Updated: Oct. 1, 2017
Issue: A law enacted in July 2017 effectively reduces the amount of money TRS will receive from state government in its annual contribution to the System by “smoothing” or phasing-in monetary changes caused by any alterations in actuarial assumptions that TRS uses to calculate its finances. The intent of the law is to help a cash-strapped state government balance its budget.
Discussion: Under the law, TRS must retroactively “smooth” the fiscal effect of any changes made in the TRS assumed rate of investment return over a period of five years. The “smoothing” applies to any assumption changes from 2012 on.
Up until now, the fiscal impact of a change in the assumed rate was totally absorbed at one time. Example: In 2016, TRS reduced its assumed rate of investment return from 7.5 percent to 7 percent and the result was a $402 million increase in the FY 2018 state contribution to TRS. Under this new law, that $402 million increase would be phased in, 20 percent per year, over a five-year period.
Because of this law, the original state contribution for TRS in FY 2018 – $4.65 billion – was reduced to $4.034 billion.