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Legislative Updates

Legislative Update No. 23, Session 80
By Tim Lee, Executive DirectorPrinter Friendly ||| Print as PDF

March 8, 2007

Legislation Proposes Permanent Cost of Living Raise

 

House Committee Leaves all Bills Pending

 

House Pensions and Investments Committee (House P&I) members listened to three bills relating to TRS benefits at today’s hearing (Thursday, March 08, 2007).  Perhaps the biggest surprise of the day was a committee substitute offered for HB 1105 by the bill’s author, Representative Ruth Jones McClendon.  The substitute called for retirees to receive a one-time 13^th check in January of 2008 for no less than $2,000 or up to the annuitant’s full one-month pension amount.  The bill further added that the annuitant would then receive a 2% annual cost of living adjustment every year in their retirement starting in 2010. 

 

The legislation is the first of its kind this session to call on the legislature to enact a permanent cost of living adjustment (COLA).  Many other bills have been filed this session to provide a one-time cost of living raise (though the raise would only be computed one-time, it would provide a permanent increase to a retiree’s annuity), but no legislation has suggested implementing a permanent COLA.

 

Permanent COLA’s are not unusual for public pension plans, as many state retirement systems around the country provide COLA’s for their annuitants.  A major difference in some of those COLA states and Texas is the amount of contributions being provided by both the employer (the state contribution) and the employee (active educator employees).  For example, in Ohio retired educators receive an annual 3% COLA, as well as a 13^th check (from time to time).  The contributions, however, to the retirement fund are vastly different than those in Texas.  In 2005, the State of Ohio was contributing about 14% to the Ohio TRS pension fund and the active employees were paying in over 9%.  As you know, the combined state and active employee contribution to Texas TRS is only 12.4%. If some wonder why a COLA is not a part of Texas retirees’ benefits, one answer is that no one is funding it. 

 

The discussion about a permanent COLA for retired educators was promising nonetheless.  Though the type of COLA was really not discussed (simple vs. compound), or that the amount of the COLA may be at issue (a 2% COLA may be perceived as a rather small amount compared to COLA’s in other states and their retirement systems), the idea that someone in the legislature would actually discuss this is encouraging.  TRTA will continue to support Representative McClendon’s efforts to pass such a bold proposal and will keep you posted on latest developments.

 

TRTA also testified in favor of HB 468, a bill authored by Representative Larry Phillips.  This legislation would provide retirees with two 13^th month checks—one in January 2008 and the other in January 2009.  Each check would be capped at $1,600.  The key component to this legislation is that it is funded by state general revenue funds and retirees would receive the two 13^th month checks whether the TRS pension fund was actuarially sound or not.  Though everyone does want the pension fund to be actuarially sound, the benefit of having these checks paid for by state funds ensures that retirees would get their benefit increase, because it would not be linked to the fund’s market performance and its overall actuarial soundness.  Representative Phillips did mention the bill’s high general revenue cost (about $680 million), and committed to working with the House P&I committee as necessary to possibly modify his proposal to meet budgetary constraints.

 

TRTA testified neutrally on Representative Phillips’ other bill, HB 469.  This measure modifies the change made in last year’s SB 1691 that requires the retirement system to use a five year final average salary calculation instead of a 3 year final average salary calculation.  The change made last session in SB 1691 is resulting in over a billion dollars in actuarial gains for the retirement system over time.  In addition, the provisions in SB 1691 grandfathered tens of thousands of current active employees, so modifying this change only one session after it was instituted at a time when the pension fund is still recovering does not seem to make good sense.  TRTA modified its position on the bill from “opposed” to “neutral” when the author testified that his intention was to have the State appropriate the necessary contribution to the fund to pay for this change.  TRTA will continue to work with Representative Phillips and the House P&I Committee on this issue.

 

Though these bills were discussed in today’s hearing, all of them were left pending for future committee action (which is typical operating procedure).

 

Thank you to the crowd of TRTA members that sat through the entire hearing, and filed witness slips on these bills.  TRTA members should be proud that their TRTA colleagues took so much time (in total, almost 5 hours of their day) to be a presence in the room representing all retired educators.  As always, TRTA member efforts are making a difference this session!

 

If you have any questions, please email them to tim@trta.org.

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