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15 Sep
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TRTA Update September 15, 2012

TRTA Helps Lead a United Front Defending TRS Benefits

 Associations Testify in Favor of Maintaining Pension and Health Care Benefits

The House Pensions, Investments, and Financial Services Committee (PIFS) met this week to discuss their interim charge on the Teacher Retirement System and other statewide, county, and municipal retirement programs. TRTA expected an attack on the defined benefit traditional retirement program by those interest groups that seem determined to implement a privatized retirement program for all educators and other government workers. Unfortunately, these attacks may just be the beginning.

TRTA members from around the state attended the hearing. Many of these TRS retirees stayed the entire day listening to over 8 hours of testimony on various pension fund structures in the state. All TRTA members and all TRS retirees are fortunate to have such dedicated TRTA members giving their time to be present through these hearings.

TRTA made a strong case promoting the value of the existing TRS defined benefit retirement program for education employees and retirees. Tim Lee, TRTA Executive Director, testified before the committee stressing the need to continue with the TRS defined benefit program. Key points from the TRTA testimony are provided below.

You can also watch Tim’s presentation by clicking here (Pensions, Investments and Financial Services Committee hearing September 12, 2012 advance video to mark 7:25…towards the end of the video presentation).

Key points of the TRTA Testimony:

  • TRS is NOT in crisis and under current contributions levels and investment return assumptions, the plan can pay benefits through the year 2075
  • TRS is not coordinated with the federal Social Security program and is the sole source of retirement security for 95% of retired public school personnel
  • TRS is not being ignored by the Texas Legislature, while other states with flailing pension plans have skipped contributions to their systems, sometimes for years
  • Implementing a defined contribution style plan for TRS is not needed, and is not good public policy; it is, in fact, drastic, costly, and fiscally irresponsible
  • TRS is not a tremendous burden on Texas taxpayers and is not an entitlement program
  • TRS is not an overly rich benefit plan with an average monthly benefit of $1,867
  • TRS is not far from achieving actuarial soundness
  • TRS is not perfect, but would benefit significantly from modest changes to the system while maintaining its defined benefit structure
  • The issue at hand is about ideology versus good public policy
  • TRS is in the forever business, with 75 years of proven success in providing benefits for its members
  • TRS brings tremendous value to the state of Texas, including $690 million in state revenues
  • TRS is a bargain for Texas taxpayers, costing them far less than what private sector businesses pay in for their hourly employees
  • TRS is well-managed and has earned more than $40 billion since the two major market declines in 2008 and 2009
  • TRS provides real retirement security and is a legacy worth protecting.

TRTA is convinced that the argument to eliminate the TRS defined benefit plan is based more on political ideology than any fiscal need. As TRTA already reported, the TRS study on alternative plan design (TRTA report, click here…TRS Study, click here) indicates that changing to a defined contribution plan would increase the TRS unfunded liability by $11.7 billion!

Make no mistake, TRTA and our members will do whatever we can to protect the TRS retirement program! We are meeting with legislators, talking to educators, sending letters to newspapers, talking to additional media, and informing our own members about this attack. We will never stop fighting those interests that want to undermine the TRS benefit plan.

While it is important to be fully engaged in the existing attacks on the TRS defined benefit plan, the far more critical issue is adequate funding for the TRS-Care retiree health insurance program. Again, as TRTA reported earlier this month (click here), the TRS-Care health insurance program is quickly running out of reserve funding and may experience a funding shortfall in the next two to three years. That funding shortfall may be as much as $1.2 billion.

TRTA expects action this session to improve the funding condition of the TRS-Care program. The need for action was highlighted by Brian Guthrie, TRS Executive Director, stating that the healthcare issue is in need of attention far more than any perceived pension funding crisis.

TRTA members need to tell legislators that their health care is a vital part of their retirement benefit and their livelihood. They should also remind legislators that this program is not a “no-cost” health care plan. TRS-Care participants pay significant premiums to participate in this plan. Combining what retirees pay in premiums, as well as deductibles and out-of-pocket costs indicates that plan participants are paying the highest portion of these health care costs.

TRTA members want the legislature to restore funding to the TRS-Care program that was cut last session and to be ready to provide any additional funding necessary to maintain the TRS-Care retiree health insurance program.

TRTA is working hard to be your voice on these important issues. Thank you for being a TRTA member and supporting our efforts. Our member network exceeded 73,000 members last year. We hope that you will continue to support us as we fight to protect your retirement.

If you are not a member and want more information on joining, please contact our office at 1.800.880.1650. TRTA membership is $25 per year.

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07 Sep
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Pensions, Investments and Financial Services Committee to Meet Next Week

Many TRTA members are interested in the legislatively mandated studies completed by the Teacher Retirement System of Texas (TRS) last week. The full report can be read by clicking here.

TRS began working on the studies at the end of the 82nd legislative session in 2011. The Texas Legislature directed TRS to research the impacts of potential changes to its current defined benefit pension plan. Additionally, the legislature instructed TRS to address the solvency issues with the TRS-Care health insurance program by doing a separate study.

To read the complete TRTA report on the study, please click here.

Next week will be the first opportunity for the TRTA staff and members of TRTA to respond publicly to the Texas Legislature about the results of the reports. Many of you have expressed interest in attending this meeting of the Pensions, Investments and Financial Services Committee (PIFS) next Wednesday, September 12.

The meeting will be held in room E2.010 of the Texas Capitol building. TRS is scheduled to present its findings at approximately 12:00 p.m. (Please note the time is subject to change) Public testimony is welcome. We encourage those of you who want to speak to arrive early, no later than 11:00 a.m., to complete a comment card.

Next Wednesday is also the TRS 75th Anniversary celebration. As you have heard, this event has sold out. Although we are unable to sell any additional tickets to the event, we still encourage any TRTA member within travelling distance to attend the PIFS Committee hearing. We believe you will find tremendous value in learning the results of the studies and in hearing legislators’ comments about those results.

For those of you who purchased tickets to the TRS 75th Anniversary event, you should receive your tickets in the mail shortly. We hope you are able to arrange your travel schedule to attend the PIFS meeting earlier in the day.

The PIFS hearing will also be broadcast live online from the following webpage: www.house.state.tx.us/video-audio. A specific link for the meeting has not yet been created. Please check back at the link provided on the day of the meeting.

Update on Special Email Lists

Over 700 emails have been received through the new doctorcheck@trta.org email service. We appreciate your inquiry and are working with TRS and Aetna to get answers to your emails as quickly as possible.

Additionally, over 300 emails have been sent to plancheck@trta.org. We know that Aetna is working hard to answer your Medicare Advantage questions, as well.

Please allow up to 14 days for these emails to be processed. Aetna officials are still involved with their statewide information seminar schedule. Providing information about the new Medicare Advantage program is being accomplished through multiple levels. Your patience in having your questions addressed is appreciated.

Please feel free to continue using the two email services below. If you want an immediate answer, try the TRS-Care Aetna hotline at 1-866-217-2409 (TDD: 711). These calls are being answered with little to no hold time.

For questions regarding your doctor’s participation in the TRS-Care Medicare Advantage plan (please provide your doctor’s full name, office address, and office phone number): doctorcheck@trta.org

General questions regarding the TRS-Care Medicare Advantage plan: plancheck@trta.org

As always, thank you for your membership in TRTA. If you are not a member and would like to join, please call us at 1.800.880.1650.

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01 Sep
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TRS Releases Final Pension Design, TRS-Care Studies

Important Study Finds TRS DB Plan is Best Model

The Teacher Retirement System of Texas (TRS) released two legislatively mandated studies on the pension fund’s plan design and the retiree healthcare program, TRS-Care. Both studies had a required completion date of September 1, 2012. You can read them in full on the TRS website by clicking here.

TRS began working on the studies at the end of the 82nd legislative session in 2011. The Texas Legislature directed TRS to conduct a study on the impacts of potential changes to its current defined benefit pension plan. Additionally, the legislature instructed TRS to address the solvency issues with the TRS-Care health insurance program by doing a separate study.

TRTA has participated in both studies by providing public testimony and relaying the concerns of our members to TRS.

While both studies are rather lengthy, TRTA will focus today on the key findings of each.

First of all, TRS is able to pay currently projected benefits through the year 2075 even without making changes to the system; however, the State and TRS need to begin addressing the $24 billion unfunded liability the system currently holds.

You may have read in previous issues of The VOICE or the Inside Line that TRS is at a funded ratio of 83%, a healthy benchmark for public retirement funds. However, Texas statute provides that in order to provide permanent cost-of-living increases to TRS annuitants the fund must have a funding period of less than 31-years.    Currently the fund has a “never” funding period (meaning that based on current funding levels and expected investment returns, the plan will not return to solvency). As you are aware retirees have not received a permanent increase since 2001.

TRTA does want to restate how grateful we are to all members of the Texas Legislature and to all our TRTA members who worked hard to provide the supplemental payment in 2008. That benefit adjustment was the first and only supplemental payment of its kind in the 75-year history of TRS. It came at a time that retirees were very much in need and it did help hundreds of thousands of TRS members. TRTA believes another such supplemental payment may be needed as a stop-gap measure before a permanent increase may be possible. This is one issue we will be working on next session.

Another key finding from the report is that the value of the retirement benefit available for TRS members is 36% less than the average benefits available to members of other state teacher retirement systems. In other words, the average monthly annuity of $1867 for a TRS annuitant is considered modest among peer pension plans.

The third key finding from the study, and a very important facet to take note of, is that the defined benefit plan provides benefits at a lower cost than alternative plans. As you have read, there are groups in Texas that want to change TRS to a defined contribution plan, often citing cost savings as a reason to support the change. The study of the TRS system confirms that the current DB structure is the most cost efficient for the state and for taxpayers. In fact, changing TRS to a defined contribution plan (for new hires) would immediately add $12 billion to the plan’s unfunded liability. See “Reaction to Study” below for more information on this point.

The fourth finding is that the majority of TRS members would do a worse job of investing in their own plan with a defined contribution component. One of the greatest benefits of having a DB plan is the ability to pool assets and have the system itself assume the risk of investing while ensuring a monthly annuity for the members. With a defined contribution plan, that risk shifts onto the retiree, who may outlive their benefit. Think about the many people who planned to retire in September or October of 2008. Many people with a defined contribution plan were immediately unable to retire as the market losses eroded their hard-earned and invested retirement savings. The people in TRS also saw their plan’s value erode from $112 billion to a reported $67 billion in February of 2009. Today, the TRS pension trust fund has reclaimed those losses through professional investing and the ability to weather difficult economic times. Your TRS trust fund is again worth over $110 billion. In a mere 3-year period, TRS values dropped from $112 billion to $67 billion, and bounced back up to $110 billion. How many people can say they have regained their market losses so efficiently?

The fifth key finding is that alternative plan structures carry differing levels of risk for the state and for TRS members. In other words, DC plans shift risk away from the State, but are far riskier for the retiree. However, this shift does not solve the issue of the plan’s unfunded liability.

The sixth finding is that other state retirement systems that have changed their plan structures from DB plans to other types of plans have also had to lower benefits to see cost savings for their plans. In other words, changes to plan design are accompanied by drastic benefit cuts for future retirees. As has already been pointed out, the TRS Texas retirement plan is already 36% less rich than comparison plans. Cutting TRS benefits any further may severely impact a future retirement security for over 1 million active school employees.

Seventh, moving new hires to a DC plan or alternative plan does not eliminate existing liabilities. As mentioned previously, such a shift would actually increase those liabilities. Additionally, changing to a DC plan also removes a source of revenue from the fund which could no longer be used as a means to pay down the unfunded liability. The state or TRS would have to find some other revenue source to eliminate that debt.

Finally, 95% of public school TRS members do not pay into Social Security, meaning that the TRS benefit is their only form of retirement security. As we have discussed in previous articles, there is also the possibility that Texas school districts would have to begin paying into Social Security if new hires were put into a DC plan. This creates a new financial burden for school districts and their employees, as well.

TRTA has stated repeatedly over the past two years that the TRS pension trust fund is NOT in crisis. While modest changes to the system can be made to bring the fund closer to actuarial soundness, the structure of the system as a defined benefit is viable, efficient and a necessary component of our retirees’ financial security.

Healthcare Presents More Significant Funding Challenges

The TRS-Care study addresses a more immediate concern in funding. As you may recall, at the end of the last legislative session, the healthcare program was facing an imminent shortfall in 2014-2015. TRS was tasked with exploring options to sustain the insurance program for the long-term, including the possibility of plan design changes.

As a result of this study, you have already seen many changes, including the new TRS Medicare Advantage program for certain TRS members. TRS also re-bid its existing contract for a Pharmacy Benefit Manager and added a Medicare Part D plan as an option.

While these changes are projected to save TRS-Care millions of dollars, they are not enough to prevent a shortfall in the 2016-2017 biennium, according to the study. These plans are dependent upon high participation rates in the Medicare Advantage program, as well as the state restoring its contribution to the full 1% of teacher payroll.

The options available for extending the life of TRS-Care are changes to benefits and eligibility, changes to retiree premiums, or increasing revenue through contributions from the state, school district, active employee or from the federal government. The study took into account that non-Medicare eligible participants cost the plan more than Medicare eligible participants.

It is important to note that both studies were conducted as a means to provide objective solutions to long-term (the pension fund) or immediate (TRS-Care) funding concerns. TRS will at no time make any recommendations to the Texas Legislature as to what options should be pursued.

TRTA, on the other hand, will review both studies thoroughly and will be able to provide testimony to the legislature regarding what options are best for both the retirees and the system itself. Please take the time to read the full studies and review the possibilities. We would like to hear your feedback. Email TRTA at trta@trta.org to share your perspective about what is best for you.

Reaction to the Pension Study

TRTA believes the TRS pension study points out major benefits of the TRS defined benefit plan design and provides ample evidence suggesting that with some gradual revenue enhancement for the TRS trust fund and minor benefit tweaking, the pension plan will be able to serve its members for generations to come.

Several think-tank and other advocacy organizations were not as pleased with the outcome from the TRS pension study. In a report by Kate Alexander in the Austin American Statesman, a spokesman for one group, the Texas Public Policy Foundation (TPPF) suggests that a change must still be made. “It will get a good look. There is a high likelihood that changes will be made,” said Talmadge Heflin of the Texas Public Policy Foundation. (click here to read the full story)

Many of you know Mr. Heflin as a former Texas State Representative. He served Texas House District 149 from 1983-2005. During that time, Mr. Heflin made contributions to the Employees Retirement System of Texas and is now eligible to draw a defined benefit retirement from the ERS.

TRTA produced this response to Mr. Heflin’s and the TPPF comment in the Statesman’s story:

“The Best Option is Maintain the Plan

Public education retirees around the state appreciate the fact that the Teacher Retirement System of Texas (TRS) pension design study accurately points out that switching to a defined contribution plan for new TRS members would cost the Texas taxpayers billions of dollars, while significantly reducing benefits for future teachers. The study was well-researched, factually presented, and supports the reality that the TRS defined benefit plan is an effective, low-cost/ high-value retirement plan.

Talmadge Heflin, Director of the Center for Fiscal Policy for the Texas Public Policy Foundation (TPPF), has supported the elimination of the TRS defined benefit plan by forcing public education employees into a defined contribution or 401(k)-style plan. In yesterday’s article, Heflin is quoted as saying that “lawmakers must ensure that the state’s retirement offering is a combination of the best buy for the employee and for the taxpayer.”

TRTA believes that the TRS study shows the current TRS defined benefit plan is a combination of the best buy for employees and for the taxpayers. TRS is well-funded, has never been subject to a member or legislative funding “holiday,” has a strong record of high investment returns, operates at a low cost, provides a great value to its members, pumps over $7 billion into the state economy every year, and is a great value for all Texans.

Surely TPPF would agree that there is no room for wasteful government mismanagement. The study indicates that “closing” the plan would do nothing to help Texas educators or taxpayers. In fact, it explodes the TRS unfunded liability by adding another $11.7 billion!

It is our hope that TPPF will not continue to push for a defined contribution plan that is inefficient, wastes billions of taxpayer dollars, and endangers the retirement security of current and future educators.

TRTA will continue to work with the Texas Legislature to strengthen the existing TRS defined benefit plan.

Tim Lee
Executive Director
Texas Retired Teachers Association

The Texas Retired Teachers Association is the largest organization of public education retirees in Texas and in the country. With over 73,000 members, TRTA is actively involved in legislative efforts to protect public education retirees, their retirement benefits, and their health care program.

Still others recognized the report for what it is…a review of the TRS benefit plan design and how various changes may impact the system.

Mr. Forrest Wilder of the Texas Observer also reported on this issue. His full report can be found by clicking here. Mr. Wilder captures the essence of this situation by reflecting on those who opposed the TRS defined benefit plan and states, “If it ain’t broke don’t fix it, right? Well, it seems that breaking it is the point.

TRTA concurs that the attacks on the Texas TRS defined benefit plan is a manufactured crisis, a “solution” in search of a problem. Be ready TRTA members and education supporters, the opposition to your retirement plan is working hard to attack in the coming session and we will all need to work hard to defend your TRS defined benefit plan.

As always, thank you for being a member of TRTA. If you are not a member and want to join, please call us at 1.800.880.1650.

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