Today, February 20, the House Appropriations Subcommittee on Article III met and heard vital testimony about the Teacher Retirement System of Texas (TRS) pension fund and the TRS-Care retiree health insurance program. The Texas Retired Teachers Association (TRTA) was able to provide public testimony, in addition to TRS Executive Director Brian Guthrie.
Guthrie’s testimony very closely matched his comments from last week’s Senate Finance Committee hearing. He discussed the robust health of the pension trust fund, which has about $132 billion and presently serves about 1.4 million retired and active members. The system pays out over $8 billion in retirement benefits each fiscal year.
“Everyone in this room has a friend or someone in their own family who is an educator or may be an educator themselves,” Guthrie said.
During fiscal year 2014, the pension fund earned nearly 17% in returns. TRS recently released its new Great Value for All Texans brochure, which demonstrates that nearly 64% of the value of the fund is generated by investment income. The 25 year return rate for the fund is 8.8%.
Guthrie noted TRS’s unfunded liabilities will increase over the next couple of years, but then begin to recede as Senate Bill 1458 is phased in.
“By 2044, we will be able to say that we have no more unfunded liability,” Guthrie said.
Our members are very appreciative of the efforts made by the Texas Legislature to make the pension fund actuarially sound and very proud of the success TRS has had over the years.
The main concern of both TRS and TRTA this session is funding for TRS-Care. The projected shortfall to this health care program is $768 million, though that number will be updated again at the end of February and again during late session when budget writers from both the Texas Senate and House meet in conference committee. The shortfall, however, has been tracking between $700 and $800 million for the past year.
The TRS-Care shortfall is not a new problem, but a systemic one. Some of the major cost drivers for the plan include ever-increasing medical costs. For example, prescription drug costs have been trending upwards at a rate of about 8% per year.
“Revenue streams for TRS-Care are based upon a source (aggregate teacher payroll) that has nothing to do with medical costs,” Guthrie said.
TRS-Care will start to trend negative beginning in FY 2016, and if nothing is done by the Legislature to address the shortfall it will run out of money in January 2016. Even if the Legislature paid for the $768 million shortfall without addressing the program’s long-term solvency issues, we would be facing yet another shortfall in two years that would reach nearly $1.5 billion!
A similar shortfall occurred in 2003, and at the time, the Legislature made a variety of changes, including new contributions, benefit changes, and increasing retiree premiums. As we face this problem again, all options are on the table once more.
Retirees pay for approximately 38% of TRS-Care’s total costs through premiums, deductibles, co-pays and other out-of-pocket costs! The state’s contribution accounts for approximately 23%. School districts and active school employees also contribute.
Premiums are significant portion of our retirees’ take home income each month, and the vast majority do not receive Social Security. Though premiums vary based on years of service and retirement date, the average TRS-Care 3 participant with 20 years of service pays $310 per month in premiums. The average monthly annuity of a TRS retiree is less than $2000.
Executive Director Guthrie referenced the TRS-Care sustainability study, explaining that he asked his staff to review all possible options. In 2014, TRTA did a review of all of the options which can be found by clicking here.
Next week, TRS will again meet with the House Appropriations Subcommittee on Article III to discuss the options in detail. The meeting will be held Tuesday, February 24 at 7:30 a.m.
TRTA also provided public testimony during today’s hearing, stressing that our TRS-Care participants need access to affordable health care coverage with reasonable benefits. TRS-Care operates with twice as many retirees and half as much funding as the Employees Retirement System of Texas (ERS) plan!
Texas statute indicates that the state should pay for no more than 55% of the cost of TRS-Care, but right now, the state is far from that number (23%)! Our retirees are shouldering most of the burden of the program (38%).
TRS-Care is running out of money quickly and no progress has been made on pre-funding the plan. If TRS-Care funding is linked to active teacher payroll, the state must provide a greater financial commitment to its public education retirees.
TRTA believes that the work of the House Appropriations Subcommittee on Article III should yield an immediate budget increase to TRS-Care of an additional 2% in state funding, raising the level of state commitment to TRS-Care to no less than 3% of payroll.
We believe that 3% is the minimum level of state contribution necessary to begin any conversation about “sharing the pain” of addressing the shortfall and the program’s long-term sustainability issues. TRTA does not believe our retirees can shoulder this load. We also believe that additional costs cannot be foisted onto the backs of active school employees who already bear very high costs for their TRS-Active Care program.
TRTA is, therefore, suggesting the 3% state contribution rate as the new normal state contribution for TRS-Care from this point forward. TRTA Executive Director Tim Lee passionately implored the committee, saying that “some shoulders are broader and some backs are stronger and should carry more of this load.”
We do not know what is in store for the future of health care. This uncertainty, and the reality that we implemented changes last session using SB 1458 that may help reduce long-term TRS-Care costs, might give our legislators pause when thinking of “fixing” TRS-Care now. However, action must be taken.
Even if the actions taken this session do not fix the health care program entirely, taking steps toward a pre-funding approach is the smart thing to do!
We have all heard the phrase “kicking the can down the road.” The proverbial TRS-Care can has been kicked to the edge of the cliff! There is no road left. We may be able to get to the other side of this great chasm, but our retirees need a bridge. The cost of that bridge may just be $768 million.
TRTA and our hard-working, ardent members will NOT let this happen! Our strength has always been our ability to work together, stand together and face the issues head on. We need you, your fellow retirees, and any active educators you know to stand with us this session as we fight to keep that can from going over the edge of the cliff!
Please be sure to stay tuned into the Inside Line throughout the 84th Legislative Session, as we will be bringing you all the latest updates on our broad legislative agenda, including any bills concerning TRS-Care, the continued funding of the TRS pension trust fund, pension increases for all TRS retirees, and also congressional issues such as the WEP and GPO.
Thank you for your membership in the Texas Retired Teachers Association (TRTA). If you are not a member of TRTA and want more information about joining, please contact us at 1.800.880.1650. Follow us on Facebook! Visit our YouTube channel for regular video updates.