Today, during the meeting of the Board of Trustees of the Teacher Retirement System of Texas (TRS), board members began discussing plans for two studies that will be undertaken in the coming months. The Texas Legislature charged TRS with studying the fiscal and actuarial impacts of plan design change for the pension trust fund and TRS-Care. The results of both studies are due to the Legislature September 1, 2012.
Executive Director Brian Guthrie emphasized that there are no items up for consideration presently, these are only studies. TRS cannot make recommendations for any changes, only present factual data. The Legislature asks state agencies to do studies such as these to receive all pertinent and accurate information in advance of making any decisions. Guthrie also emphasized that the reason for the studies resulted from a lack of understanding of the issues.
Guthrie explained that the TRS-Care study is of more immediate concern, as the program is projected to run out of funds by 2015. The pension trust fund could feasibly pay out benefits for the next 60 to 70 years even with no changes to the plan. As TRTA has discussed in previous articles, the defined contribution proponents would like to make this an immediate issue; it simply is not.
The Legislative Budget Board (LBB) suggested the studies as an option because of concerns about the funding discipline of the state (meaning the state budget rarely appropriates enough money to TRS to meet its funding obligations). The state contribution to TRS is presently at the constitutional minimum of 6%. Additionally, the LBB was concerned about TRS meeting expected investment returns, presently required to be 8 percent.
Rebecca Merrill, Manager of Special Projects at TRS, led a panel of experts to discuss an overview of the TRS fund, as well as the differences between defined benefit, defined contribution, hybrid and cash balance plans. She also provided a basic outline for what the panel will review for the study. Some of the plan design changes being researched include changing the Rule of 80, minimum retirement age, final average salary and the multiplier. These items merely are being discussed, so that the impact on the fund, members, and state can be assessed before any legislative proposals are developed.
Mary Beth Braitman of Ice Miller, LLP said that plan design, not plan type determines how expensive one is to operate. The assumption is that a DC plan is cheaper, but this is not always the case. Ms. Braitman and other panel members suggested that more than cost, overall sustainability is an important factor in choosing plan design. Issues such as recruiting and retaining quality employees and providing a secure lifetime benefit will be considered in the pension study. Right now, TRS provides a 69% average income replacement per retiree. This does not take into account the ability of retirees to meet changes in the cost of living.
Keith Brainard of the National Association of State Retirement Administrators (NASRA) discussed how TRS compares to other teacher retirement systems that don’t participate in Social Security. The actuarially required contribution (ARC) for Texas TRS is lower than plans in most other states. The employer and employee contributions are also significantly lower in Texas. TRS Texas, in fact, has the lowest contribution rate of any statewide TRS plan in the nation (of plans not coordinated with Social Security). Much of this is due to the need to amortize the unfunded liabilities of other state plans. The Texas TRS funding ratio is presently 82.7%, much higher than most other states.
Brainard also discussed the recent national prominence of pension reform as an issue, stating that it resulted from younger generations with 401ks discovering them to be perilous methods of retirement security. Half of the United States workforce does not participate in an employer-sponsored retirement plan. Brainard also said that since 2009, more than 40 states have made meaningful changes to their retirement plans.
The TRS-Care study will focus on options for long-term sustainability, including how benefits are managed, eligibility requirements, retiree premiums, and contributions from the state, school districts, active employees and federal government. Some potential options include prefunding TRS-Care by contributing the annual required contribution; continue funding the program on a biennial basis; tighten the eligibility requirement to a Rule of 85; and discontinue TRS-Care 2 and 3 and offering only a base plan. Like the study on the defined benefit plan, these items are being discussed to determine what the potential impact may be on TRS-Care, its members, and the state if any of these discussion items develop into legislative proposals.
One reason TRS-Care is struggling is the expense of non-Medicare participants. A significant element of the study will focus on taking advantage of federal subsidies such as the Employer Group Waiver Plan (EGWP) and Medicare Advantage. Private exchanges will be considered as well as defined contribution alternatives.
The proposed timeline for the studies begins now. TRS will host a Town Hall Meeting at their headquarters in Austin on March 12 from 1:00 p.m. to 3:00 p.m. to provide an update. Results of the study will be released in August, and another Town Hall Meeting will be scheduled (date TBA).
TRS will continue to communicate with members as the studies progress using resources such as the TRS newsletter and website. It is important that TRS members share their questions, comments and ideas now. You can still submit questions about the legislative studies after the meeting adjourns (a link to do so will be live from the TRS website tomorrow). In the meantime, Twitter users can tweet questions to TRS (www.twitter.com/trsoftexas). You may also email questions to TRTA at tim@trta.org and we can deliver them to the board personally at tomorrow’s meeting.
These studies are the beginning of a discussion that will be ongoing for many sessions to come and may lay the groundwork for change. It is TRTA’s mission to make certain that any change considered by the Legislature protects and improves your retirement benefits.
Action on new Pharmaceutical Benefits Manager (PBM)
Health care cost savings considerations lead the TRS Board of Trustees to take action at today’s meeting. A few months ago, the TRS staff initiated a request for proposal (RFP) process for their pharmaceutical benefit manager contract. The current provider, CVS/Caremark, was one of seven respondents to the TRS RFP for a new pharmaceutical benefit manager (PBM).
The RFP looked at two options for a new PBM contract. One option included using the Employer Group Waiver Plan (EGWP) along with a PBM “wrap-around” plan designed to provide significant cost savings to TRS-Care. These cost savings initiatives were discussed at length.
The TRS staff and their health insurance consultants conducted an extensive evaluation of the seven PBM proposals. Considering all elements necessary to utilize the EGWP, wrap-around coverage, and various PBM discounts, and the ability to provide the same level of prescription drug coverage to TRS-Care members, the TRS staff recommended switching their pharmaceutical benefits manager from CVS/Caremark to Medco. TRS is projecting a savings of $220 million by switching, and the TRS Board of Trustees adopted this proposal today. The change will go into effect on September 1, 2012.
TRTA understands this change may result in numerous questions about your prescription drug coverage. TRS staff suggested today that the cost savings will be the result of utilizing federal subsidy programs, PBM wrap-around plans for co-insurance coverage, as well as the Medco prescription drug discounts. This will result in a program that is more cost efficient and nearly invisible to the members (meaning that changes are handled administratively and do not impact members). TRTA is asking for more information from TRS and we are confident that all questions will be answered prior to the September 1, 2012 transition date.
As always, TRTA is your voice on issues impacting your TRS benefits. Please send us any questions you have about this upcoming change, and we will work with TRS to get them answered. Send questions to tim@trta.org.
Concluding thoughts
A capacity crowd of local TRTA Lubbock/South Plains RTA members participated in today’s TRS meeting. Thousands of TRTA members watched today’s broadcast over the internet, causing the TRS webcast to become overloaded with traffic! Our members are interested and are mobilizing.
We need your support to keep TRS benefits intact to provide all TRS members with a secure retirement. Tim Lee, TRTA Executive Director, addressed the TRS Board of Trustees this morning stressing the important role TRS plays in the livelihood of millions of Texans. He suggested that while it is always good to study these issues and provide factual information, the real issues are providing retirees with a much needed benefit increase and fully funding future health care obligations.
TRTA will continue to rely on our impassioned members to protect our benefits and convince the Texas Legislature than now is the time to help retirees in need!
Thank you for your membership in TRTA. If you are not a member and need more information on joining, please contact our office at 1.800.880.1650.
