TRS 2011 Comprehensive Annual Financial Report

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TEACHER RETIREMENT SYSTEM OF TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT 2011 Notes to the Financial Statements That report may be obtained by visiting the ERS website at www.ers.state.tx.us, by writing to the Finance Division of the Employees Retirement System of Texas at 200 East 18th Street, Austin, Texas 78701, or by calling 1-877-275-4377. Benefits and contribution provisions of the SRHP are not actuarially determined, but are authorized by state law and may be amended by the Texas Legislature. For the year ended August 31, 2011, the system contributed up to a maximum monthly amount on a pay-asyou-go basis toward a retiree’s health and basic life insurance premiums as follows: Employer Contribution Rates Retiree Health and Basic Life Premium Type of Coverage FY 2011 FY 2010 FY 2009 Member Only $ 411.04 $ 385.38 $ 360.54 Member/Spouse $ 647.38 $ 605.70 $ 566.57 Member/Children $ 569.30 $ 532.90 $ 498.49 Member/Family $ 805.64 $ 753.22 $ 704.52 The system covers 100% of a Member Only premium and 50% of their additional premiums for family coverage. The basic plan includes up to $2,500 for life insurance for the retiree. The retiree contributes any premium over and above the system’s contribution for additional coverage. The board has adopted contributions based on rates set by the Texas Legislature on a biennial basis. At August 31, 2011, there were 173 retirees and their beneficiaries receiving post-employment health care and basic life insurance benefits. Contractually required contributions to the SRHP are currently based on the annual pay-as-you-go expenses of the SRHP. For the year ended August 31, 2011, 2010, and 2009 the system recognized expenditures of $1,113,697, $996,954 and $908,334, respectively, for these benefits. The system has annually made 100 percent of its contractually required contributions to the SRHP. Public School Employees TRS, as trustee, administers the Texas Public School Retired Employees Group Insurance Program (TRS-Care) and the related fund in accordance with Texas Insurance Code, Chapter 1575. Sections 1575.202 to 204 establish state, active employee, and public school contributions. Section 1575.052 grants the board the authority to establish basic and optional group insurance coverage for participants. TRS-Care is a cost-sharing, multiple-employer, defined benefit, other post-employment benefit (OPEB) plan that is currently funded on a pay-as-you-go basis and is subject to change based on available funding. The Texas Legislature determines the funding of benefits and has no continuing obligation to provide benefits beyond each fiscal year. At the inception of the plan in fiscal year 1986, funding was projected to last 10 years through fiscal year 1995. The original funding was sufficient to maintain the solvency of the fund through fiscal year 2000. Since that time, appropriations and contributions have been established to be sufficient to provide benefits for the biennium. Eligibility generally includes TRS public school retirees with more than 10 years of service and their dependents. Retirees can receive a free basic level of coverage, and optional coverage is also available. All dependent coverage is optional. Basic coverage is a comprehensive major medical group health insurance plan. During fiscal year 2011, deductibles were $1,800 for those eligible for Part A of Medicare, $3,000 for those not eligible for Part A, but eligible for Part B, and $4,000 for those not eligible for either Part A or Part B. At August 31, 2011, the number of reporting entities was: Independent School Districts 1,029* Charter Schools 197 Regional Education Service Centers 20 Education Districts 5 Total 1,251 *Excludes Windham School District which is not covered by OPEB. In addition, other contributing entities included the State of Texas and the Federal Government. 58 FINANCIAL SECTION
TEACHER RETIREMENT SYSTEM OF TEXAS COMPREHENSIVE ANNUAL FINANCIAL REPORT 2011 Notes to the Financial Statements At August 31, 2011, OPEB membership before actuarial adjustments consisted of the following: Retirees and beneficiaries receiving benefits 179,877* Active plan members 681,457 Total 861,334 *Excludes 6,182 dependent children B. CONTRIBUTIONS Funding for free basic coverage is provided by the program based upon public school district payroll. The State of Texas, active public school employee and reporting entities contribution rates and amounts collected are reflected in the table below for fiscal year 2011. Per Texas Insurance Code, Chapter 1575, the public school contribution may not be less than 0.25% or greater than 0.75% of the salary of each active employee of the public school. Funding for optional coverage is provided by those participants selecting the optional coverage. Actuarial implications of the overall funding are determined by the system’s actuary. Contribution Rate Amount Active Employee .65% $ 183,808,580 State 1.00 257,105,886 Reporting Entities .55 155,471,641 Federal or Private Funding Sources 1.00 25,784,985 Total $ 622,171,092 C The contributions shown above and premium contributions of $345,164,271 contribute toward the total plan expenditures of $1,039,738,174. Expenses for TRS-Care are recognized as retirees report claims and include a provision for estimated claims incurred but not yet received. The actuarial valuation as of August 31, 2011, is similar to the actuarial valuations performed for the pension plan; however, certain economic and behavioral assumptions are unique to medical benefits. The demographic assumptions are identical to those used in the August 31, 2011 valuation for the pension plan. Additional valuation information follows: Valuation Date August 31, 2011 Actuarial Cost Method Projected Unit Credit Amortization Method Level Percent, Open Remaining Amortization Period 30 Years Asset Valuation Method Market Actuarial Assumptions: Investment Rate of Return * 5.25 % Projected Salary Increases * 4.25% to 7.25 % Weighted-Average at Valuation Date 5.62 % Payroll Growth Rate 3.50 % Health Care Trend Rates * 10.00% to 4.25 %** * Includes Inflation at 3.00% ** .Initial rates are 10% for medical and 9.5% for prescriptions. The ultimate rate is 4.25% for both medical and prescriptions. FINANCIAL SECTION 59
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