PRB Pension Funding Guidelines

Guidelines:

1. The funding of a pension plan should reflect all plan obligations and assets.
2. The normal cost portion of the contributions should be level or declining as a percentage of payroll over all generations of taxpayers and should be calculated under applicable actuarial standards.
   
   
3. Funding of the unfunded actuarial accrued liability should be level or declining as a percentage of payroll over the funding period. State law requires a funding policy to include a plan for achieving a 100 percent or greater funded ratio.[3] Starting September 1, 2025, funded ratio will be a factor in the triggering mechanisms for the FSRP requirement.[4]
4. Actual contributions made to the plan should be sufficient to cover the normal cost and to amortize the unfunded actuarial accrued liability over as brief a period as possible, but not to exceed 30 years, in accordance with state law.[5] For plans that use multiple amortization layers, the weighted average of all funding periods should not exceed 30 years. Once a system reaches 100 percent funded, at minimum, contributions should continue to cover the normal cost until the funded ratio exceeds at least 120 percent.
5. If the funding period has not decreased to 20 years or less by September 1, 2035, the funding policy should be updated to target a funding period of 15 years by September 1, 2040.
6. After September 1, 2040, benefit increases and contribution decreases should not be adopted if the proposed changes cause a material increase in the funding period and if the resulting funding period exceeds the greater of 15 and the average future working lifetime of the current active members.[6]
7. Benefit decreases and contribution increases should not be adopted without studying how the resulting normal costs compare to the contribution rates of each tier, and board discussion of whether members in each tier will receive a benefit that is worth more than their contributions.
8. The choice of assumptions used by a system should be reasonable and should comply with applicable actuarial standards.
   9. Public retirement systems should monitor, review, and report the impact of actual plan experience on actuarial assumptions at least once every five years.

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[1] Statewide systems are exempt from Section 802.2011(b), which includes the requirement for the system and sponsor to jointly develop and adopt the funding policy.

[2] Section 802.2011, Texas Government Code

[3] Section 802.2011, Texas Government Code

[4] Section 802.2015, Texas Government Code specifies that on or after September 1, 2025, systems with a funding period of between 30 and 40 years and a funded ratio of less than 65 percent will trigger the FSRP requirement after one actuarial valuation.

[5] Section 802.2015, Texas Government Code establishes a 30-year funding period as the state’s minimum funding standard for public retirement systems as part of the Funding Soundness Restoration Plan (FSRP) requirement.  Any systems that subsequently become subject to the Revised FSRP requirement must meet a stricter 25-year funding period and implement an actuarially determined contribution, among other requirements.

[6] For example, if members on average have accrued 12 years of service and are expected to retire after 25 years of service, any benefit increases should be paid for within the 13 expected remaining service years of the current active members.