AUSTIN, Texas — The unfunded liability for the Teacher Retirement System of Texas rose to $24.1 billion in fiscal year 2011.

It was $22.9 billion at the end of fiscal year 2010.

This data comes from the new TRS Actuarial Valuation Report for the year ending Aug. 31. Irving-based Gabriel Roeder Smith & Co. compiled the report for TRS leaders.

TRS Executive Director Brian Guthrie is pleased with investment returns — the report shows 15.5 percent gains in 2010-2011.

“Like other investors, TRS experienced significant decreases in market value during 2008-09. Since our actuarial smoothing process spreads investment gains/losses over a five-year period, the impact of those losses are lessened over time, especially if we continue to see positive returns in the next few years,” Guthrie said in an e-mail response to Texas Budget Source.

TRS cuts the $15.6 billion losses from a year ago to a net investment loss of $7.8 billion in August.

“It is our hope that this will play an important role in addressing our current unfunded liability. However, the legislature will review our condition during the 2013 session and will identify further action, if needed, at that time,” he said.

“The unfunded liability is less now than it was two years ago. Although there has been an increase in the TRS unfunded liability, it was not unanticipated, and was caused primarily by booking 20 percent of the losses from the dismal experience of 2008,” said State Rep. Vicki Truitt, R-Keller, and House Pensions, Investments and Financial Services Committee chairwoman.

“However, last year’s return on investment was 15 percent, and the fund has regained virtually all of the losses it sustained in 2008 and 2009.

“As long as the system continues to return an average of 8 percent per year, there is reason for and plenty of time to address long-term funding issues in a thoughtful manner,” Truitt said.

The other good news in this actuary report is the TRS pension plan for 1.3 million active and retired teachers has a funding ratio of 82.7 percent.

However, the actuaries state that “the funded status using the market value of assets is only 77.1 percent.” Actuaries like the funded ratio numbers to be 80 percent or higher.

The $24.1 billion in unfunded liability is significant enough to cause concerns. However, there are two other internal figures that should concern lawmakers and taxpayers for a pension built to fulfill promises to educators.

• The assumption of 8 percent investment gains a year.

“As mentioned in Section C, the investment results on an actuarial value basis are unfavorable for the 2010/2011 plan year. On an actuarial value basis the system is below its 8 (percent) assumption rate by 1.8 (percent). As a result, the system had an actuarial investment loss of $2 billion. It should also be noted that the asset valuation method is still deferring $7.8 billion in unrecognized net losses into future years. These deferred losses will be recognized over future actuarial valuations. In the absence of offsetting gains, these losses will reduce the funded status of the system,” the Gabriel Roeder Smith & Co. report states in Section E, page 13.

• State contribution is too small.

The other issue that will catch up to lawmakers is the annual state contribution to TRS. TRS members have contributed 6.4 percent toward their pension plan for each year since 1984. That continues in the 2012-13 biennium.

Actuaries increase the percentage of the state contribution that’s needed over 30 years. The 7.77 percent that was needed in 2010 has risen to 8.13 percent. If this number were calculated on the market value of assets, it would be 9.4 percent the state must contribute to TRS to fulfill promises to state employees, the report states.

It’s reasonable to expect that to increase.

“The state’s contribution rate is something that is considered during each legislative session as part of the appropriations process,” Truitt said. “We’ll look at all the numbers from the next valuation in August 2012, and then again in February 2013, to help us determine an appropriate state contribution level to use for the next budget period.”

 

Curt Olson is an investigative reporter with Texas Budget Source. Texas Budget Source is a nonprofit journalism project of the Austin-based Texas Public Policy Foundation, with funding from the Franklin Center for Government and Public Integrity. Like Texas Budget Source on Facebook or follow TXBudgetSource on Twitter. Curt Olson’s Twitter name is olson_curt.