The Teacher Retirement System of Texas (TRS) released its annual valuation of the pension trust fund yesterday. The nation’s sixth largest pension fund presently has $128.5 billion held in trust for over 350,000 Texas public education retirees and 1,000,000 pre-retirees. This figure is down from $132.7 billion August 2014. Additionally, TRS reported that the fund earned a return of -0.3% for FY 2015.
The period of time to amortize the fund’s unfunded liabilities has grown from 29.8 years in 2013 to 33.3 years. This means that at this moment in time, the pension fund is not actuarially sound by state law. In order to meet this threshold, the fund must be able to pay off all unfunded liabilities within a 31-year time period.
Many of our members may be wondering what happened. The pension fund was considered actuarially sound in 2013, allowing for a cost-of-living increase for 200,000 TRS retirees. Now, despite having a funded ratio of 80.2%, the fund is not capable of providing a COLA to retirees at this time.
As you may recall, in 2013 TRS predicted that the unfunded liabilities would continue to grow before starting to decrease again and move towards full funding. This present downturn is expected and following a stable path, although some factors are contributing to this growth in unfunded liabilities more quickly than originally anticipated.
This includes slower than expected investment returns for FY 2015, and the adoption of a new mortality assumption. This new assumption reflects the increased life expectancy of all TRS members, including current active school personnel. It is also important to note that the very volatile markets of 2015 have shifted investment returns wildly, from a 16% overall investment return in 2014 to a -0.3% this year.
TRS, in its actuarial assessment, must also take into account changing rates of inflation and the decrease in payroll growth for active personnel. Essentially, these factors, combined with the ones mentioned above, increased the funding period by five years. However, certain provisions established in SB 1458 will have a positive benefit on the fund in a few more years.
The figures provided yesterday assume that the state will continue to provide the level of funding to the system as established with the passage of Senate Bill 1458 in 2013 during the 83rd Legislative Session. That means TRS expects the state contribution rate to be 6.8% of active educator payroll, the school district rate to be 1.5%, and the active employee rate to be 7.7%. TRS also assumes an overall annual investment return of 8%.
TRS also discussed the probability of future COLAs for retirees. Although this will depend upon many factors, the bottom line is that there must be an increase in revenue to the fund to support a raise in benefits. The revenue could come from increased contributions or higher investment returns, for example. Overall, all it would take is a 1% increase in contributions to get the TRS pension fund back to being actuarially sound by state law.
While it is too early to predict what the Legislature might do to help retirees during the 85th Legislative Session in 2017, it is not too early for TRTA members to begin preparing! Today’s news was not what TRTA or its members had hoped for, but it is not the end of the line, nor is it a reflection of the fund’s overall performance or its future.
Our friends in the Texas Legislature are interested in finding ways to help retirees, as is evidenced by the attendance of Representative Phil Stephenson (R, District 85) at the valuation meeting, who asked many questions about the fund’s value and its impact on retirees. TRTA would like to thank all of the legislative staff members who attended yesterday’s meeting.
Your pension fund is still one of the strongest in the nation. The TRS pension fund has a pathway to solvency that is being followed, and will lead to 100% full funding and actuarial soundness. TRS works diligently every day to achieve this goal for all of its participants. The fund is being managed appropriately, with the utmost concern for the retirement security of all TRS retirees and pre-retirees.
Together, TRTA and its members have worked for years with legislators on both sides of the aisle to provide TRS retirees with a stable, reliable, lifetime retirement income. TRTA will continue advocating for the TRS pension fund and imploring the Legislature to support our hardworking school personnel.
Next week, TRTA will review the interim charges issued by Speaker of the Texas House, Joe Straus. These recently created charges include asking legislators to consider downturns in the market and how current retirees who may be in financial need may be able to have some relief.
The news about TRS-Care that we received yesterday, as expected, is not good. As you know, this legislative session, TRTA members fought to receive $768 million in extra funding to help shore up the fund temporarily and prevent skyrocketing premium increases.
Essentially, we received a two-year reprieve that kept TRS-Care afloat and protected participants’ pocketbooks; but TRS-Care continues to deteriorate financially at an alarming rate. TRTA members will have to fight again in 2017 to protect the health insurance program.
TRS-Care’s projected 2018 funding shortfall is more than $700 million. This figure will grow to an astounding $1.7 billion by FY 2019 if nothing is done to protect the program and its participants! By 2020, this shortfall will rise to $2.9 billion!
We know that the $768 million provided by the Legislature was a tremendous boon to TRS-Care and a huge win for TRTA members, but we also know that it was not intended to be a permanent solution.
Now, we must protect the program for the long term, because it is vital to our retirees’ well-being and financial security! TRS-Care’s enrollment is expected to grow from its current 251,758 participants to 259,578 by 2016. We have more lives every day that need to be covered by TRS-Care!
This issue is important, and we need and value your participation in every step of this process! The next step is engaging with the TRS-Care Study Group that was established by the Legislature through Senate Bill 1940.
2016 is a non-legislative year, but this is when the TRS-Care study group will meet and make decisions about the future of the program. The study group, TRTA, our members and all stakeholders impacted by TRS-Care need to be involved and work together to save this program for all current and future public education retirees.
Earlier this fall, TRTA shared the names of the TRS-Care Study Group House members appointed by the Speaker. As you may recall, those Representatives assigned to study long-term solutions for the TRS-Care retiree health insurance program are: Representative Dan Flynn, Co-Chair; Representative Trent Ashby; and Representative Justin Rodriguez.
We are still awaiting the announcement of who will be appointed by Lieutenant Governor Dan Patrick from the Texas Senate to serve on this vital committee.
As we approach the holiday season, it is easy to become less involved in legislative activity and more focused on family and friends. TRTA will continue to monitor the progress of the TRS-Care study group and report any news to our members immediately.
Please continue reading and sharing the Inside Line throughout November and December!
Protecting your retirement benefits is one of TRTA’s top priorities, and your participation makes all of difference! Be sure to stay tuned to our other digital mediums to stay informed on all the latest news and updates. Like us on Facebook, follow us on Twitter and subscribe to our YouTube channel.