07 Dec 2011

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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01 Dec 2011

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 2011

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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