05 May 2022

TRTA Testifies at Senate Finance, Begins March Toward a Meaningful COLA

The Texas Senate Finance Committee conducted a hearing on Wednesday, May 4, 2022 about the effects of inflation on the Texas economy, including the impact on retired Texas educators and state employees. The committee also reviewed reforms made to both the Teacher Retirement System of Texas (TRS) and the Employees Retirement System of Texas (ERS) during the 87th Legislative Session.

Newly appointed Chairman Joan Huffman (R-Houston) presided over her first meeting of the committee. Texas Retired Teachers Association (TRTA) Executive Director Tim Lee, along with TRTA State Legislative Committee members Dr. Mary Widmier (District 4) and Eric McKnight (District 17), provided testimony at the hearing. TRTA members were by far the largest single contingent in the audience and their presence was noted multiple times by committee members.

Tim Lee spoke to the committee about TRTA members’ appreciation for their work on SB 12 and the supplemental payment retirees received in January. He thanked them for making a COLA a part of the legislative discussion for 2023.

Lee noted that inflation is taking a huge toll on retirees who have not received an actual COLA since 2004. In that time, inflation has increased by 52%, making a dollar today worth 65 cents compared to a 2004 dollar. This is a harsh reality for over half of current TRS retirees, who retired after 2004. He pledged that TRTA will work diligently with the Legislature to provide retirees a meaningful COLA in 2023.

Dr. Mary Widmier told the committee that both she and her husband retired 15 years ago and rely almost completely on their TRS annuities. Despite 21 years paying into Social Security, she receives only $120 per month due to the Windfall Elimination Provision (WEP) reduction. Since 2007, when they retired, inflation has decreased their purchasing power by 39%.

Widmier told the committee, “We are here today to ask for a meaningful COLA, but also for a comprehensive approach. Since we truly depend on our TRS pension fund, we need an approach to ensure the fund remains actuarially sound, pursues wise investments, and allows the fund to grow.”

Eric McKnight focused on how TRS pension payments help businesses in his community and the negative effects of inflation on local members (see our Facebook page for more personal stories from TRTA members). McKnight told the committee that in 2020, Lubbock County received more than $181 million from TRS pensions and the majority of that money remained in the local economy. He told the story of married couple who are TRTA members whose unexpected medical issues caused them to seek help from the community, their children, and the Texas Retired Teachers Foundation (TRTF) to make ends meet over the past year.

McKnight closed his testimony by saying, “Inflation is real and it hits home . . . along with supporting our local economy, a meaningful COLA would provide dignity in retirement and help all Texas retired teachers.”

TRS Executive Director Brian Guthrie gave the committee an overview of the financial condition of the pension system. Guthrie also discussed the proposal from the TRS consulting actuary to the TRS Board to reduce the investment return actuarial assumption from the current 7.25% down to 7% (click here to read TRTA’s report about this pending change).

Director Guthrie reminded the committee that a similar change to the rate of return (from 8 to 7.25% in 2018) caused the fund to fall outside the state definition of actuarial soundness. The state’s requirement is that the system be within a 31-year funding period to be considered actuarially sound, and the change increased the TRS funding period to 87 years.

That change triggered the creation of Senate Bill 12 in 2019, which was authored by Chairman Huffman. SB 12 increased contribution rates from the state, active TRS members, and school districts over a six-year period to bring the fund back to actuarial soundness. This allowed the Legislature to provide supplemental payments to TRS retirees in 2019 and 2021.

Guthrie contrasted the effects of the 2018 change with the proposal before the TRS Board now, which will increase the funding period by 3 years, from 23 to 26, meaning the system will maintain actuarial soundness. This is in large part because of SB 12, as well as a 25% return on investments in 2022.

Chairman Huffman asked Guthrie directly if this proposed change would have any detrimental effects on the possibility of providing a cost-of-living adjustment (COLA) to TRS retirees during the 88th Legislative Session in 2023. He answered that it would not, because the fund is stable and the TRS Board has more options available to reduce the effects of the change.

TRTA will continue to work directly with TRTA members and the Legislature to make sure retirees’ voices are heard as we head toward our next opportunity to win a COLA!

Thank You!

Stay tuned to the Inside Line for more information about issues that impact Texas public education retirees.

TRTA is the only group that focuses solely on your TRS retirement security! Please join us today!

Thank you for being a member of TRTA and supporting issues that affect retired Texas public school personnel. Be sure to download the TRTA app to receive all of the latest updates and communicate with your fellow retirees.

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29 Apr 2022

Teacher Retirement System of Texas Board Considering Reducing Its Investment Return Assumption

Executive Summary:

  • TRS Board of Trustees considering moving investment return assumption to 7 percent
  • A vote on the matter will likely occur in July or September
  • TRTA continues to push for a COLA for retired educators
  • Senate Finance Committee set to meet May 4th to review inflation pressure on Texas economy. TRTA members are encouraged to watch or come to the Capitol. See our Facebook post here.

The Teacher Retirement System of Texas (TRS) held a Board of Trustees meeting on April 28 and April 29. The key point of discussion during the meeting was the pension plan’s investment return assumption.

The investment return assumption is a projection of how much TRS expects its investments to make over time. The current investment return assumption is 7.25 percent, and the Board of Trustees is taking up a consideration to move it down to 7 percent. The board will likely vote on this consideration either during its July or September meeting.

The prospect of reducing the investment return assumption is significant for retired educators because it potentially increases the timeline of when TRS projects it will pay off its unfunded liability. The Texas Legislature uses this information when deciding whether to provide retirees with a much-needed cost-of-living adjustment (COLA).

Gabriel, Roeder, Smith (GRS), the actuarial firm who generates the experience study, projects that changing the investment return assumption to 7 percent will move back the funding period from 23 to 26 years. The funding period must be below 31 years to allow for a benefit increase according to Texas statute.

TRS trustees, though, do have some options that may mitigate the impact this change will have on the amortization period. Thanks to the outsized 25 percent return on investments in 2021, which represents more than $21 billion in gains, the board is considering the option of recognizing a portion of those gains to minimize the impact to the actuarial funding period. Typically, TRS will use a time horizon of five years to recognize outsized gains or losses to avoid wild swings in funding or asset management policy when the market experiences abnormal fluctuations. This process is known as “smoothing.”

GRS suggested to the board the possibility of making the change to 7 percent and recognizing $5 billion in deferred gains now to keep the funding period around 22 years.

TRS trustees discussed that going into the legislative session with a shorter amortization period and a more updated set of assumptions for trust fund management may provide the Legislature more flexibility on the topic of a COLA for retirees.

Tim Lee, the Texas Retired Teachers Association’s (TRTA) Executive Director, addressed the TRS board during public testimony. He stressed the need for TRS to work with the Texas Legislature to help provide retirees with a COLA. He highlighted the fact that retirees are suffering from hyperinflation. TRS annuitants who retired after Aug. 31, 2004, have never received a COLA.

Joe Newton, lead consultant with the actuarial firm, highlighted that many of TRS’s peers use an investment return assumption of 7 percent. Newton pointed to reducing the investment return assumption to be a national trend. He said that any consideration of a COLA for retirees should be paired with increased contributions from the Texas Legislature.

In 2019, TRTA worked with the Texas Legislature to pass a hallmark bill, SB 12, that provided additional funding from all parties to help make TRS actuarially sound. This plan included a phase-in of additional revenue for TRS pension fund.

Last session, TRTA helped ensure that the state budget maintained the contribution levels promised in SB 12. This was a great victory for all TRS members as it added more than $1 billion for TRS and kept the system actuarially sound even in the middle of the dire pandemic.

In addition, the Legislature passed a supplemental payment for retirees capped at $2,000 in 2019 and another supplemental payment capped at $2,400 in 2021. TRTA members worked tirelessly on these efforts and are extremely grateful for the work done by the Legislature to help TRS retirees and pre-retirees.

TRTA members are focused on a COLA for TRS retirees in the coming session. We will follow the discussion on the pension fund assumptions and provide meaningful input in this process to help ensure the most options are available to the Texas Legislature as we look ahead to the next session.

Thank You!

Stay tuned to the Inside Line for more information about issues that impact Texas public education retirees.

TRTA is the only group that focuses solely on your TRS retirement security! Please join us today!

Thank you for being a member of TRTA and supporting issues that affect retired Texas public school personnel. Be sure to download the TRTA app to receive all of the latest updates and communicate with your fellow retirees.

Read More
25 Apr 2022

Stop the GPO Pain!

The Texas Retired Teachers Association (TRTA) has received multiple phone calls regarding a recent correspondence from the federal Social Security Administration (SSA) to retirees who receive SSA spousal benefits.

Retirees who receive these benefits and are subject to the federal Government Pension Offset (GPO) were informed in this letter that their SSA spousal benefit may be reduced due to the supplemental payment received by most TRS retirees in January 2022.

The GPO formula deducts two-thirds of the amount of a retiree’s TRS pension from their SSA income. This formula is meant to replace the formula used for private sector employee retirees. For those in the private sector, the SSA spousal formula subtracts the entire amount of a retiree’s SSA benefit from the deceased spouse’s pension to determine the spousal benefit, if any. In other words, the surviving spouse only keeps the greater of the two Social Security benefits (their own or their spouse’s) when their spouse precedes them in death.

For TRS retirees, since the GPO uses their TRS pension as a part of the deduction formula, the SSA has interpreted the law such that any changes to the amount of the pension—even one-time payments—automatically cause a change to the SSA spousal benefit amount, too. Since the January 2022 supplemental payment was a one-time event, the amount of the increase is amortized over a 30-year period. While the SSA may do this to help minimize the impact of their deduction, TRTA argues that any additional reduction in a person’s already reduced SS benefits is too much.

TRTA is working with the Texas Congressional delegation to make some changes and help TRS retirees. As an immediate action item, TRTA is calling on Congress to change the interpretation of the law so that if a public employee retiree’s spousal benefit is impacted by the GPO, their remaining Social Security benefit can NEVER be reduced again!

TRTA says if the federal GPO already has been applied to a retiree’s spousal/ auxiliary benefit and it was not eliminated completely, then no further reduction in their Social Security income should occur ever again when there is an increase in their state pension benefits!

TRTA calls this measure the “One-and-Done” approach and we believe it should be enacted immediately. As we are seeing now, whenever TRTA secures a benefit increase for retirees on their state pension benefits, the federal government then reduces the retiree’s remaining spousal/auxiliary benefit. This is punitive and impractical and should come to an end!

Perhaps even more importantly, TRTA is calling on Congress to stop the GPO pain! The Government Pension Offset unfairly penalizes public servants, including Texas retired school employees. The worst part is GPO typically hurts seniors after the loss of a spouse who was a Social Security recipient.

The GPO is bad public policy that is hurting dedicated public servant retirees all over the country.

Contact your congressman today and let them know it’s time to Stop the GPO Pain!

Please stay tuned to the Inside Line for additional updates. In an article coming soon, TRTA will address the work we are doing on the Windfall Elimination Provision (WEP).

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