Funding Your Plan
Your TCDRS plan is an advance-funded plan. This means that you and your current employees are investing now for their future retirements, rather than paying benefits as people retire (which is “pay-as-you-go” funding). An example is Social Security.
A combination of three elements fund your plan:
- Employee deposits
- Your employer contributions
- Investment income (earnings on employee deposits and your contributions pooled together and invested by TCDRS on your behalf)
Every month, you send TCDRS a percentage of each employee’s pay, as well as your employer contributions, to help fund your employee’s future retirement benefits. Investment earnings fund a large portion of your employees’ benefits.
Your Employer Contributions
Your required contribution rate represents the minimum percentage of payroll your organization is required to contribute to fund future benefits for your current employees, former employees and retirees. By paying this rate, you are ensuring that you are adequately funding your plan’s benefits. You can also elect to make contributions in excess of your required contribution rate.
No Fees and Low Expenses
TCDRS does not charge fees. All of your employer contributions and employee deposits go toward funding your retirement benefit. Plan administration and investment expenses average between 1/4% and 1/3% of invested assets.
How TCDRS Determines Your Rate
Each year, our independent external consulting actuaries perform an actuarial valuation on your retirement plan. The valuation determines your required employer contribution rate and measures your funded status.
During the valuation, the actuaries:
- Study your workforce and estimate the benefits that you will have to pay based on your plan options.
- Estimate the value of the benefits in today’s dollars and compare that estimate with your assets. (Your assets include both your employer assets and your employees’ accounts.)
- Calculate your required contribution rate.
Your required contribution rate does two things:
- Pays for your current employees’ benefits over their careers.
- Pays down any plan liabilities within 20 years, and benefit increases within 15 years.
In order to estimate benefits and determine how much of the funding needs to come from employer contributions (versus investment earnings) the actuaries use demographic and economic assumptions. Examples of key assumptions include:
- Investment return
- Termination of employment and withdrawal rates
- Payroll growth
In addition, the actuaries use a set of funding rules that are adopted by the TCDRS Board of Trustees to ensure that plans are adequately funded. For more information, see the TCDRS Funding Policy.
To see your most recent Summary Valuation report, please sign in to your employer account.
TCDRS has several checks and balances in place to ensure that the rate you pay is appropriate. Every four years, our consulting actuaries conduct an experience study, during which they compare your plan’s assumptions with your actual plan experience as well as future expectations. Based on this analysis, they recommend adjusted assumptions as needed to better estimate your future plan experience.
In conjunction with the experience study, we also have a rigorous peer review of the work our consulting actuaries perform. We hire an independent auditing actuary to review both the consulting actuary’s experience study and the latest actuarial valuation. The results and recommendations of the experience study and audit are presented to the TCDRS Board of Trustees.
What are “unfunded liabilities”?
“Unfunded liabilities” is a phrase that gets a lot of attention in the media, but it is a misnomer at TCDRS. You are funding these liabilities, and you’re funding them responsibly.
When you fund retirement benefits in advance, like you do with TCDRS, actuaries calculate how much you need to pay now to ensure that there is enough money to pay for benefits in the future. The technical term “unfunded actuarial accrued liabilities”, refers to the difference between your estimated plan costs and your plan assets.
What Causes Unfunded Liabilities?
These liabilities are created whenever your actual plan experience does not match the estimates used in the actuaries’ projections for your plan. Investment allocation and changes in payroll — including wage increases, new hires and retirements — are examples of things that can affect your plan experience. These liabilities are also created when you adopt benefits that haven’t been funded in advance, such as retroactive benefit increases, retiree cost-of-living adjustments and prior service credit.
How Are These Liabilities Funded?
These liabilities are not “unfunded”. A portion of your required rate goes toward paying down any liabilities. Like having a fixed-rate home mortgage and making your monthly payments, just by paying your required rate, you will pay these liabilities down to zero within 20 years of incurring them and move your plan toward 100% funding.
This conservative funding policy ensures that the money will be there when needed to pay benefits and that debt will not be pushed to future generations. It’s a responsible way to fund your retirement benefits.