TRS 2011 Comprehensive Annual Financial Report

TEACHER RETIREMENT SYSTEM OF TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT 2011
Notes to the Financial Statements
Federal legislation enacted in January 2006 established prescription drug coverage for Medicare beneficiaries known as Medicare
Part D. One of the provisions of Medicare Part D provided retiree drug subsidy reimbursements to TRS-Care on behalf of certain plan
participants totaling $66,258,009 for the fiscal year ended August 31, 2011.
The Patient Protection and Affordable Care Act, signed into law on March 23, 2010, along with the Health Care and Education Affordability
Reconciliation Act of 2010, signed into law on March 30, 2010 (together, the PPACA), embody sweeping federal health care
legislation. Under the PPACA, TRS-Care received $70,629,796 for the fiscal year ended August 31, 2011 from the U.S. Department of
Health and Human Services for participation in the Early Retiree Reinsurance Program, a program that went into effect June 1, 2010.
The program reimburses participating plans for a portion of health benefit costs for retirees age 55 and older who are not eligible for
Medicare, and their spouses, surviving spouses, and dependents.
NOTE 7: DEFERRED COMPENSATION
Employees of the system may elect to defer a portion of their earnings for income tax and investment purposes pursuant to authority
granted in the Tex. Gov. Code Ann., Sec. 609.001. Two plans are available for employees. Both plans are administered by the Employees
Retirement System. The system has no additional or unfunded liability for this program.
NOTE 8: CONTINGENT LIABILITIES
Sick leave, the accumulation of which is unlimited, is earned at the rate of eight hours per month and is taken only in the event of
illness or paid to the estate of an employee in the event of death. The maximum sick leave that may be paid to an employee’s estate
is one-half of the employee’s accumulated entitlement or 336 hours, whichever is less. The system’s policy is to recognize the cost of
any sick leave when paid.
A Performance Incentive Compensation Plan was adopted effective July 1, 2006, to enable the system to remain competitive in
its efforts to attract, retain and motivate high caliber investment division staff. The July 1, 2006 Plan was terminated by the board of
trustees September 13, 2007, and a new Plan was adopted effective October 1, 2007 and modified effective October 1, 2008. The
purpose of the Plan is to provide the opportunity for investment division employees to earn performance incentive pay based on the
fund’s investment performance and the employee’s job performance. As of August 31, 2011, the liability is estimated not to exceed
$5.8 million for the first half of the incentive plan year ending September 30, 2011. Payments can only be earned following years in
which the fund experiences a positive return, and employees must be employed by TRS on the designated dates in the Plan to earn and
receive payment. The board of trustees may cancel or modify the Plan at any time.
The system is contingently liable for benefits payable to retiring members who remain in a pending status longer than 30 days after
fiscal year end.
In addition, under Texas Insurance Code, Article 3.51-7, the system is contingently liable to pay a lump sum death benefit not to
exceed $5,000 when added to the death benefit authorized under Texas Government Code, Title 8, Chapter 824, to the beneficiaries of
deceased, retired employees.
TRS is a defendant in litigation involving issues arising from its normal activities. The outcome of this litigation cannot be determined
at this time. Based upon consultation with legal counsel, management believes there will be no material adverse effect on the basic
financial statements as a result of the ultimate outcome of these matters.
NOTE 9: CONTINUANCE SUBJECT TO REVIEW
As provided by Texas Government Code, Title 8, Section 825.006, “The board of trustees of the Teacher Retirement System of
Texas is subject to review under Chapter 325 (Texas Sunset Act), but is not abolished under that chapter. The board shall be reviewed
during the period in which state agencies abolished in 2019, and every 12th year after that year, are reviewed.”
NOTE 10:
POST-EMPLOYMENT HEALTH CARE BENEFITS
A. PLAN DESCRIPTION
TRS Employees
Employees of the system who retire with 10 or more years of eligible service credit and meet the Rule of 80 or are at least 65 years
of age continue to receive health care and basic life insurance benefits through the Group Benefits Program of the State Retiree Health
Plan (SRHP) in accordance with Texas Insurance Code, Chapter 1551. The SRHP is maintained and administered through the Employees
Retirement System (ERS) of Texas and is considered a cost-sharing, multiple-employer, defined benefit post-employment health care plan.
ERS issues a publicly available financial report that includes financial statements and required supplementary information for the SRHP.
FINANCIAL SECTION
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