Blog

15 Jan
0

Budget Proposal will Likely Cut TRS Funding

TRS Defined Benefit Plan Under Fire

 

Legislators are struggling with how to address the projected $20 billion plus budget deficit. State Representative Jim Pitts (R-District 10) has said the state budget bill will be presented for the first time next Tuesday (January 18), and the House will have a chance to discuss the proposal as early as Wednesday (January 19). Legislators are predicting that everyone will feel the pain, and Representative Pitts has stated that there are no “sacred cows.”

 

State Representative Craig Eiland (D-District 23) spoke at the Texas Public Policy Foundation conference in Austin on January 13, and predicted that the state contribution to the Teacher Retirement System of Texas (TRS) pension trust fund will be lowered from the current 6.644 percent to the Texas Constitutional minimum of 6 percent. Representative Eiland, who has been very involved in helping the pension fund to be financially sound and in securing a supplemental payment for retirees in 2007, said the state simply could not afford the higher contribution level.

 

In 2007, the Texas Legislature passed a bill requiring the state contribution to be equal to or higher than the active member contribution. Active employee contributions are set by statute. Currently, that contribution is 6.4 percent. If the legislature adheres to legislation passed in 2007, the state contribution and active member contribution would both be dropped to an expected 6 percent. This would further worsen the condition of the TRS pension trust fund.

 

It is likely that many legislators do not believe the TRS pension trust fund is in immediate danger, unlike pension funds in Illinois, California, and New Jersey, among others. The more immediate budget crisis may take precedence in their minds on what programs to fund. The reduction in state contribution to TRS comes at a time when the system has made tremendous investment gains and is recovering better than expected from the recession. By reducing the state contribution to TRS fund, it becomes more difficult to develop a plan to provide retirees with a permanent pension increase.

 

The active member contribution has remained consistent at 6.4 percent since 1984. If the state budget calls for a reduction in active employee contributions, it will be the first change in active sector TRS pension trust fund contributions in over 26 years.

 

Lowering pension fund contributions has the short-term impact of reducing revenue for investments and slowing the system’s recovery from the recession. It also has a long-term impact of worsening the financial condition of the fund for future retirees, as well as making it difficult for the legislature to increase contributions again in the future. Keep in mind, the state maintained a 6 percent minimum contribution to the TRS fund from 1995 through 2007. The system desperately needed additional funds to help recover from the market woes after September 11, 2001, and even through the financial hardships of 2003 and 2005. Only after 12 long years of minimum contributions did the state restore funding to TRS at a level that would improve the fund’s actuarial soundness (by 2007, the TRS pension fund investments helped the fund recover most of the losses incurred in the previous years).

 

There is no doubt that TRTA members need to be very vocal about adequately funding the pension plan. Having a consistent funding plan that addresses the need to keep the system actuarially sound is the best way for retirees to receive an increase in their pensions.

 

With budget writers poised to make cuts to the TRS fund, they are also looking at reducing funding for the TRS-Care program. The state legislature is required to contribute 1 percent of the aggregate active teacher payroll to help support the TRS-Care health insurance plan. This contribution may be cut in the proposed budget by as much as half (down to 0.5 percent). The TRS-Care program does have a small surplus, but this surplus will diminish rapidly without proper funding and may lead to premium increases in the coming biennium. TRTA will fight to keep health insurance funding at the 1 percent level, as this will prevent premium increases until 2014. It is uncertain how much premiums may increase if budget cuts on TRS-Care occur, but any increase at a time when retirees have had no cost of living adjustment for 10 years is untenable.

 

While TRTA prepares to work with legislators to do the right thing and keep TRS funding at levels that protect your pension benefits, other interest groups are seizing on these difficult times as a reason to eliminate the defined benefit pension plan for current and future active education employees. Yesterday, at the Texas Public Policy Foundation conference, one group (Arduin, Laffer, & Moore Econometrics) called for the Legislature to adopt a 3-step reform plan. Step one is to freeze the defined benefit plan to all new and unvested public sector employees (including educators). Step 2 of their proposal suggests that all new or current unvested employees should be transferred to a defined contribution plan. Step 3 called on the Texas Legislature to implement a freeze on earning any additional service credit towards a defined benefit plan for all current vested employees.

 

The Arduin, Laffer, & Moore Econometrics proposal allowed retirees to maintain their current benefits with no changes in COLAs. What the speaker failed to realize is that Texas public education employees do not have a COLA, and have not had a cost of living increase for 10 years! Even still, this type of proposal is being promoted in the Texas Legislature and some members are taking these suggestions seriously.

 

The preservation of the defined benefit pension plan is a core value of the TRTA legislative agenda. We are as committed to this today as we have ever been! TRTA members should encourage those they know who are still in the education profession to learn about this issue and prepare to mobilize if the Texas Legislature begins advancing proposals aimed at reducing their access to the traditional retirement plan with TRS. A good start is for active employees to follow these developments on the TRTA Inside Line.

 

TRTA Inside Line subscribers will receive a special email next week recapping the budget proposal when it is released. TRTA will also provide a response that you will be able to send to your legislators with our association suggestions on protecting and improving the livelihood of our state public education retirees.

 

Thank you for supporting the Texas Retired Teachers Association. If you are not a member and are interested in joining our efforts to protect retiree benefits, please contact our office at 1.800.880.1650.

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11 Jan
0

First Day of the 82nd Legislative Session

Start of 82nd Legislative Session is Like the First Day of School

Now that we are in session, it’s time to get down to business

Education Process is the Core of TRTA Action

Just as the 82nd Legislative Session begins in Austin, the education process that is vital to TRTA’s success must continue. The reality of a deep budget shortfall is putting considerable pressure on ALL programs and interests. Organizations are expected to prepare for sweeping cuts. Compounding these concerns in Texas is the bleaker budget position of numerous other states and the ever-growing focus on public pension funds as a drain on those states’ economies. While these challenges are great and the task ahead is not going to be easy, Texas public education retirees have never backed down before and we will not back down now.

Insight on What to Expect Early this Session

Committee Announcements

In the next few days, the Lieutenant Governor and the Speaker of the House will name committees and begin working on a budget. TRTA works with numerous legislative committees, but many of the issues that pertain to TRTA go to the Senate State Affairs Committee, the Senate Finance Committee, the House Pensions, Investments, and Financial Services Committee, and the House Appropriations Committee. TRTA will send you the names of committee members as soon as they are announced. TRTA members should keep track of committee assignments and find out if your legislators sit on the committees that we follow. Direct communication from constituents on issues in committee is a vital part of our legislative efforts.

 

Budget Cuts

 

TRTA is ready to defend the current TRS pension fund contribution levels, as well as the state funding for the TRS-Care health insurance program. While there is only speculation that these contribution levels may be reduced, TRTA members should be ready to make early phone calls and send emails encouraging all legislators to preserve and expand funding for the TRS pension trust fund and for TRS-Care (TRTA will again use an email generation system that will help you send these emails to your legislators). Even though Texas statute provides for minimum funding levels for the pension fund and the health insurance program, we are hearing that all options for cuts are on the table. TRTA will be following this issue very closely.

 

Introduced Legislation

 

TRTA is working with many legislators on various legislative initiatives. As these items are finalized, we will send notice of the bill numbers and what the legislative intent is for each bill. TRTA will also develop a bill tracker of all TRS-related legislation and provide information on these initiatives and TRTA’s position on the bills.

 

Attempts to Cut Defined Benefit Plan

 

Public pension funds are under attack all over the country. This is due in large part to various state legislatures around the country not adequately funding pension liabilities over the past 20 years. Today, there is a growing movement to rid state governments of providing traditional retirement plans for public workers, including educators.

 

In Texas, the Teacher Retirement System is in a strong financial position. While the system is not actuarially sound, it is recovering from the economic recession. The overall value has increased, and progress is being made to manage the system in a very professional manner. TRTA continues to work to improve funding for the system so that it can provide a real cost of living increase for pensioners.

 

The good news about TRS is not stopping interest groups from attacking public pension funds and demanding that the system be transitioned from a defined benefit plan to a defined contribution plan. Doing so would not reduce a current retiree’s benefit, but it would lower the funding levels for TRS at a time when we cannot afford this action. There is no evidence that transitioning this fund would save the state any money. It would, in fact, create a greater financial burden on the state.

 

TRTA members must be ready to educate their legislators on the benefits of preserving the retirement system as it is. We will produce more information on the value TRS offers to all Texans as the legislative session progresses.

 

Constant Education and Communication

 

Legislators have some very big challenges they must deal with this session. While it is dire that retirees have not had an increase in 10 years, many brand new legislators may not know much about our predicament. We must educate ALL members of the legislature on the facts: retirees have not had a true cost of living raise in 10 years; 95% of school districts do not pay into Social Security, and if a retiree does qualify for any Social Security at all, it is likely to be reduced because of federal provisions known as the Government Pension Offset and the Windfall Elimination Provision; retirees participating in the TRS-Care health insurance program pay monthly premiums for this benefit (some state retirees have a no-cost health insurance benefit); and something must be done to help retirees who have been forced to tighten their belts and cut expenses long before it became the national and state trend.

 

Legislators need to hear from TRTA members often during session. As we already mentioned, TRTA will utilize the email generation service for member contact this session as we have in the past. We also provide a toll-free hotline for you to call your legislators directly (1.888.674.3788). TRTA is also planning a Day at the Capitol on March 23, 2011. All members willing to visit Austin are welcome to attend.

 

The bottom line is that we have to work hard to make our voices heard. We will use email, phone calls, personal visits, testimony opportunities, media outlets, and all other resources available to us to protect your pension and get you a much needed benefit increase.

 

The first day of legislative session is already over, but we will use every opportunity over the remaining 139 days to advance our TRTA initiatives. Encourage your friends and fellow retirees to get involved and be active. Together, I know we will be successful. Your continued support is greatly appreciated.

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05 Jan
0

Letter from TRS Required by Federal Law

The recently passed Patient Protection and Portability Act, or the new federal health care initiative, is providing some reimbursement to the TRS-Care program. Approximately $47 million has been paid to the Teacher Retirement System of Texas (TRS) as the plan sponsor for the TRS-Care program.
 
When the federal health insurance plan was passed, a special fund was created to help cover claims costs for health care providers and plan sponsors of retiree health insurance programs. The fund, also known as the Early Retiree Reinsurance Program (http://www.errp.gov/index.shtml), was allocated $5 billion. Retiree plan sponsors were able to make an application to receive some portion of these funds.
 
The Teacher Retirement System of Texas (TRS) worked diligently to make the necessary application to receive a portion of this federal award. Again, the TRS-Care program was awarded $47 million to help reduce overall health care costs. 
 
In addition, TRS can continue to submit claims to qualify for more federal funding. The proceeds are being used to reduce health insurance costs for TRS-Care. While these federal dollars have not resulted in a reduction in TRS-Care premiums, deductibles, co-pays, or other general out-of-pocket costs, the reduced expense to the TRS-Care plan may help control future costs for plan participants. There is no guarantee that TRS will receive any additional funds, and many health plan sponsors across the country are trying to receive a portion of the $5 billion. Once the fund is exhausted, it will not be replenished.
 
TRS-Care plan participants have received, or will receive, a letter explaining TRS participation in the Early Retiree Reinsurance Program. The letter is a federally required announcement that reads in a somewhat confusing manner.
 
The bottom line for TRTA members and TRS-Care participants is that there is no change being made to your TRS-Care health insurance program. You do not need to take any action upon receipt of the letter; it is merely informing health plan participants about TRS participation in this process and that TRS has been awarded funding used to defray the overall costs of the TRS-Care health insurance program.
 
I hope this update clarifies the confusion with the letter. The fact is that any additional money we may receive to help reduce health insurance costs is a welcome benefit. As we will discuss in upcoming issues of the Inside Line, the Texas budget scenario is putting pressure on all TRTA legislative initiatives, including state funding for TRS-Care.
 
As always, your membership in TRTA is greatly appreciated. We know you are ready for a very eventful and challenging legislative session, and together we will work to improve the livelihood of all Texas public education retirees!

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