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Legislative Updates

Legislative Update No. 120, Session 80
By Tim Lee, Executive DirectorPrinter Friendly ||| Print as PDF

November 26, 2008

State Representative Callegari Sponsors TRS Legislation

Plus, "Top 10 Reasons to Maintain Defined Benefit Plan"

Below is a press release issued by the office of State Representative Bill Callegari (Katy). TRTA will actively support Representative Callegari's efforts on behalf of TRS members by working to enact HB 274 in the coming legislative session.

The article following Representative Callegari's press release was written by Keith Brainard, Research Director for the National Association of State Retirement Administrators, and are his Top 10 reasons NOT to transtion from a Defined Benefit Retirment plan to a Defined Contribution plan. 

Thanks for your continued support of the Texas Retired Teachers Association. 

 

CALLEGARI BILL AUTHORIZES TRS TO DISTRIBUTE 13TH CHECK TO RETIRED TEACHERS
For Immediate Release
Monday, November 17, 2008

On Monday Texas State Representative Bill Callegari (Katy) filed a bill to allow the Teacher Retirement System of Texas to provide supplemental annuity payments to retired teachers. As introduced, House Bill 274 allows TRS to provide retired teachers with a 13th check in the event of a surplus in the teacher retirement fund. Currently, the agency does not have the authority to provide supplemental payments on its own.

"TRS cannot issue 13th checks to Texas' retired teachers without the Legislature's permission," said Representative Callegari. "This limits the agency's flexibility to manage the teacher retirement fund for the benefit of our retired teachers, particularly when the retirement fund has a surplus. I think that our retired educators deserve better than have to wait every two years for the Legislature to approve another supplemental payment."

In 2007 the Legislature voted to authorize TRS to distribute a 13th check to retired teachers using surplus funds from the teacher retirement fund. That year, retired teachers in the TRS system received an extra, one-time check for $2,400.

While TRS does not have the authority to distribute supplemental payments to its retired members, the Employee Retirement System of Texas, the agency responsible for administering the state employee pension fund, does. HB 274 provides TRS with the same authority that ERS has under Texas law.

"While I think that this authority will be useful for TRS and our retired teachers in the long run, given the state of our financial markets, and the extent of our retirement systems' exposure in them, there may not be any surpluses available for some time," said Representative Callegari.

On Sunday, the Houston Chronicle reported that the teacher retirement fund, valued at $104.9 billion on September 1st, has undergone a $25 billion drop in market value. State law prohibits TRS from providing supplemental payments to retirees if the retirement fund is not fully funded.

"I understand that there are some concerns regarding the health of the teacher retirement fund, particularly with the volatile market that we are experiencing," said Representative Callegari. "This bill does not authorize or require the Teacher Retirement System to spend money that it does not have. It merely gives the agency the flexibility it needs to better serve our teachers when the better markets return."

The 81st Session of the Texas Legislature begins on Tuesday, January 13th, 2008 and will last for 140 days. Earlier this month Representative Callegari filed a legislative package to lower the residential home appraisal cap from ten percent to five.

Contact: Jeremy Mazur 512-463-0528
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Top 10 reasons Texas should not switch to a defined contribution plan for public employees
 
  1. Switching to a defined contribution plan won’t save money in the short-term, and any potential long-term savings are uncertain and possibly insignificant.
  2. Abandoning traditional pension benefits will impede the ability of the state and other public employers to retain long-term and career employees.
  3. Efforts in other states to replace traditional pensions with 401k plans have proven to be largely unsuccessful, chiefly because asset accumulations in most retirement accounts were insufficient to provide an adequate level of retirement income.
  4. The State enjoys significant economic benefits from the pensions paid to state, local, and higher education retirees and to retired public school teachers. Because the benefits are pre-funded, annual benefit payments far exceed annual contributions.
  5. Public employees, including school teachers and state employees, would experience diminished retirement financial security, contributing to an already-gloomy financial future projected for a large percentage of working Americans.
  6. By pooling risks, reducing administrative and investment costs, and retaining a higher percentage of retirement savings in retirement funds, traditional pensions are a more cost-effective means for delivering retirement benefits. By contrast, 401k plan administrative costs are higher, and a greater percentage of their assets leave the system before retirement.
  7. Because nearly all public school teachers in Texas do not participate in Social Security, and given the poor track record of defined contribution plans in providing an assured source of retirement income, removing traditional pension benefits would expose public school teachers to a real chance of destitution in retirement.
  8. Because traditional pension plans enable participants to retire on the basis of age and years of service, they also enable employers to facilitate an orderly turnover of workers, thereby avoiding the awkward and unpleasant task of terminating employees who cannot afford to retire but whose workplace effectiveness has diminished or disappeared due to age.
  9. Much of the private sector has closed its traditional pension benefits due to the effects of federal regulations that do not apply to state and local government pension plans.
  10. A fair analysis of how best to achieve public policy objectives, including how to enable employers to attract and retain qualified workers, how to compensate them, how to promote retirement security for public employees in a cost-effective manner, among others, inevitably will point to some form of traditional pension plan as a core component of public employee compensation.

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