TRS Trust Fund Earnings Exceed 15 percent for the year
The Teacher Retirement System of Texas (TRS) holds its regularly scheduled Board of Trustees meeting this morning. Among many business items, the trustees will review their actuarial valuation update for the state fiscal year ending August 31, 2011.
The report highlights the pension fund’s overall value, funded status and amount of annual contribution that would be required in order to make the system actuarially sound (i.e. being able to amortize its unfunded liability within a 31 year period).
Below are some key facts that you should know about your TRS pension trust fund:
- the fund reports market earnings of 15.5 percent for the year;
- the fund value increased from $95.7 billion as of 8/31/2010 to $107.4 billion as of 8/31/2011;
- the overall funded status dropped from 82.9 percent as of 8/31/2010 to 82.7 percent as of 8/31/2011;
- the state contribution to the fund dropped from 6.644 percent in the previous biennium to 6.0 percent for FY 2012 and 6.4 percent in FY 2013 and thereafter (“thereafter” is an assumed contribution level used by the actuary, but this amount is subject to change in future legislative sessions);
- active employee contributions remain unchanged at 6.4 percent;
- the annually required contribution or ARC (the amount necessary to make the fund actuarially sound) increased from 7.77 percent to 8.13 percent;
- if current contribution policy continues, the trust fund is projected to have sufficient assets to make benefit payments through 2075; and
- the system is currently deferring $7.8 billion in investment losses due to smoothing utilized in the valuation process, and these deferred losses may be offset by future investment gains that exceed 8 percent (which still places additional pressure on the fund’s overall actuarially condition).
Overall, this is a very good report on the condition of the TRS pension fund. The system has weathered some of the worst economic conditions since the Great Depression, rebounding steadily since major market declines in 2008 and 2009. At the same time, TRS never missed a payment to current retirees. There was no “rush on retirement.” The Texas Legislature did not have a knee-jerk reaction to the changing market conditions and did not make drastic changes to the benefit plan for future TRS retirees.
While there is a great deal of good news in the report, the significant challenge of adequately funding the pension trust fund to ensure actuarial soundness remains. The report clearly states that the fund still has a “never” funding period. This means that if the fund does receive increased contributions or does not make significantly higher investment returns that exceed the assumed 8 percent, the system will “never” be actuarially sound. Retirees understand this means that no benefit increase is possible under current state law (Texas Government Code Section 821.006), as the system is not able to meet the definition of actuarial soundness (the ability to amortize the unfunded liability within 31 years).
TRTA will continue working with the legislature to improve the overall funding status of TRS and help retirees see a much needed cost of living adjustment.
At the same time, critics of the defined benefit pension plan are likely to spin this news in a completely different direction. It is their intention to destroy the TRS defined benefit plan and create a privatized retirement model for current and future active school employees. The fact is that TRS is doing a great job managing the pension plan and ensuring retirement security for over 1 million Texans (active and retired education employees in Texas exceed 1.3 million).
TRTA will have more on this important actuarial update after the TRS Board of Trustees meeting.