ESBD_397356_1740042020782_Solicitation Document - Exhibit A_ Results of TRS Valuation Update.pdf

March 8, 2023

Mr. Brian Guthrie Executive Director Teacher Retirement System of Texas 1000 Red River Street Austin, TX 78701-2698

Re: Results of TRS Valuation Update as of February 28, 2023

Dear Brian:

Pursuant to a rider in the general appropriations act, the results of the most recent actuarial valuation are to be updated as of February 28th in odd-numbered years during legislative sessions.

Accordingly, this is the February 28, 2023 valuation update. This update finds the funding period as of February 28, 2023 to be 28 years.

Based on an estimated investment return of 0.25% for the six-month period ending February 28, 2023, and all other assumptions being met for the remainder of the fiscal year, (including an additional 3.44% investment return on the smoothed value of assets), the Unfunded Actuarial Accrued Liability (UAAL) is projected to increase from $51.7 billion as of August 31, 2022 to $54.4 billion as of August 31, 2023 and the funded ratio of TRS is projected to decrease from 79.0% to 78.7%.

The attached exhibit shows how the projected UAAL and funding period would change over time based on the current scheduled contributions occurring and all other assumptions being met. As shown, based on the current contribution policy the UAAL is expected to grow for six years before it starts to reduce towards $0. Full funding is expected in August of 2050 based on the projected smoothed assets as of August 31, 2023. Thus, the funding period from February 28, 2023 is 28 years.

The 28-year funding period remains outside of industry best practices, including the guidelines published by the Texas Pension Review Board. Thus, we continue to recommend that the scheduled contribution rates established by the 2019 Legislature be maintained and that any benefit enhancements be paid with additional revenues or other offsetting funds rather than an increase in the funding period. In addition, the UAAL is projected to increase for six years, which exceeds the acceptable limit of five years under the Board policy. This means that without favorable plan experience over the next 24 months, the current results anticipate a Legislative Appropriations Request for the 2025 Legislative Session for additional contribution rate increases or Legacy Payments per Board Policy.

Mr. Brian Guthrie March 8, 2023

Certification

Except as otherwise noted, our analysis and calculations are based on the member data, benefit provisions, and the actuarial assumptions and methods in use as of August 31, 2022 for valuing the actuarial condition of TRS. The results of the February 28, 2023 update are projected forward to August 31, 2023 assuming a 0.25% return on the market value of assets for the six-month period ending February 28, 2023 and the currently assumed annual rate of 7.00% for the remainder of the fiscal year (six-month rate of 3.44%).

Future actuarial measurements may differ significantly from the current measurements presented in this report due to such factors as the following: plan experience differing from that anticipated by the economic or demographic assumptions; changes in economic or demographic assumptions due to changing conditions; increases or decreases expected as part of the natural operation of the methodology used for these measurements (such as the end of an amortization period, or additional cost or contribution requirements based on the plan’s funded status); and changes in plan provisions or applicable law. The scope of the actuarial work described above does not include an analysis of the potential range of such future measurements. Assessment of these potential risks was outside the scope of this assignment. If you have reason to believe that the assumptions that were used are unreasonable, that the proposed plan provisions are incorrectly described, that important plan provisions relevant to this proposal are not described, or that conditions have changed since the calculations were made, contact the undersigned prior to relying on this information.

This analysis also assumed the continuing ability of the plan sponsor to make the contributions necessary to fund this plan. A determination regarding whether or not the plan sponsor is actually able to do so is outside our scope of expertise and was not performed. If you should have any questions concerning the attached table or the above discussion, please contact us.

Respectfully submitted, Gabriel, Roeder, Smith & Company

Joseph P. Newton, FSA, EA, MAAA Dana Woolfrey, FSA, EA, MAAA Pension Market Leader and Actuary Senior Consultant

Lewis Ward Consultant

Includes investment performance and asset smoothing through February 28, 2023.

Contribution Normal Cost Net Net Principal

As of Payroll as % of and Admin Amortization UAAL Contribution Funding

Aug 31, For Next FY Payroll as % of Payroll [c - d] * b BOY Interest e - g Period

(a) (b) (c) (d) (e) (f) (g) (h) (i)

2023 $55,769 17.75% 12.16% $3,117 $54,421 $3,702 (585) 27

2024 57,387 17.81% 12.11% 3,269 55,005 3,738 (469) 26

2025 59,051 17.81% 12.07% 3,389 55,475 3,767 (378) 25

2026 60,763 17.81% 12.03% 3,512 55,852 3,789 (277) 24

2027 62,526 17.81% 11.99% 3,638 56,129 3,804 (165) 23

2028 64,339 17.81% 11.94% 3,774 56,295 3,811 (37) 22

2029 66,205 17.81% 11.91% 3,907 56,331 3,809 98 21

2030 68,125 17.81% 11.88% 4,043 56,233 3,797 246 20

2031 70,100 17.81% 11.84% 4,183 55,987 3,775 408 19

2032 72,133 17.81% 11.81% 4,326 55,579 3,742 585 18

2033 74,225 17.81% 11.78% 4,474 54,995 3,696 778 17

2034 76,378 17.81% 11.75% 4,625 54,217 3,636 989 16

2035 78,592 17.81% 11.73% 4,781 53,227 3,561 1,220 15

2036 80,872 17.81% 11.70% 4,940 52,008 3,471 1,470 14

2037 83,217 17.81% 11.68% 5,104 50,538 3,362 1,742 13

2038 85,630 17.81% 11.65% 5,272 48,796 3,234 2,038 12

2039 88,113 17.81% 11.63% 5,444 46,758 3,086 2,358 11

2040 90,669 17.81% 11.61% 5,620 44,400 2,915 2,705 10

2041 93,298 17.81% 11.59% 5,800 41,695 2,719 3,081 9

2042 96,004 17.81% 11.58% 5,985 38,614 2,497 3,488 8

2043 98,788 17.81% 11.56% 6,173 35,127 2,246 3,927 7

2044 101,653 17.81% 11.55% 6,366 31,200 1,965 4,401 6

2045 104,601 17.81% 11.54% 6,562 26,799 1,650 4,912 5

2046 107,634 17.81% 11.53% 6,762 21,887 1,299 5,463 4

2047 110,756 17.81% 11.52% 6,967 16,424 910 6,057 3

2048 113,967 17.81% 11.51% 7,177 10,367 479 6,698 2

2049 117,272 17.81% 11.51% 7,390 3,669 3 7,387 1

2050 120,673 17.81% 11.51% 7,608 (3,719) (522) 8,130 -

TRS of Texas Projected Valuation as of August 31, 2023 Based on Data Through February 28, 2023

$ in Millions