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20 Feb
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House Appropriations Committee Discusses Pension Fund, TRS-Care Issues

Today, February 20, the House Appropriations Subcommittee on Article III met and heard vital testimony about the Teacher Retirement System of Texas (TRS) pension fund and the TRS-Care retiree health insurance program. The Texas Retired Teachers Association (TRTA) was able to provide public testimony, in addition to TRS Executive Director Brian Guthrie.

Guthrie’s testimony very closely matched his comments from last week’s Senate Finance Committee hearing. He discussed the robust health of the pension trust fund, which has about $132 billion and presently serves about 1.4 million retired and active members. The system pays out over $8 billion in retirement benefits each fiscal year.

“Everyone in this room has a friend or someone in their own family who is an educator or may be an educator themselves,” Guthrie said.

During fiscal year 2014, the pension fund earned nearly 17% in returns. TRS recently released its new Great Value for All Texans brochure, which demonstrates that nearly 64% of the value of the fund is generated by investment income. The 25 year return rate for the fund is 8.8%.

Guthrie noted TRS’s unfunded liabilities will increase over the next couple of years, but then begin to recede as Senate Bill 1458 is phased in.

“By 2044, we will be able to say that we have no more unfunded liability,” Guthrie said.

Our members are very appreciative of the efforts made by the Texas Legislature to make the pension fund actuarially sound and very proud of the success TRS has had over the years.

The main concern of both TRS and TRTA this session is funding for TRS-Care. The projected shortfall to this health care program is $768 million, though that number will be updated again at the end of February and again during late session when budget writers from both the Texas Senate and House meet in conference committee. The shortfall, however, has been tracking between $700 and $800 million for the past year.

The TRS-Care shortfall is not a new problem, but a systemic one. Some of the major cost drivers for the plan include ever-increasing medical costs. For example, prescription drug costs have been trending upwards at a rate of about 8% per year.

“Revenue streams for TRS-Care are based upon a source (aggregate teacher payroll) that has nothing to do with medical costs,” Guthrie said.

TRS-Care will start to trend negative beginning in FY 2016, and if nothing is done by the Legislature to address the shortfall it will run out of money in January 2016. Even if the Legislature paid for the $768 million shortfall without addressing the program’s long-term solvency issues, we would be facing yet another shortfall in two years that would reach nearly $1.5 billion!

A similar shortfall occurred in 2003, and at the time, the Legislature made a variety of changes, including new contributions, benefit changes, and increasing retiree premiums. As we face this problem again, all options are on the table once more.

Retirees pay for approximately 38% of TRS-Care’s total costs through premiums, deductibles, co-pays and other out-of-pocket costs! The state’s contribution accounts for approximately 23%. School districts and active school employees also contribute.

Premiums are significant portion of our retirees’ take home income each month, and the vast majority do not receive Social Security. Though premiums vary based on years of service and retirement date, the average TRS-Care 3 participant with 20 years of service pays $310 per month in premiums. The average monthly annuity of a TRS retiree is less than $2000.

Executive Director Guthrie referenced the TRS-Care sustainability study, explaining that he asked his staff to review all possible options. In 2014, TRTA did a review of all of the options which can be found by clicking here.

Next week, TRS will again meet with the House Appropriations Subcommittee on Article III to discuss the options in detail. The meeting will be held Tuesday, February 24 at 7:30 a.m.

TRTA also provided public testimony during today’s hearing, stressing that our TRS-Care participants need access to affordable health care coverage with reasonable benefits. TRS-Care operates with twice as many retirees and half as much funding as the Employees Retirement System of Texas (ERS) plan!

Texas statute indicates that the state should pay for no more than 55% of the cost of TRS-Care, but right now, the state is far from that number (23%)! Our retirees are shouldering most of the burden of the program (38%).

TRS-Care is running out of money quickly and no progress has been made on pre-funding the plan. If TRS-Care funding is linked to active teacher payroll, the state must provide a greater financial commitment to its public education retirees.

TRTA believes that the work of the House Appropriations Subcommittee on Article III should yield an immediate budget increase to TRS-Care of an additional 2% in state funding, raising the level of state commitment to TRS-Care to no less than 3% of payroll.

We believe that 3% is the minimum level of state contribution necessary to begin any conversation about “sharing the pain” of addressing the shortfall and the program’s long-term sustainability issues. TRTA does not believe our retirees can shoulder this load. We also believe that additional costs cannot be foisted onto the backs of active school employees who already bear very high costs for their TRS-Active Care program.

TRTA is, therefore, suggesting the 3% state contribution rate as the new normal state contribution for TRS-Care from this point forward. TRTA Executive Director Tim Lee passionately implored the committee, saying that “some shoulders are broader and some backs are stronger and should carry more of this load.”

We do not know what is in store for the future of health care. This uncertainty, and the reality that we implemented changes last session using SB 1458 that may help reduce long-term TRS-Care costs, might give our legislators pause when thinking of “fixing” TRS-Care now. However, action must be taken.

Even if the actions taken this session do not fix the health care program entirely, taking steps toward a pre-funding approach is the smart thing to do!

We have all heard the phrase “kicking the can down the road.” The proverbial TRS-Care can has been kicked to the edge of the cliff! There is no road left. We may be able to get to the other side of this great chasm, but our retirees need a bridge. The cost of that bridge may just be $768 million.

TRTA and our hard-working, ardent members will NOT let this happen! Our strength has always been our ability to work together, stand together and face the issues head on. We need you, your fellow retirees, and any active educators you know to stand with us this session as we fight to keep that can from going over the edge of the cliff!

Thank You!

Please be sure to stay tuned into the Inside Line throughout the 84th Legislative Session, as we will be bringing you all the latest updates on our broad legislative agenda, including any bills concerning TRS-Care, the continued funding of the TRS pension trust fund, pension increases for all TRS retirees, and also congressional issues such as the WEP and GPO.

Thank you for your membership in the Texas Retired Teachers Association (TRTA). If you are not a member of TRTA and want more information about joining, please contact us at 1.800.880.1650. Follow us on Facebook! Visit our YouTube channel for regular video updates.

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13 Feb
0

TRS Defined Benefit Plan Attacked

The Austin American-Statesman published an article on February 10 attacking the defined benefit plans of retired Texas public educators.

James Quintero of the Texas Public Policy Foundation (TPPF) wrote the attack article. In the article, Quintero questions the funding stability of public pension plans.

Quintero’s primary focus is on the pension plans run by the Teacher Retirement System of Texas (TRS). Quintero’s article is not only poorly timed, but also highly misguided.

Despite the TRS pension fund’s actuarially sound structure, Quintero describes the fund as “fiscally unsustainable.”

“Pension plans are effectively entitlement programs that run contrary to the criteria of sound budgeting principles,” Quintero asserts.

TRS was first established in 1937, and since the agency’s launch, TRS has never missed a pension payment to retirees.

In 2013, the Texas Legislature, with the guidance of retired educators, passed Senate Bill 1458. SB 1458 provided 200,000 retired educators a cost-of-living increase and the ensured the long-term solvency of the TRS fund.

Brian Guthrie, the Executive Director of TRS, reported to the Texas Senate Finance Committee earlier this week. During his report, Guthrie attributed the fund’s robust health to the investment expertise of the TRS staff, and since Guthrie’s instatement as TRS Deputy Director in 2008, the fund has grown each year.

The TRS fund currently stands at $132 billion, and saw investment returns of 16.9 percent in 2014, twice the projected growth rate.

Quintero states that the TRS fund is in trouble due to its rising unfunded liabilities.

“In just the past year alone, there’s been a $4.4 billion increase in the overall gap between benefits earned and plans’ assets,” Quintero writes.

However, Quintero fails mention that the slight rise in unfunded liabilities is actually planned for. TRS is projected to have all unfunded liabilities paid off by 2044. The motto of TRS is to be in “the forever business.” The agency’s deft expertise, financial planning and leadership are among the best in the nation.

TRTA has ensured the financial stability of the TRS fund through passionate grassroots advocacy. We owe much of the success of this effort to YOU. Our members worked hard throughout session to communicate with their Senators and Representatives and to support the decisions they made to help the fund become solvent. Your hard work was not in vain! TRTA will continue to protect your retirement fund and advocate for you and future retirees!

While these attacks may never go away, neither will TRTA! Our members’ resolve to stand up against those who would like to harm their retirement security will not waver! Together, we are stronger than any group walking the halls of the Texas Capitol today!

Letter From TRTA President

Click here to view the response letter the President of TRTA, Fran Plemmons, is sending to our legislators.

Thank You!

Please be sure to stay tuned into the Inside Line throughout the 84th Legislative Session, as we will be bringing you all the latest updates on our broad legislative agenda, including any bills concerning TRS-Care, the continued funding of the TRS pension trust fund, pension increases for all TRS retirees, and also congressional issues such as the WEP and GPO.

Thank you for your membership in the Texas Retired Teachers Association (TRTA). If you are not a member of TRTA and want more information about joining, please contact us at 1.800.880.1650. Follow us on Facebook! Visit our YouTube channel for regular video updates.

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12 Feb
0

Senate Finance Committee Expanded Update, Featuring Exclusive Video Coverage!

Yesterday, the Texas Retired Teachers Association (TRTA) released a brief Inside Line update about the Senate Finance Committee meeting. The committee met yesterday to hear testimony from the Legislative Budget Board (LBB) and the Teacher Retirement System of Texas (TRS) about the state of the TRS pension fund and the TRS-Care retiree health insurance program.

Today we feature our expanded update, including video coverage of the meeting itself and an exclusive update from TRTA Executive Director Tim Lee!

The TRS Pension Fund

Patti Featherston of the LBB began yesterday’s testimony with a report about the health of the TRS pension fund, which presently is at a funding status of 80.2% and has a funding period of 29 years. In order to be actuarially sound by state law, the pension fund must have a funding period of 30 years or less.

The LBB recommended that the state budget maintain the contribution rates to the fund that were put into place last session with the passage of Senate Bill 1458. This includes a state contribution of 6.8% in 2016 and 2017, an active employee contribution of 7.2% in 2016 and 7.7% in 2017, and a new school district contribution of 1.5% that begins in 2016. These percentages are based on active member payroll, which has experienced growth in the past biennium. Although this growth is expected to taper some, the addition of new employees and salary increases means more money for the pension fund.

TRS also has an assumed investment return of 8%, which it exceeded in 2014 by doubling that return to 16%. The pension fund generally should improve in funding status and funding period as long as the current contribution rates remain in place for the foreseeable future. TRS Executive Director Brian Guthrie stated that at the present time, TRS should be able to pay down its entire unfunded liability by the year 2044.

The TRS-Care Retiree Health Insurance Program

While the news is good about the pension fund, concern about TRS-Care was expressed not only by the LBB and TRS but by several Senators serving on the committee as well. The LBB’s current recommendations for funding TRS-Care include the standard state contribution of 1% of active employee payroll. Over the summer, TRS requested exceptional funding in the amount of $875 million to cover an imminent shortfall to the health care program. That request now sits at $768 million and is based on claims payments through December 2014.

Earlier this year, the LBB released a Government Effectiveness and Efficiency Report (GEER), which included several recommendations for resolving the funding crisis for TRS-Care. Beginning on page 367, the LBB’s recommendations include increasing contributions from the state, active educators, school districts and including a premium increase for retirees. Premium increases in the GEER report for TRS retirees are suggested to be as high as 25 percent!

In order to increase retiree premiums, the Legislature would have to delete the rider expressing legislative intent that the TRS not increase retiree premiums from the 2016–17 General Appropriations Bill.

TRTA does not support increasing retiree premiums. Tim Lee, TRTA Executive Director, testified at yesterday’s hearing that state education retirees have received only one annuity increase in 12-years. If the legislature did not fund the TRS request for additional health care dollars, more than 60% of that increase will be taken back just to keep up with premium increases.

Considering that not all education retirees received the increase, massive premium hikes on our TRS-Care participants would be financially devastating.

In addition, Mr. Lee called on the Legislature to fully-fund the TRS-Care appropriation request and to work together with all stakeholders to develop a long-term solution.

The LBB recommendation drew several comments from Senators who asked about the stagnant incomes of retirees and felt that many simply cannot afford to pay anymore. Retirees already shoulder 38% of the cost of TRS-Care through their premiums, deductibles and co-pays, while the state pays 23%, active educators 15%, and school districts 13%. The other 11% comes from funding sources such as federal dollars.

We have included several of these comments in our video coverage today. Sen. Kevin Eltife (R-Tyler) stated that this issue causes many retirees to feel fearful, and that the consideration of raising retiree premiums should be thought through very carefully. Sen. Joan Huffman (R-Houston) shared a sentiment that it is the state’s obligation to figure out a way to resolve this crisis, and that while there are several recommendations on the table right now, she thinks this is an issue the state can solve.

Sen. Juan Hinojosa (D-McAllen) asked how the TRS-Care shortfall came to be. Both the LBB and TRS Executive Director Brian Guthrie mentioned that the expenditures for the program are growing much faster (at 8.8%) than the payroll base for active educators (at 2%). Since contribution rates depend upon payroll growth, there is a “fundamental disconnect between the costs of the program and its revenue streams,” said Guthrie.

This disconnect has existed since the program’s creation in 1986. While the program was intended to be temporary until a permanent insurance plan could be put into place, it has instead existed for nearly 30 years. In 2003, TRS-Care faced a similar funding shortfall and the issue was resolved by increasing contribution rates from the state and active teachers and introducing the school district contribution. At that time, retiree premiums also increased.

According to Guthrie, TRS has exhausted all possible cost containment measures it can pursue legally to shore up the TRS-Care shortfall. These containment measures include introducing the Medicare Advantage plan in 2013 and making eligibility changes to access Care 2 and 3 for future retirees. Those eligibility changes won’t access the program’s bottom line until 2020.

TRS-Care will be in the hole by $235 million in 2016, and by $768 million in 2017. While no potential solutions were discussed today, this important conversation stressed the seriousness of the crisis in the minds of our Texas Senators. While the general sentiment is that our Senators support our retirees and do not want to burden them with excessive premium increases, we still face a tough conversation this session about just how the shortfall will be addressed.

Defined Benefit Program Attacked

Tomorrow, we will bring you an update about an attack levied against the TRS defined benefit plan. Published in yesterday’s Austin American-Statesman, the attack was written by James Quintero of the Texas Public Policy Foundation (TPPF).

As mentioned in the video, the attack comes at a time when the TRS pension fund is robust and actuarially sound. The Texas Legislature and all stakeholders served by TRS worked hard last session to ensure the long-term solvency of the fund through the passage of Senate Bill 1458.

We will provide our members with TRTA’s official response to this unwarranted attack via the Inside Line tomorrow.

Thank You!

Your emails to your Senators this week and the letters you mailed over the holidays made a huge impact on your Senators! Several Senators mentioned that they have been contacted by retirees in their district and that their concerns will not be ignored.

Thank you for sending a very strong, positive, and LOUD message to the Texas Senate as we discuss these vital budget issues.

Please be sure to stay tuned into the Inside Line throughout the 84th Legislative Session, as we will be bringing you all the latest updates on our broad legislative agenda, including any bills concerning TRS-Care, the continued funding of the TRS pension trust fund, pension increases for all TRS retirees, and also congressional issues such as the WEP and GPO.

Thank you for your membership in the Texas Retired Teachers Association (TRTA). If you are not a member of TRTA and want more information about joining, please contact us at 1.800.880.1650. Follow us on Facebook! Visit our YouTube channel for regular video updates.

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