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31 Jul
0

Special Message About TRS Changing Rate of Return Assumption

Dear TRTA Members,

The major action by the Board of Trustees to lower their investment rate of return assumption from 8 percent to 7.25 percent will shape our state’s public policy on TRS for years to come.

TRTA is grateful to all the TRS Trustees for their long deliberation of this issue. This decision did not come easy and it did not occur without serious thought given to its wide-ranging ramifications.

We will direct all our efforts to ensure adequate funding is achieved for the pension fund.

Ultimately, the real focus must now be on our legislative activity. We must educate our elected officials and encourage them to do the right thing.

TRTA believes:

  • TRS must be managed by sound actuarial principles as outlined in Article 16 Section 67 of the Texas Constitution;
  • The Legislature should work with TRTA and other stakeholders to ensure the fund is appropriately funded and able to meet the actuarial conditions necessary to amortize promised benefit increases;
  • Texas TRS retirees are struggling financially. Every effort must be made to provide a benefit increase to TRS annuitants;
  • TRTA will OPPOSE any effort to reduce promised benefits to future TRS retirees. We will OPPOSE any attempt to transition TRS from a traditional defined benefit plan to a privatized defined contribution plan;
  • TRS-Care needs additional appropriation to stabilize the health care plan and reduce out-of-pocket costs to those who depend on it for their health care needs.

We believe in our members and their ability to communicate with elected officials. The TRS decision is NOT a doomsday moment, but we must recognize the next session will present an unparalleled challenge to TRTA and its members.

We will need to utilize all our advocacy skill, educational experience and our never-give-up determination to help the Legislature agree to public policy supporting our TRTA members and education retirees.

We must advocate for a sound funding policy; a policy that keeps the promise to our active school employees and provides a benefit increase for our current retirees.

Now is a time for action. The Legislature will need to act on these new funding challenges.

For TRTA members now is the time for education, advocacy and outreach. We need to work with our elected officials and improve TRS funding.

Now is also a time to act and participate in the electoral process and vote for those who choose to do the right thing to help TRS and TRS retirees.

If you have any doubt about your elected official supporting TRS and our TRTA agenda, now is the time to ask them.

Here are some good questions to ask those running for the Legislature in your area:

  • Will you commit to more funding for the TRS pension fund?
  • Will you support a funding policy that makes the TRS fund solvent and well funded?
  • Will you exhaust every opportunity to find a way to pass a benefit increase next session for current TRS retirees?
  • Will you support more permanent funding for TRS-Care and help make the program sustainable and affordable?
  • Will you oppose any effort to change the TRS benefit plan from a traditional defined benefit plan to a 401(k)-style defined contribution plan for ALL current and future TRS retirees?

TRTA is preparing a questionnaire for the candidates running for Governor and Lt. Governor. The questionnaire will address the changes to the TRS pension fund. We will make that information public once we have responses.

You can count on TRTA to be your advocate. We need you and everyone you know to join in these efforts. While some may feel the all was lost after this decision was made, I believe our members never quit and never give in.

The challenge will be steep and climb will be tough, but we have fought our way up these hills before and TRTA will not rest until we reach the top again.

We are preparing a complete in-depth update on this matter in an issue of the TRTA member news bulletin The VOICE. If you are not a member and want to help us fight to protect your pension, improve your health care, and help us win retirees a much needed benefit increase, please join us today!

Thank YOU!

Tim Lee

TRTA Executive Director

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27 Jul
0

Teacher Retirement System of Texas Votes 5-4 to Lower Rate of Return Assumption

All eyes turn to next session as pension and health care programs both need higher contribution levels.

Executive Summary:

  • TRS lowers rate of return assumption to 7.25 percent.
  • Change to rate of return assumption doesn’t impact current retiree benefits.
  • However, it will require the Legislature to provide additional funding for retirees to receive a cost-of living increase.
  • Look forward to a special message from Tim Lee on Monday, July 30.

The Teacher Retirement System of Texas (TRS) Board of Trustees voted 5-4 today to lower its investment rate of return assumption to 7.25 percent. Previously, the rate of return assumption was 8 percent. The change creates a potential $1.6 billion biennial cost for the next Texas Legislature.

The decrease in the investment rate of return assumption is highly significant as TRS operates a $147 billion pension fund, the seventh largest in the nation. A change to the investment rate of return assumption impacts potential cost-of-living increases for more than 400,000 retired educators who receive an annuity from TRS, as well as impacts the overall affordability of these promised pension benefits for future TRS retirees.

TRS released this fact sheet about the new rate of return assumption.

The TRS Board of Trustees had a lengthy conversation before taking a vote on the rate of return assumption.

The board discussed taking a stair-step approach to reducing the rate of return assumption. This would involve lowering the rate of return assumption then reevaluating it in a “year or two” to decide whether to lower it again.

TRS Executive Director, Brian Guthrie, cautioned against this approach. He said the stair-step approach “creates more issues with the Legislature,” as it could require TRS to come back multiple times asking for money from the Legislature.

Guthrie was asked by another Trustee, Nanette Sissney, about his prediction of how the Legislature would react to the rate of return assumption dropping to 7.25 percent.

“Every time I’ve gone over to the committee… there’s a general consensus that 8 percent is too high,” Guthrie said. He said that the Legislature “will appreciate” that the lower rate of return assumption is more in line with their views.

The board first voted to adopt a rate of return assumption of 7.35 percent, but that measure didn’t pass. The board passed a rate of return assumption of 7.25 percent on a vote of 5-4.

Cost-of-living increases for TRS retirees are not guaranteed and may only occur if the Texas Legislature approves them. Many TRS retirees have NEVER received a cost-of-living increase. Pension increases can only occur when the fund is able to amortize the cost within a 31-year period.

In order to reach the 31-year funding period, the TRS fund will require a 1.82 percent increase in contributions, which equates to an additional $786 million per year. The fund must be below this 31-year funding period to provide annuity increases.

The average TRS annuity is $2,060 per month. Ninety-five percent of Texas school districts don’t contribute to Social Security. Many TRS members rely on the annuity as the sole source of income.

The Texas Retired Teachers Association (TRTA) is strongly encouraging TRS to pursue the necessary funding from the Texas Legislature to make the fund actuarially sound. TRTA feels that a cost-of-living increase for retirees is vital and necessary, and that a healthy TRS pension fund is an enormous benefit to the state.

TRS accepted testimony from stakeholders during the board meeting.

A common theme among the testimony was a concern about the potential for groups who oppose the TRS defined benefit plan to use the change in the assumed rate of return to advocate for defined contribution plans.

Tim Lee, TRTA’s Executive Director, had a warning for those groups who would angle to remove the defined benefit pension plan.

“We will be ready. You better be as well,” Lee said. He went on to explain that retirees would sound the alarm if any attempt was made to privatize the TRS pension fund.

TRTA is looking to the next legislative session to make a case for higher contributions to the TRS fund.

“We will approach the Legislature with a list of priorities that ask for higher contributions being made to TRS pension fund, a measure that provides a pension increase to TRS retirees, and more money for the TRS-Care program that is expected to have another shortfall of $400-600 million,” Lee said. “The longer we wait to see these issues resolved, the more difficult they will be to achieve in future legislative sessions.”

Additionally, during the meeting, TRTA’s Immediate Past President, Nancy Byler, was appointed to the TRS Retiree Advisory Committee.

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24 Jul
0

TRS Board of Trustees Set to Meet July 26-27, Likely to Adopt Changes to Rate of Return Assumption

Executive Summary:

  • Watch the TRS Board of Trustees Meeting on July 27.
  • TRS Board is likely to reduce rate of return assumption.
  • Texas will need to increase its contribution to TRS to ensure retirees can receive a cost-of-living increase.

The Teacher Retirement System of Texas (TRS) Board of Trustees are scheduled to meet on July 26-27. The most pressing issue for the board to vote on is the rate of return assumption. The agenda for the meeting is available here. There will be live webcasts for July 26 and July 27.

The Texas Retired Teachers Association (TRTA) believes it is likely that the board will vote to lower the rate of return assumption from 8 percent to 7.5 or, more likely, 7.25 percent.

A change to the rate of return assumption will not impact the current annuity amount retired educators are receiving from the pension fund.

However, a change to the rate of return assumption will alter the trajectory for potential cost-of-living increases for retired educators. The fund’s long-term financial health will also be weakened by a change to the rate of return assumption without action taken during the legislative session.

If the rate of return assumption is lowered to 7.25 percent, it would require the Texas Legislature to increase state contributions by 1.83 percent, which equates to $790 million per year, to put the pension fund within a 31-year funding period.

Once the TRS fund is within a 31-year funding period, it meets the state requirement for providing a cost-of-living increase for retired educators.

Additionally, Texas has a provision that precludes benefit increases from occurring for TRS retirees. The pension system cannot go above a 31-year funding period if or when a benefit increase is approved by the Legislature. If the benefit increase pushes the TRS fund above a 31-year funding period, the proposed increase may not be allowed.

TRS has to have a funding period considerably less than 31-years in order for the Legislature to authorize the fund to provide a permanent increase for retirees.

All of this is purely theoretical as the Legislature has not authorized any pension increases for retirees since 2013. In 2013, the Legislature provided a pension increase for retirees that had retired on 8-31-2004 or before. Those retirees received a 3 percent increase in their annuity capped at $100 per month.

Any retiree who retired 9-1-2004 or after has never received a pension increase. Thousands of retired school employees have seen reduced Social Security benefits (if they receive them at all), increased health care costs, and no pension increases for as long as 14-years in their retirement.

TRS Texas currently receives a 6.8 percent contribution rate from the employer, which is about half as much as the next highest state among its peers. Ninety-five percent of Texas school districts don’t contribute to Social Security. As compared to other state pensions that don’t contribute to Social Security, Texas is receiving a bargain. The average contribution into those other pension systems is 19 percent. The contribution from Texas to TRS is 6.8 percent.

The employer contribution to TRS is comprised of two parts, a 2.8 percent contribution from school districts and a 4 percent contribution provided by the Texas Legislature out of the general revenue fund.

The pure state budget general revenue contribution to Texas TRS is the absolute lowest percentage of payroll contribution to a state TRS pension plan in the nation.

(Click images to enlarge.)

While it may be the lowest contribution as a percentage of payroll in the country, Texas legislators have done far better by our Texas TRS than any other state in the nation has for its TRS public pension plan. The Texas Legislature has NEVER taken a pension funding “holiday,” or the action of not making the employer contribution to the pension fund. Many states are suffering as their elected officials regularly withheld necessary contributions to the pension fund. However, Texas legislators have always made at least the constitutional minimum level of contribution to the pension system in its now 81-year history.

The TRS board has met twice to consider changing the rate of return assumption, once in April and once in February. The April meeting featured a pair of votes by the board to change the rate of return assumption. However, neither vote reached the necessary five votes to pass. The board has been divided on how far to lower the rate of return assumption.

The board has received recommendations from the actuary firm of Gabriel, Roeder, Smith & Co. to lower its rate of return assumption below 8 percent, as the majority of pension funds have moved below this mark.

If the TRS board does lower its rate of return assumption, TRTA is strongly encouraging TRS to pursue additional funds from the Texas Legislature. While state law prohibits TRS from lobbying the Texas Legislature, it is still TRS’s fiduciary duty to ensure that the pension fund is actuarially sound so that members may receive cost-of-living increases.

TRTA is strongly encouraging its members to tune into the live webcast on Friday, July 27. This TRS board meeting will be critical to the future health of the pension fund. Be sure to share this and upcoming editions of the Inside Linewith your fellow retirees!

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