A Path to Responsible Funding – TRTA Pushes Measure for Higher Contributions to TRS

TRTA Pushes Measure for Higher Contributions to TRS

The Texas Retired Teachers Association (TRTA) is championing a bill that calls on the Legislature to increase funding for the Teacher Retirement System of Texas (TRS). The bill, HB 1383, is authored by State Representatives Jim Keffer and Bill Callegari.

At yesterday’s House Pensions Committee hearing, Representative Keffer had the opportunity to present his bill. Saying that the Pensions Committee was not the place that funding levels would be decided, Representative Keffer called for the committee members’ favorable support of the legislation so that the message that “more is needed and expected” for TRS would be carried to the House floor. Representative Keffer also made it clear that adequately funding our pension funds today ensures their long-term solvency at a lower cost to the state and the member and is the best, most conservative solution.

There was strong support from members of the Pensions Committee. All voiced support for making the pension trust fund actuarially sound. Some members, however, made the point that increasing state funding for TRS does not give retirees a raise in their annuities.

Tim Lee, Executive Director of TRTA, responded to this sentiment by saying that “doing nothing is not the solution.” Mr. Lee testified that more funding is the best path to solvency, and the quickest path to getting an increase for retirees.

HB 1383 does not incorporate a cost-of-living increase; it is a funding bill that reverses the trend of inconsistent state contributions to the pension fund. The bill is a major component in creating better financial footing for TRS, which must be addressed to protect the fund’s long-term solvency.

With this stabilized funding, TRS will be able to manage its liabilities with greater certainty and incorporate benefit increases as needed. Clearly, since annuities have not increased in 12 years, the need is great.

Tim Lee challenged each Pensions Committee member to pass this legislation and stand with Representative Keffer as he pushes for more funding to get the pension fund on sound actuarial ground.

As is common when a bill has its first hearing in a legislative committee, the measure was not voted on last night. It is subject to committee action later in the session.

“This is a vital bill for all TRS retirees,” said TRTA State Legislative Coordinator Bill Barnes. “We must do all we can to get TRS on sound financial footing so that our pension plan will be safe, and we can get our retirees a much needed increase in their annuities!”

HB 1383 has over 35 co-sponsors in the House. We need EVERY Texas House member to sign on as a co-sponsor for this legislation. Is your legislator a co-sponsor? Click here to find out: www.capitol.state.tx.us/BillLookup/History.aspx?LegSess=83R&Bill=HB1383

If you do not see your legislator’s name on the list of co-sponsors, ask them to support this important bill. TRTA’s Day at the Capitol is tomorrow. Let’s see how many new co-sponsors we can gain during our rally day! Call the legislator hotline at 1.888.674.3788 to get in touch with your Representatives!

Tim Lee offered these additional points in his public testimony:

• TRTA is a great value for the state, the member, and the school district;
• This traditional defined benefit pension plan provides retirement security to 1 out of every 21 Texans;
• Our TRS retirement system has received steady, ongoing, and generally adequate contributions from the member and the state, and has met its long-term investment goals;
• There have been extended periods of time when the pension fund was not receiving adequate contributions from the state to ensure the fund’s long-term obligations. Since 1995, the pension trust fund has received varying amounts from the state, based on aggregate teacher payroll;
• In only 5 of the last 18 years has the fund received a higher contribution from the state than the constitutional minimum of 6%;
• This is even lower support than the federal government provides as a percentage of pay for the Social Security program;
• The net result is that more pressure is being put upon investment returns to make up for years of underfunding, and our unfunded liability has grown over time;
• A pension fund can tolerate a certain level of unfunded liability, but Texas has established a very sensible bar for solvency at 31 years or less (meaning that the system should be able to amortize its unfunded liability within a 31-year period);
• The goal is to keep the pension fund’s long-term solvency in check and still manage the plan without undue risk exposure or threat of short-term insolvency;
• In addition, there is another layer of protection: the fund cannot expand its benefit liabilities if the system cannot fund its existing liabilities within the 31-year amortization period;
• In other words, retired members cannot expect any permanent benefit increase if the system is not actuarially sound;
• As all of you know, the last time we saw a pension increase for TRS retirees was in 2001;
• A supplemental payment was made to TRS retirees in 2008, which was a great help to all those who received it;
• The Legislature made another attempt to provide retirees with a $500 supplemental check in 2009, but the Attorney General was asked to provide a “conclusive” opinion on this proposal. His answer was that he could not meet that level of certainty through an opinion;
• This brings us back to the concept of actuarial soundness, and identifying a path to ensuring the solvency of the fund over the long term;
• HB 1383 represents a real solution by putting the system on a path to solvency;
• The legislation would raise the state contribution to TRS to 6.9% in FY 2014 and 7.4% in FY 2015;
• This is an increase in funding of about $200 million over the biennium (based on current House appropriations proposal at 6.6% and 6.6% for 2014 and 2015);
• Better yet, it is a step forward on the path to actuarial soundness;
• By raising the contribution levels, the state is providing a good faith effort to help the system be able to amortize its unfunded liabilities within a reasonable period of time;
• Considering that 95% of Texas school districts do not participate in Social Security, and that the system has been underfunded more often than adequately funded for almost two decades, and that the private sector is making a 9.5% contribution (approximately) towards an employee’s retirement (6.2% to Social Security and about 3.3% to a private retirement plan, on average), TRTA considers the 6.9% and 7.4% contribution rates very reasonable;
• This contribution increase, along with improving market conditions, will help TRS reach actuarial soundness;
• These funding levels, however, do not bring the system to actuarial soundness right away;
• More is necessary, and perhaps even possible, but we need to begin somewhere. This legislation is a major step in the right direction.

TRTA will keep you updated on HB 1383.

TRTA wants to say a special “Thank You” to the members of the Austin Retired Teachers Association, members from the Williamson and Milam Counties Retired Teachers Association, and other members from TRTA District 6 and 13 who attended the Pensions Committee last night. Many offered valuable public testimony including TRTA members Tom Rogers and Jamie Larson. Thank you TRTA members for being visible and vocal on behalf of your fellow TRTA members!!

Thank you for communicating with your legislators about this bill. If you are not a member and want to join in our important work, please contact our office at 1.800.880.1650. Thank you!