08 Feb

TRS Still Under Attack, TRTA Responds to Critics

This past Sunday (February 5), the Houston Chronicle ran a guest column by Bill King suggesting that public pension plans in Texas are facing a crisis. As you have read in two recent TRTA news bulletins, it is our position that TRS Texas is not in crisis. In an effort to defend your Teacher Retirement System, TRTA Immediate Past President Dora Scott-Nichols and TRTA Executive Director Tim Lee sent letters to the Houston Chronicle in response to Sunday’s column. These letters are provided for your information. We have also provided this link to the original article written by Mr. King.

Please let your friends, family, and fellow public education retirees know that TRTA is fighting to protect your TRS pension plan. We will not rest, and we will do all we can to protect and improve your TRS traditional retirement benefit. Thank you for your support and continued membership in TRTA. If you are not a member and would like to join in our collective effort, please contact the TRTA at 1.800.880.1650.

Response to Bill King Column by Dora Scott-Nichols, TRTA Immediate Past President

TRS is the Great Texas Legacy

Mr. Bill King wrote an article about the crisis the state is facing with its public pension plans. I was glad to read that he is urging people not to generalize these plans, as they are all different. I am concerned that Mr. King’s focus seems to be the Teacher Retirement System of Texas (TRS). I want to set the record straight.

TRS Texas is one of the best-funded and well-managed pension plans in the world. In its 75 year history, TRS has earned billions of dollars, provided retirement security to millions of Texans, invested in many Texas private businesses, never missed an annuity payment to a single TRS retiree, provided Texans with thousands of private-sector jobs, and offered a great incentive to recruit and retain the best educators.

Attacking TRS for being underfunded shows a misrepresentation of the facts, or a lack of understanding about how pension funds are managed. TRS can account for $.83 of every dollar needed to pay benefits promised to all of its members, retired and active.  Keep in mind that the taxpayer contribution to make up for this difference is far less than Mr. King suggested in his article. The other $.17 will be accounted for over the course of an active employee’s career through contributions and earnings on investments. This is referred to as the overall funded status of a pension fund. It is a widely accepted fact that public pension plans operating with a funded status of 80% or more are in very good fiscal health.

TRS has been in better fiscal health in years past. Mr. King correctly pointed out in his article that many of the funding concerns have come about within the last 10 years. In this timeframe, the country has suffered through two deep recessions and major world economic transitions. TRS had some down investment years. As a matter of fact, in February 2009 the pension fund’s value was about 67%.  Since then, the fund has gained back billions of dollars and restored its overall fiscal health to nearly 83%. Last fiscal year alone, TRS earned more than $15 billion on its investment portfolio. There is still much work to do, but TRS and the Texas Legislature have taken a steady and thoughtful approach to keeping the TRS fund on strong financial footing.

Managing a $100-plus billion pension fund is not an easy task. There are professionals hired by TRS to make the decisions necessary to grow the pension fund assets. The professionals at TRS are truly behind-the-scenes heroes. Unlike Mr. King’s portrayal of “pension bureaucrats, fund managers, lawyers, and accountants,” the TRS professional team manages the fund at a cost of about $43 per year per member! Try and find any fund management team in the private sector that that will manage a retirement plan for an annual rate of less than $50 per investor per year. TRS is a world-class institutional investor managing the retirement security of over a million Texans at a much lower cost and at a much higher level of service than just about any private sector fund manager in the country.

This does bring about the other side of Mr. King’s statement. That is, if the state “transitioned” active and future public educators out of the TRS defined benefit plan, to where would they be transitioned? The answer is private sector money managers, lawyers, and accountants. To make the assertion that fund managers, lawyers, and accountants would be completely eliminated from the retirement planning picture if we move public educators out of TRS and into a private sector model is ridiculous. These money managers are reveling in the possibility of a mass migration of business away from the TRS traditional defined benefit plan to a defined contribution plan. Yes, there is far more money to be made off active school employees if they were kicked out of their defined benefit plan that manages these assets at such a low cost.

Cost efficiencies and the professional management of trust fund assets are critical to a defined benefit public pension plan. But, Mr. King’s article brings up another interesting idea: the private sector’s abandoning of the traditional retirement model and the growth of the defined contribution model. One of the elements of the defined contribution model is the reliance on the federal Social Security program as the basis of an individual’s retirement security. The defined contribution model, unlike the defined benefit model, makes no implicit or explicit guarantee of retirement income. The DC model is designed to complement a person’s retirement income; an income that generally includes Social Security.

Most Texas public educators do not participate in Social Security. While this may seem odd to some, the fact is that TRS dates back to a time when individual states could opt in or out of the federal program. Today, over 800,000 active school employees and thousands of current retirees do not have Social Security coverage. Freezing or eliminating the TRS defined benefit plan would almost certainly guarantee the federal government “mandating” these employees be covered by Social Security. This “mandatory Social Security” is an issue being debated in Washington, D.C. even today. This would be a huge hit on the taxpayer’s pocketbook and a real loss to all Texans. The transition cost to Social Security may cost hundreds of millions of dollars with no real gain to show.

The only other alternative to this scenario is worse: tell our public school employees they will not have a traditional retirement plan or Social Security, and that they must manage a retirement plan with no safety net at all! At least one other group advocating for the elimination of TRS has suggested such a course. We cannot allow this foolishness to take a foothold in Texas! Doing so would be a disincentive for anyone considering becoming a professional educator, as it would be a road to future poverty and true retirement insecurity.

Much more could be said in the defense of the TRS traditional retirement plan. The plan, though, is not in crisis. It is operating very efficiently and is providing retirement security to 1 out of every 21 Texans. It provides a good benefit at a reasonable cost. It has done so for 75 years. It can continue to do so for another 75 years as long as we continue to meet our funding obligations, review the benefit structure, make sound investment decisions, and work together as a state to ensure this plan is not subjugated to the fiery rhetoric that is hammering public educators and employees in other states. Yes, we have some challenges to meet in the coming years. The solutions to those challenges can make the fund stronger without eliminating a traditional defined benefit plan that is a proven success.

TRTA Response to Bill King Guest Column in Houston Chronicle by Tim Lee, Executive Director Texas Retired Teachers Association

TRTA Response to Bill King

By Tim Lee, Executive Director, TRTA

As Executive Director of the Texas Retired Teachers Association (TRTA), I am compelled to respond to Mr. King’s opinion piece in the Houston Chronicle on February 5.  While I cannot speak to the financial condition of the Houston municipal pension plans, I will speak to the great legacy and fiscal expertise of the Teacher Retirement System of Texas (TRS).

TRS is the sixth largest pension fund in the nation, the 20th largest fund in the world, and the second highest return-seeking fund in the state of Texas after only Exxon.  I agree with Mr. King that improvements can and should be made to the fund, beginning with a state contribution that enhances the fund’s expert ability to earn investment returns.  60% of the TRS fund consists of investment earnings.  In a typical day, the trust is expected to grow by $40 million.

Mr. King states that TRS is $32 billion underfunded.  The most recent valuation of TRS shows a funding level of 82% with an unfunded actuarial liability of $24.062 billion.  82% does not meet the Texas statute that determines when cost-of-living adjustments can be granted from the fund (Section 821.006).  While this law has prevented public education retirees from receiving a benefit increase for 11 years, it also protects the fund’s long-term financial health.
But what exactly would it take to make TRS actuarially sound?  According to TRS, the Texas Legislature would have to fund TRS at the actuarially required contribution or ARC.  The Texas Constitution provides that the state contribute no less than 6% and no more than 10% of the aggregate active teacher payroll to TRS.  In 2012, the state’s contribution is at the constitutional minimum of 6%, down from 6.644% in 2011.  The suggested ARC is 8.13%.  This means that if the state were to contribute that amount this year, TRS would be able to fund its liabilities within 31 years and would meet the statutory definition of actuarial soundness TODAY.  Then, a pension increase could be considered for TRS retirees.

This is dependent upon investment gains and losses, and assumes a rate of 8% for the year (the average 25 year rate of return for TRS is 9.2%).  If TRS experiences a higher return, the ARC would go down.  Contributions to TRS account for only 2% of the state’s budget. Increasing the state’s contribution to 8.13% would utilize less than 2.5%. The burden on Texas taxpayers is overstated drastically by Mr. King. It is worth noting that public education employees in Texas contribute 6.4% of their salaries, which is more than the state’s contribution!

According to the National Institute on Retirement Security, “each $1 in taxpayer contributions to Texas’s state and local pension plans supported $8.32 in total output in the state. This reflects the fact that taxpayer contributions are a minor source of financing for retirement benefits – investment earnings and employee contributions finance the lion’s share.”

When the private sector abandoned the defined benefit plan, one of the primary motivators was to allow for increased mobility of the workforce.  In Texas, mobility in the education field is discouraged in favor of experienced, dedicated educators. Corporations are also able to offer incentives to employees such as stock, and rely heavily on a combination of Social Security and defined contribution plans.

Texas is unique in comparison to other states due in part to the fact that 95% of our school districts do not pay into Social Security.  TRS is the primary retirement income for over 300,000 Texans, 80% of whom receive no Social Security benefits at all.  This is due to two federal provisions known as the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP). Stated plainly, eliminating the defined benefit plan for public education retirees is the equivalent of eliminating their retirement security entirely.

The retirement security for private sector retirees is questionable.  Among early Baby Boomers, 35% are at risk of being unable to maintain their standard of living after they stop working.  This number increases to 49% for those with defined contribution plans.  Americans with DB plans are much more likely to achieve financial security, with only 15% being at risk. Following the private sector lead on eliminating defined benefit plans does not have much merit.

TRS is a well-managed, financially sound fund.  It earns far better investment returns than any individual 401k-style plan, and at a much lesser cost.  The level of money management expertise at TRS costs an average of $40 per member per year.  Finding a private sector financial planner willing to work for $40 per year per client who can earn more than 15.5%, which TRS earned in 2011 may be a futile effort.  It is naïve to believe that private money managers would not earn more than $275 million from 1.3 million potential clients; the amount Mr. King states TRS spent on both administrative and investment expenses in 2011.  Taxpayers should also note that all TRS administrative expenses are authorized by the legislature, but are actually paid for by the earnings off the fund! Even though there is a statutory requirement for the state to pay for these administrative costs, no tax dollars are allocated to TRS administration.

Simple, effective adjustments can strengthen the TRS fund and make its retirees eligible for a pension increase.  These changes must take place at the state level.  It is not necessary nor is it wise to transition TRS into a defined contribution plan, a costly endeavor that eliminates the retirement security of our dedicated educators and school personnel.  The best way that Texas can live up to the promises made to our education force is to enact moderate increases in state contributions and maintain commitment to financial soundness.

Link to original article appearing Sunday, February 5


TRTA Contact Information


Toll-free: 1.800.880.1650

Media Questions: Tim Lee, Executive Director ( or Cindee Sharp, Government Relations and Outreach Specialist (

Membership Questions: Brenda Hoisager, Membership Specialist (

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16 Dec

Additional News on Traditional Retirement Plans

Last week, the Board of Trustees of the Teacher Retirement System of Texas (TRS) held their regularly scheduled board meeting. A presentation comparing the traditional defined benefit retirement plan (such as the one administered by TRS) and the defined contribution plan (such as a privatized 401k) was provided by an external consulting firm.

TRTA requested that this presentation be made available to all TRS members. We are very grateful to TRS for providing this link to the video recording of that presentation. TRTA thanks David Kelly, TRS Board Chairman, and Brian Guthrie, TRS Executive Director, for posting this video on their web site.

If you are unable to watch the video, you may want to click this link to view the presentation slides using Adobe Acrobat Reader.

The battle to eliminate traditional retirement plans for educators and other public employees is heating up. TRTA members must be ready to educate their legislators and stand up to those who want to see these benefits eliminated.

To help with this effort, TRTA has prepared a new advocacy guide about the protection of the defined benefit plan. The guide will be available to all TRTA members in the next issue of The VOICE, which will begin arriving in mailboxes before the end of the year. As a special bonus for all TRTA Inside Line subscribers, you can download the guide sooner by clicking this link.

TRTA will be working on other fact pages, educational pieces, and information bulletins in the coming months. It is our goal to inform legislators and the general public that the TRS pension plan is well-funded, provides benefits to millions of Texans, and is a critical component of our state’s economy.

Personal Note

About a month ago, I was dealing with a frightful virus that caused me to need some time off from work. The good news is that I have recovered completely and am feeling even better than usual! I want to thank EVERY ONE who was so kind to send me cards and kept me in their thoughts and prayers. I am extremely fortunate to work with this organization, and am even more blessed to work for the people who make TRTA great. Your kindness is overwhelming. Thank You!

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07 Dec

TRS December Board of Trustees Meeting Overview

The Teacher Retirement System of Texas (TRS) held their regularly scheduled Board of Trustees meeting on December 8 and 9.

TRS Investments Experience Difficult Quarter

This meeting provided a substantial overview for the previous quarter and offered news that reflects market conditions from the last three months. In other words, the pension trust fund had a hard quarter and experienced several billion dollars in investment losses. The good news is that the system has earned a large portion of that loss back thanks to a very positive October.

The TRS fund is still valued at over $100 billion and is moving forward with an investment plan to protect the fund during these challenging times. The next TRTA VOICE news bulletin will be released in a few weeks and will have additional commentary about the TRS investment condition directly from Mr. Britt Harris, Chief Investment Officer of TRS. TRS will continue to fluctuate as the market does, but the system has one of the most professional management teams in the world protecting your TRS pension trust fund.

TRS Consultants Provide Background on DB vs. DC

The Texas Legislature has charged TRS and the Employees Retirement System of Texas (ERS) with studying the advantages and disadvantages of the defined benefit plan and defined contribution plan. As you know, there are a number of interest groups and decision makers that want to eliminate the traditional defined benefit plan for Texas public educators and state employees. TRTA reported on these attacks in our previous VOICE publication. The political agenda attacking the defined benefit plan is one that could be extremely harmful to TRS retirees as well as current and future active school personnel.

TRS is preparing a number of resources to help facilitate this study. The first group to provide some background on this issue is Hewitt Ennis Knupp, who works for TRS as an investment consultant. TRTA will provide a link to the full video presentation including the slides used at the meeting. TRS is preparing a link to their website with this video (it should be available early next week).

TRTA members know that we are in for a fight to preserve the TRS traditional retirement plan. To assist with this, the TRTA Board of Directors and State Legislative Committee are working on new programs, handouts, position papers, and many other resources to assist you in helping protect the TRS fund.

Also, the next issue of the VOICE will offer an in-depth background on why protecting the TRS plan is in the best interest of all education retirees and employees, and the entire State of Texas. We will also provide a fact sheet on the TRS pension fund and its role in providing retirement security for over 1.3 million Texans.

TRS Hires New Chief Financial Officer

The newest member of the TRS executive management team is Mr. Don Green, who will fill the vacant TRS Chief Financial Officer (CFO) position. Mr. Green has a long career in public service in Texas and has served as the CFO of other state agencies.  He has also served in various budget roles with members of the legislature. A full press release on Mr. Green will be available next week.

Next Meeting

The TRS Board will not meet again until February, when they will retreat to Lubbock and review a number of issues. That meeting is scheduled for February 15-17. Meeting agenda highlights include: overview of financial valuations and assumptions; GASB update; the TRS DB/DC study; discussing the TRS-Care program and its plan design and premiums; the TRS 75th Anniversary Celebration and much more.

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