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16 Feb
0

TRS Pension and Health Care Discussion Underway

Today, during the meeting of the Board of Trustees of the Teacher Retirement System of Texas (TRS), board members began discussing plans for two studies that will be undertaken in the coming months. The Texas Legislature charged TRS with studying the fiscal and actuarial impacts of plan design change for the pension trust fund and TRS-Care.  The results of both studies are due to the Legislature September 1, 2012.

Executive Director Brian Guthrie emphasized that there are no items up for consideration presently, these are only studies. TRS cannot make recommendations for any changes, only present factual data. The Legislature asks state agencies to do studies such as these to receive all pertinent and accurate information in advance of making any decisions.  Guthrie also emphasized that the reason for the studies resulted from a lack of understanding of the issues.

Guthrie explained that the TRS-Care study is of more immediate concern, as the program is projected to run out of funds by 2015.  The pension trust fund could feasibly pay out benefits for the next 60 to 70 years even with no changes to the plan.  As TRTA has discussed in previous articles, the defined contribution proponents would like to make this an immediate issue; it simply is not.

The Legislative Budget Board (LBB) suggested the studies as an option because of concerns about the funding discipline of the state (meaning the state budget rarely appropriates enough money to TRS to meet its funding obligations). The state contribution to TRS is presently at the constitutional minimum of 6%. Additionally, the LBB was concerned about TRS meeting expected investment returns, presently required to be 8 percent.

Rebecca Merrill, Manager of Special Projects at TRS, led a panel of experts to discuss an overview of the TRS fund, as well as the differences between defined benefit, defined contribution, hybrid and cash balance plans.  She also provided a basic outline for what the panel will review for the study. Some of the plan design changes being researched include changing the Rule of 80, minimum retirement age, final average salary and the multiplier. These items merely are being discussed, so that the impact on the fund, members, and state can be assessed before any legislative proposals are developed.

Mary Beth Braitman of Ice Miller, LLP said that plan design, not plan type determines how expensive one is to operate.  The assumption is that a DC plan is cheaper, but this is not always the case.  Ms. Braitman and other panel members suggested that more than cost, overall sustainability is an important factor in choosing plan design.  Issues such as recruiting and retaining quality employees and providing a secure lifetime benefit will be considered in the pension study.  Right now, TRS provides a 69% average income replacement per retiree.  This does not take into account the ability of retirees to meet changes in the cost of living.

Keith Brainard of the National Association of State Retirement Administrators (NASRA) discussed how TRS compares to other teacher retirement systems that don’t participate in Social Security. The actuarially required contribution (ARC) for Texas TRS is lower than plans in most other states.  The employer and employee contributions are also significantly lower in Texas.  TRS Texas, in fact, has the lowest contribution rate of any statewide TRS plan in the nation (of plans not coordinated with Social Security). Much of this is due to the need to amortize the unfunded liabilities of other state plans. The Texas TRS funding ratio is presently 82.7%, much higher than most other states.

Brainard also discussed the recent national prominence of pension reform as an issue, stating that it resulted from younger generations with 401ks discovering them to be perilous methods of retirement security. Half of the United States workforce does not participate in an employer-sponsored retirement plan. Brainard also said that since 2009, more than 40 states have made meaningful changes to their retirement plans.

The TRS-Care study will focus on options for long-term sustainability, including how benefits are managed, eligibility requirements, retiree premiums, and contributions from the state, school districts, active employees and federal government. Some potential options include prefunding TRS-Care by contributing the annual required contribution; continue funding the program on a biennial basis; tighten the eligibility requirement to a Rule of 85; and discontinue TRS-Care 2 and 3 and offering only a base plan. Like the study on the defined benefit plan, these items are being discussed to determine what the potential impact may be on TRS-Care, its members, and the state if any of these discussion items develop into legislative proposals.

One reason TRS-Care is struggling is the expense of non-Medicare participants.  A significant element of the study will focus on taking advantage of federal subsidies such as the Employer Group Waiver Plan (EGWP) and Medicare Advantage.  Private exchanges will be considered as well as defined contribution alternatives.

The proposed timeline for the studies begins now.  TRS will host a Town Hall Meeting at their headquarters in Austin on March 12 from 1:00 p.m. to 3:00 p.m. to provide an update.  Results of the study will be released in August, and another Town Hall Meeting will be scheduled (date TBA).

TRS will continue to communicate with members as the studies progress using resources such as the TRS newsletter and website.  It is important that TRS members share their questions, comments and ideas now. You can still submit questions about the legislative studies after the meeting adjourns (a link to do so will be live from the TRS website tomorrow).  In the meantime, Twitter users can tweet questions to TRS (www.twitter.com/trsoftexas).  You may also email questions to TRTA at tim@trta.org and we can deliver them to the board personally at tomorrow’s meeting.

These studies are the beginning of a discussion that will be ongoing for many sessions to come and may lay the groundwork for change.  It is TRTA’s mission to make certain that any change considered by the Legislature protects and improves your retirement benefits.

Action on new Pharmaceutical Benefits Manager (PBM)

Health care cost savings considerations lead the TRS Board of Trustees to take action at today’s meeting. A few months ago, the TRS staff initiated a request for proposal (RFP) process for their pharmaceutical benefit manager contract. The current provider, CVS/Caremark, was one of seven respondents to the TRS RFP for a new pharmaceutical benefit manager (PBM).

The RFP looked at two options for a new PBM contract. One option included using the Employer Group Waiver Plan (EGWP) along with a PBM “wrap-around” plan designed to provide significant cost savings to TRS-Care. These cost savings initiatives were discussed at length.

The TRS staff and their health insurance consultants conducted an extensive evaluation of the seven PBM proposals. Considering all elements necessary to utilize the EGWP, wrap-around coverage, and various PBM discounts, and the ability to provide the same level of prescription drug coverage to TRS-Care members, the TRS staff recommended switching their pharmaceutical benefits manager from CVS/Caremark to Medco. TRS is projecting a savings of $220 million by switching, and the TRS Board of Trustees adopted this proposal today. The change will go into effect on September 1, 2012.

TRTA understands this change may result in numerous questions about your prescription drug coverage. TRS staff suggested today that the cost savings will be the result of utilizing federal subsidy programs, PBM wrap-around plans for co-insurance coverage, as well as the Medco prescription drug discounts. This will result in a program that is more cost efficient and nearly invisible to the members (meaning that changes are handled administratively and do not impact members). TRTA is asking for more information from TRS and we are confident that all questions will be answered prior to the September 1, 2012 transition date.

As always, TRTA is your voice on issues impacting your TRS benefits. Please send us any questions you have about this upcoming change, and we will work with TRS to get them answered. Send questions to tim@trta.org.

Concluding thoughts

A capacity crowd of local TRTA Lubbock/South Plains RTA members participated in today’s TRS meeting. Thousands of TRTA members watched today’s broadcast over the internet, causing the TRS webcast to become overloaded with traffic! Our members are interested and are mobilizing.

We need your support to keep TRS benefits intact to provide all TRS members with a secure retirement.  Tim Lee, TRTA Executive Director, addressed the TRS Board of Trustees this morning stressing the important role TRS plays in the livelihood of millions of Texans. He suggested that while it is always good to study these issues and provide factual information, the real issues are providing retirees with a much needed benefit increase and fully funding future health care obligations.

TRTA will continue to rely on our impassioned members to protect our benefits and convince the Texas Legislature than now is the time to help retirees in need!

Thank you for your membership in TRTA. If you are not a member and need more information on joining, please contact our office at 1.800.880.1650.

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15 Feb
0

TRS Board of Trustees Meeting: Send in Your Questions!

TRS pension benefit design and the TRS-Care health insurance program will dominate tomorrow’s TRS Board of Trustees agenda. TRTA members are encouraged to use the communication information below to send questions and comments on these two vital issues.

TRS has been charged with doing a study about transitioning the defined benefit plan, as well as one to address future funding shortfalls within the TRS-Care health insurance plan.

TRTA is committed to maintaining the TRS defined benefit plan. We are also working every day to maintain the TRS-Care program. These two benefits are critical to a TRS retiree’s financial security and personal well-being during their retirement years.

You are encouraged to send in questions or comments on these two issues. At tomorrow’s TRS Board meeting, the trustees and staff will try to answer as many of these questions as possible.

This is a great opportunity for current and future retirees to let their voice be heard! TRS is providing a forum for a direct response from the people most involved with the fund. The TRTA Board of Directors and many TRTA members from the local area are participating in these meetings, but we encourage you to participate as well!

If you have a question or a comment about the possible transition of the TRS defined benefit plan to a defined contribution 401(k)-style plan, or about the funding and benefit structure of the TRS-Care or Active Care programs, please use the link below to participate in this discussion.

Link to TRS Website on Submitting Questions for Thursday, February 16, 2012

You may also send your questions or comments directly to TRTA by emailing tim@trta.org. We are happy to deliver your comments for tomorrow’s meeting.

Here are some questions that TRTA has received already.

TRS-Care Questions:

Why has the TRS-Care fund balance dropped so fast?

How will the changes or potential changes proposed under the new health insurance act (The Patient Protection and Affordable Care Act (PPACA)) impact the TRS-Care program?

I have heard that state employee retirees were moved into a Medicare Advantage plan, but many TRS retirees do not qualify for Medicare A. Is TRS considering the implementation of a Medicare Advantage plan? How will this impact those who may or may not qualify for Medicare A?

TRS-Care premiums have not increased for 8 years. This has helped offset no pension increases over the past 12 years. If the legislature does not increase funding for TRS-Care, and retirees were left making up the difference for the upcoming projected shortfalls, what premium increase would be needed to keep the program viable?

Are prescription drug costs driving the huge increases in medical care, or is it more complicated than just RX costs? What are the cost drivers in medical trend and how can they be better controlled to help protect our TRS-Care benefits and premium structure?

TRS Trust Fund Questions:

In the event that the state forced a plan design change on to active or future school employees and the TRS fund was no longer receiving the contributions from the State or the active employees to support the fund’s current plan design and investment programs, how and when, if ever, would the TRS pension trust fund be considered actuarially sound enough to implement a pension benefit increase for current TRS retirees?

How would the state legislature address the unfunded TRS liability that is now around $24 billion in the event they force a plan design change for TRS? Would the state just be allowed to leave this unfunded liability unmet, or would they have to get out the state checkbook and fulfill this funding obligation?

Some people have suggested that the costs of TRS administration are too high due to the number of consultants, investment managers, and other TRS employees. How much, on average, does it cost each member to have their pension plan managed? Is it reasonable to think that these costs are likely to be less than if we all had to go out and find additional fund professionals to assist us with our private investment portfolio’s, especially if those assets are actively managed?

If we transitioned this plan, are future TRS retirees expected to be forced into the federal Social Security program, or is it the expectation that the Federal government will simply ignore this transition and the possibility of taking on additional Social Security revenue for that federal program? It is correct to say that the federal government is looking for new revenue for the Social Security program.

How are TRS members better advantaged by moving them away from a plan design that provides a traditional retirement benefit at a low cost to the state and to the member? How are the Texas taxpayers advantaged by possibly increasing the costs associated with a possible plan design change to a defined contribution model?

Are the TRS trustees explaining to the Texas Legislature that this trust fund has worked, is working, and can work so long as the state actually funds its required contributions?

I believe the talk about changing TRS from a defined benefit plan to a defined contribution plan is all about money…a certain segment of our economy wants to make more money on the public education workforce that are now paying into a separate pension trust fund. These investment brokers, investors, lawyers, organizations, etc. can charge us a lot of money to take over these funds without the promise of giving us anything better or less costly than what TRS already provides. Perhaps the TRS Board can elaborate on how this is an inaccurate perspective.

Most states that are having problems with their large public pension plans point out that the primary reason these plans are experiencing problems today is that for extended periods of time, those state legislatures failed to meet or even make their funding contributions. Texas has a history of paying into the fund on a regular basis and meeting its constitutional minimum obligations. We have not, though, seen a regular funding pattern where the state is meeting its annually required contributions. How are you as the TRS Board of Trustees and the fiduciaries of the TRS pension trust fund communicating this historical failure made by other states to encourage our Texas Legislature to do what they should to meet their funding obligations.

The Legislature and the TRS Board seem to have made good policy and investment decisions to maintain this fund. The talk around transition seems to be political or individual gain for those selling investment services. Isn’t correct to think that simply making simple and effective evaluations and our funding changes makes a great deal more sense than completely overhauling the entire program and making it into something else?


Viewing the Webcasts

Viewers may watch the event live from a computer or smart phone with internet connection wherever they are. For webcast viewing recommendations, please click here.

Following are the links for each day of the meeting.  Please note the links will not be live until the meetings officially convene for the day:

Special Update on Tomorrow’s Meeting

If you are in the Lubbock area and plan to attend the TRS Board of Trustees meeting, please note the meeting is scheduled to start at 8:00 a.m. Public comment will begin early in the morning, followed closely by expert panels that have been invited to speak about the TRS pension trust fund and TRS-Care. The meeting on Friday begins at 8:00 a.m. as well.

Concluding Comments

Thank you for your hard work and support! TRTA membership now exceeds 72,000 for the year! Congratulations to everyone for joining in this fight to protect TRS benefits. Let’s continue to build our numbers and make certain the Legislature hears our powerful, organized voice! If you are not a member but want to join, please contact us at 1.800.880.1650.

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13 Feb
0

TRS Board of Trustees to Meet in Lubbock: A Retreat-Style Meeting with a Hefty Agenda

The TRS Board of Trustees is meeting in Lubbock February 15-17. This is a regularly scheduled meeting that will cover a variety of topics. TRTA will be your voice at these important meetings.

The TRS Board is placing a heavy emphasis on being visible and open with its members. The 6th largest pension plan in the country generally has its meetings at their headquarters in Austin. Usually, at one meeting per year, the TRS Board will meet in a city outside of Austin.  This allows more TRS members to see how these meetings function and to interact with the volunteer trustees who oversee the pension trust fund and benefit programs.

This year’s TRS Board retreat has an agenda that covering three full days. You can access the complete agenda by clicking here. A summary of the meeting’s highlights is provided below.

Every year, TRS improves its capabilities for allowing you to participate in these meetings, whether or not you are able to attend in person. This year, TRS is providing live webcasts of all three days of meetings, and offering real-time web question and answer sessions.

Viewers may watch the event live from a computer or smart phone with internet connection wherever they are. For webcast viewing recommendations, please click here.

Following are the links for each day of the meeting.  Please note the links will not be live until the meetings officially convene for the day:

TRTA will be in attendance for all sessions of next week’s meeting. Some of the immediate issues that we are expecting to hear about include a discussion of two legislatively required studies on pension benefit design options and TRS-Care, and an overview of financial matters, including financial valuations, assumptions, and operations.

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