01 Dec

More News from TRS Board Meeting: A Look at TRS-Care Funding

The TRS Board of Trustees received some very good news about the overall condition of the pension trust fund, but the news was not as good for the TRS-Care health insurance program.

The TRS prediction on the program’s fund balance sees a dramatic shift as of FY 2014. The plan is expected to be running a shortfall of $334 million at that time. If left unresolved, projections show a shortfall as high as $1.79 billion by FY 2016.

TRS health care actuaries believe the cost drivers in this program include:

  • increased medical costs;
  • increased prescription drug costs;
  • maintaining access and choice in managing providers;
  • increased utilization;
  • potential increase in number of retirees who are not age-eligible for Medicare; and
  • potential plan changes in the Medicare program.

TRTA worked hard this session to protect the TRS-Care program and approve a legislative funding strategy to prevent retiree premiums from increasing. As you may recall, the projected premium increase exceeded 80 percent! We must impress on the legislature the importance of maintaining this health insurance program.

The legislature created a setback for the TRS-Care plan this past session when the state budget reduced funding for the TRS-Care plan. At minimum, TRTA recommends that the legislature restore full statutory funding for TRS-Care as of the next session. Representative Jim Pitts, Chairman of the House Appropriations Committee, took action last session modifying budget language to restore TRS-Care funding in the coming biennium. TRTA will work closely with the legislature to ensure the funding is restored.

In addition to the regular sources of TRS-Care funding, the plan benefited from one-time federal funding from the Early Retiree Reinsurance Program. While this supplemental funding was widely discussed during the last legislative session and was supported in the legislative process, there has been some national media coverage on this one-time revenue source. The bottom line is that these federal funds helped control costs this fiscal year.

TRTA is very involved with the ongoing discussions about the TRS-Care plan. The short term is promising, considering that your legislative participation kept premium costs in check. However, there are hard decisions that must be made to preserve this benefit in the future. The concern is that the future is coming sooner than many of us would like, and the hard decisions about TRS-Care funding likely will happen next session.

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04 Nov

Pension Fund to Release Financial Report

TRS Trust Fund Earnings Exceed 15 percent for the year

The Teacher Retirement System of Texas (TRS) holds its regularly scheduled Board of Trustees meeting this morning. Among many business items, the trustees will review their actuarial valuation update for the state fiscal year ending August 31, 2011.

The report highlights the pension fund’s overall value, funded status and amount of annual contribution that would be required in order to make the system actuarially sound (i.e. being able to amortize its unfunded liability within a 31 year period).

Below are some key facts that you should know about your TRS pension trust fund:

  • the fund reports market earnings of 15.5 percent for the year;
  • the fund value increased from $95.7 billion as of 8/31/2010 to $107.4 billion as of 8/31/2011;
  • the overall funded status dropped from 82.9 percent as of 8/31/2010 to 82.7 percent as of 8/31/2011;
  • the state contribution to the fund dropped from 6.644 percent in the previous biennium to 6.0 percent for FY 2012 and 6.4 percent in FY 2013 and thereafter (“thereafter” is an assumed contribution level used by the actuary, but this amount is subject to change in future legislative sessions);
  • active employee contributions remain unchanged at 6.4 percent;
  • the annually required contribution or ARC (the amount necessary to make the fund actuarially sound) increased from 7.77 percent to 8.13 percent;
  • if current contribution policy continues, the trust fund is projected to have sufficient assets to make benefit payments through 2075; and
  • the system is currently deferring $7.8 billion in investment losses due to smoothing utilized in the valuation process, and these deferred losses may be offset by future investment gains that exceed 8 percent (which still places additional pressure on the fund’s overall actuarially condition).

Overall, this is a very good report on the condition of the TRS pension fund. The system has weathered some of the worst economic conditions since the Great Depression, rebounding steadily since major market declines in 2008 and 2009. At the same time, TRS never missed a payment to current retirees. There was no “rush on retirement.” The Texas Legislature did not have a knee-jerk reaction to the changing market conditions and did not make drastic changes to the benefit plan for future TRS retirees.

While there is a great deal of good news in the report, the significant challenge of adequately funding the pension trust fund to ensure actuarial soundness remains. The report clearly states that the fund still has a “never” funding period. This means that if the fund does receive increased contributions or does not make significantly higher investment returns that exceed the assumed 8 percent, the system will “never” be actuarially sound. Retirees understand this means that no benefit increase is possible under current state law (Texas Government Code Section 821.006), as the system is not able to meet the definition of actuarial soundness (the ability to amortize the unfunded liability within 31 years).

TRTA will continue working with the legislature to improve the overall funding status of TRS and help retirees see a much needed cost of living adjustment.

At the same time, critics of the defined benefit pension plan are likely to spin this news in a completely different direction. It is their intention to destroy the TRS defined benefit plan and create a privatized retirement model for current and future active school employees. The fact is that TRS is doing a great job managing the pension plan and ensuring retirement security for over 1 million Texans (active and retired education employees in Texas exceed 1.3 million).

TRTA will have more on this important actuarial update after the TRS Board of Trustees meeting.

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16 Sep

TRS Board Meeting Review

No “Silver Bullet” to Fix TRS-Care Funding

Fund Surplus Will Suffer Massive Shortfalls by End of Next Fiscal Year

The Teacher Retirement System (TRS) Board of Trustees met for their regularly scheduled meeting in Austin this week. During the meeting, TRS trustees received a report that today’s health fund surplus is being depleted completely. This is prompting the TRS staff to study proposals such as Medicare Advantage plans and alternative prescription drug benefit managers as changes for this fiscal year.

TRS staff said that TRS-Care revenues are being outpaced by program expenses, causing a massive change in program reserve funds. The projected shortfall will exceed $700 million by 2015; however, the fund will likely be operating in the red by 2014.

TRS proposals for solving these funding problems range from introducing Medicare advantage programs to reworking the prescription drug benefit. These changes are being considered for possible implementation this biennium. Rough estimates offered at today’s meeting suggest possible savings of $25 million per year. Of course, this is purely speculative, as the issue is still being analyzed.

TRTA fought hard during session to keep health care costs from rising. Legislators know the financial pressure all TRS retirees are facing with 11 years of no pension increases. Through the legislature’s help, we secured a no-increase premium plan for TRS-Care participants this biennium. TRTA members remember that the original budget proposal for the TRS-Care program this biennium was to zero out funding; however, with the help of Senator Robert Duncan and many others, we were able to pass a plan that provided full statutory funding this year with a reduced amount next year.

As of today, TRS is reporting a $900 million surplus in the TRS-Care reserve fund. Preparing for the future, with medical costs outpacing program revenues, is the issue.

The challenge we face is improving funding for the program by linking revenues to medical trend. The hardest part is finding an approach that does not heavily impact the current revenue sources; particularly, the retirees whose premiums are already very expensive.

Today’s discussion yielded no solutions for this crisis, but TRS staff did commit to working directly with TRTA to better understand the issue and consider the many possible solutions that may be employed to achieve lasting results.

Protecting your TRS-Care health insurance program is one of TRTA’s highest priorities. We will continue to meet with TRS as well as industry leaders and elected officials to develop best practices for preserving and improving your TRS-Care benefits and costs. This issue is one that will be discussed for many months to come.

Other TRS Meeting Information

The TRS Board reviewed their policies for investment staff compensation. The issue focused primarily on incentive compensation for investment staff members who exceed certain benchmarks and may qualify for performance bonuses.

The issue has received a great deal of attention in recent years due to changes that made the performance bonuses higher for investment staff while also increasing the benchmarks necessary to qualify for receiving the payment. Some have criticized the bonus structure because TRS has been unable to provide pension increases to retirees for 11 years.

After considerable discussion, however, the TRS Board decided to make no changes to their current incentive compensation policy. The trustees believe there is value in providing an incentive compensation plan, and that it has helped retain highly qualified investment staff who have professionally managed the fund through a very difficult economic period. One trustee commented after the meeting on the crucial role the TRS investment team plays in ensuring the overall health of the fund. For example, on average, the fund must earn about $40 million per day on investments in order to meet the benchmarks set by TRS.

Final Note

The TRS fund value is about $106 billion. While the fund is not actuarially sound (not able to provide a benefit increase), it is still in very good financial health.

TRTA will continue to be your voice on these important issues. Thank you for your membership and support. If you are not a member but would like to join, please contact our office at 1.800.880.1650. We are happy to answer any questions you may have. Please feel free to send your questions or comments to

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