, and will work to reverse the negative changes in benefits adopted in 2005 that affect active employees.
Terms to understand
“Market value” - represents the actual dollar amount in the fund at a given time. On Aug. 31, the date of the actuarial valuation, the market value of the TRS fund was over $100 billion.
“Actuarial value” - represents the ability of the fund to pay out its long-term liabilities (e.g., benefits owed to current retirees and active members) when considering its long-term assets (e.g., incoming contributions from the state and active members, and projected investment returns).
“Funding period” - the actuarial health can be represented in years, the period of time that it would take TRS to pay its liabilities given the current assets. The Legislature cannot approve any benefit increase that would extend that period beyond 31 years.
Updated: 11/10/06
