Texas Retirement System – A Retirement Fund Update
Liz Reyna, TACT Marketing Director

Watson Wyatt Worldwide, the actuarial consultant for the Teacher Retirement System (TRS), reported December 3, on the actuarial valuation of the TRS.

Since the 78th Legislative Session created no funding or appropriations increase, the Fund is dependent solely on the market to increase the value. The TRS fund market value as of August 2003 was $89.0 billion, compared to $86.0 billion last year. The increase compensates the fund for losses in recent years since the TRS uses a “smoothing process,” used by most states, to analyze the return for a given year and recognizes 20% of the market’s change and defers recognizing 80% of the deficit. It takes five full years to integrate an investment return. In the next four years, $11.4 billion in deferred investment losses will be recognized.

The number of active members increased 1.2% and the payroll for all active members increased 3.8%. The number of retirees increased 8%, which has doubled in only three years. There are 3.5 active members for each retiree, producing an average annual retiree benefit of $21,252. The ratio of active members per retiree is slowly decreasing, as it was 4.2 active members per retiree. We can expect to continue to see this trend.

The System’s normal cost rate (12.46%) exceeds the contribution rate by 0.06% of pay. Currently, the system is under-funded by $5.2 billion, which will keep the system sustained as long as it can remain sufficiently funded. To do so, it needs to generate market gains to offset the $5.2 billion unfounded actuarial accrued liability and deferred losses. To offset the remaining deferred investment losses, TRS will need to average at least 12.7% for the next three years or 11.5% for the next four years.