Yesterday, the Texas Retired Teachers Association (TRTA) released a brief Inside Line update about the Senate Finance Committee meeting. The committee met yesterday to hear testimony from the Legislative Budget Board (LBB) and the Teacher Retirement System of Texas (TRS) about the state of the TRS pension fund and the TRS-Care retiree health insurance program.
Today we feature our expanded update, including video coverage of the meeting itself and an exclusive update from TRTA Executive Director Tim Lee!
The TRS Pension Fund
Patti Featherston of the LBB began yesterday’s testimony with a report about the health of the TRS pension fund, which presently is at a funding status of 80.2% and has a funding period of 29 years. In order to be actuarially sound by state law, the pension fund must have a funding period of 30 years or less.
The LBB recommended that the state budget maintain the contribution rates to the fund that were put into place last session with the passage of Senate Bill 1458. This includes a state contribution of 6.8% in 2016 and 2017, an active employee contribution of 7.2% in 2016 and 7.7% in 2017, and a new school district contribution of 1.5% that begins in 2016. These percentages are based on active member payroll, which has experienced growth in the past biennium. Although this growth is expected to taper some, the addition of new employees and salary increases means more money for the pension fund.
TRS also has an assumed investment return of 8%, which it exceeded in 2014 by doubling that return to 16%. The pension fund generally should improve in funding status and funding period as long as the current contribution rates remain in place for the foreseeable future. TRS Executive Director Brian Guthrie stated that at the present time, TRS should be able to pay down its entire unfunded liability by the year 2044.
The TRS-Care Retiree Health Insurance Program
While the news is good about the pension fund, concern about TRS-Care was expressed not only by the LBB and TRS but by several Senators serving on the committee as well. The LBB’s current recommendations for funding TRS-Care include the standard state contribution of 1% of active employee payroll. Over the summer, TRS requested exceptional funding in the amount of $875 million to cover an imminent shortfall to the health care program. That request now sits at $768 million and is based on claims payments through December 2014.
Earlier this year, the LBB released a Government Effectiveness and Efficiency Report (GEER), which included several recommendations for resolving the funding crisis for TRS-Care. Beginning on page 367, the LBB’s recommendations include increasing contributions from the state, active educators, school districts and including a premium increase for retirees. Premium increases in the GEER report for TRS retirees are suggested to be as high as 25 percent!
In order to increase retiree premiums, the Legislature would have to delete the rider expressing legislative intent that the TRS not increase retiree premiums from the 2016–17 General Appropriations Bill.
TRTA does not support increasing retiree premiums. Tim Lee, TRTA Executive Director, testified at yesterday’s hearing that state education retirees have received only one annuity increase in 12-years. If the legislature did not fund the TRS request for additional health care dollars, more than 60% of that increase will be taken back just to keep up with premium increases.
Considering that not all education retirees received the increase, massive premium hikes on our TRS-Care participants would be financially devastating.
In addition, Mr. Lee called on the Legislature to fully-fund the TRS-Care appropriation request and to work together with all stakeholders to develop a long-term solution.
The LBB recommendation drew several comments from Senators who asked about the stagnant incomes of retirees and felt that many simply cannot afford to pay anymore. Retirees already shoulder 38% of the cost of TRS-Care through their premiums, deductibles and co-pays, while the state pays 23%, active educators 15%, and school districts 13%. The other 11% comes from funding sources such as federal dollars.
We have included several of these comments in our video coverage today. Sen. Kevin Eltife (R-Tyler) stated that this issue causes many retirees to feel fearful, and that the consideration of raising retiree premiums should be thought through very carefully. Sen. Joan Huffman (R-Houston) shared a sentiment that it is the state’s obligation to figure out a way to resolve this crisis, and that while there are several recommendations on the table right now, she thinks this is an issue the state can solve.
Sen. Juan Hinojosa (D-McAllen) asked how the TRS-Care shortfall came to be. Both the LBB and TRS Executive Director Brian Guthrie mentioned that the expenditures for the program are growing much faster (at 8.8%) than the payroll base for active educators (at 2%). Since contribution rates depend upon payroll growth, there is a “fundamental disconnect between the costs of the program and its revenue streams,” said Guthrie.
This disconnect has existed since the program’s creation in 1986. While the program was intended to be temporary until a permanent insurance plan could be put into place, it has instead existed for nearly 30 years. In 2003, TRS-Care faced a similar funding shortfall and the issue was resolved by increasing contribution rates from the state and active teachers and introducing the school district contribution. At that time, retiree premiums also increased.
According to Guthrie, TRS has exhausted all possible cost containment measures it can pursue legally to shore up the TRS-Care shortfall. These containment measures include introducing the Medicare Advantage plan in 2013 and making eligibility changes to access Care 2 and 3 for future retirees. Those eligibility changes won’t access the program’s bottom line until 2020.
TRS-Care will be in the hole by $235 million in 2016, and by $768 million in 2017. While no potential solutions were discussed today, this important conversation stressed the seriousness of the crisis in the minds of our Texas Senators. While the general sentiment is that our Senators support our retirees and do not want to burden them with excessive premium increases, we still face a tough conversation this session about just how the shortfall will be addressed.
Defined Benefit Program Attacked
Tomorrow, we will bring you an update about an attack levied against the TRS defined benefit plan. Published in yesterday’s Austin American-Statesman, the attack was written by James Quintero of the Texas Public Policy Foundation (TPPF).
As mentioned in the video, the attack comes at a time when the TRS pension fund is robust and actuarially sound. The Texas Legislature and all stakeholders served by TRS worked hard last session to ensure the long-term solvency of the fund through the passage of Senate Bill 1458.
We will provide our members with TRTA’s official response to this unwarranted attack via the Inside Line tomorrow.
Your emails to your Senators this week and the letters you mailed over the holidays made a huge impact on your Senators! Several Senators mentioned that they have been contacted by retirees in their district and that their concerns will not be ignored.
Thank you for sending a very strong, positive, and LOUD message to the Texas Senate as we discuss these vital budget issues.
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.