29 Jul 2022

TRTA Sets Record Straight on TRS Value to Members, Texas

Former State Representative Ron Simmons wrote an op-ed for the Dallas Morning News on July 18 entitled “Texas teachers would be better off without a pension system.” In the article, Simmons promotes the idea that a hybrid defined contribution (DC) approach would be better for Texas’ dedicated public-school teachers, rather than the current defined benefit (DB) plan. The members of the Texas Retired Teachers Association respectfully disagree with Mr. Simmons and believe the points he raised are both in error and misrepresentative of the current value of the Teacher Retirement System of Texas (TRS) defined benefit retirement plan to its participants.

While Simmons intends to hold public-school educators’ best interests at heart, his article neglects several important details about why the current DB plan—which provides a guaranteed lifetime annuity—is what’s best for TRS retirees and pre-retirees.

Simmons supports his position by saying that “a whopping 94% of Fortune 500 companies have abandoned their DB plan in favor of a DC plan.” However, Texas educators are not private sector employees. Private sector employees have Social Security (SS) in addition to any private retirement accounts and savings they may have.

A whopping 95% of public-school districts and their employees in Texas do not participate in the federal SS program. Their annuity from TRS is often their sole form of retirement security. Most also do not qualify for ANY SS benefits due to two federal provisions that take away most or all of their earned SS income (the Government Pension Offset and the Windfall Elimination Provision).

Simmons optimistically states that when educators manage their own DC plan, we can assume “the average annual investment returns in the teachers’ account is 6%.” Using a 6% assumed earnings, net of fees, is not conservative for money not professionally managed. Using a rate of 5 percent or less after fees is more realistic and increases the chances of members outliving their 401(k).

He also paints an overly positive picture of the educator’s account balance, stating that “upon retirement, the teacher would have an account balance of approximately $1.1 million.” However, as many private citizens investing in the stock market know, timing is everything. If an educator in a 401(k) plan retired during periods of market downturn that occurred in 2001, 2008, or even 2022, their 401(k) balance at retirement was likely not enough to fund their annuity for the rest of their lives.

Generally, as individuals approach retirement age, they usually reduce their exposure to equities and move money into fixed income. Earnings can be significantly less as evidenced by low interest rates over the last decade.

Public-school teachers, who are already overburdened in the classroom, should not be required to become money managers or to worry about their retirement security as they focus on their daily work. The majority of TRS members will do significantly worse investing on their own in a plan with a DC component than the professionals who work on their behalf with the TRS pension fund. TRS modeling has shown that under a DC plan, 94.7% of retirees will ultimately receive less than with the current DB plan.

Furthermore, women make up 75% of the TRS population and tend to have a longer life expectancy. A lifetime benefit, such as TRS or SS, mitigates the risk of a retiree who—due to longevity, market volatility, or failure to invest adequately—outlives her or his savings.

While Simmons agrees that that State “must fulfill our obligations,” he asserts that Texas taxpayers and teachers “should not be tied to a defined benefit retirement plan forever.” The implication here is that the State and taxpayers are shouldering a large portion of burden for funding TRS, which is simply and grossly inaccurate. Approximately 62.3% of the revenue for the fund comes from investments, all managed by TRS-employed investment professionals. The State and active school employee members each contribute slightly less than 20 percent of the funding for the retirement system.

Using this approach to managing educators’ retirement fund is also more affordable for taxpayers. Per TRS, “actuarial modeling shows that to provide the same level of benefits, other plan designs are 30-124% more expensive than the current TRS defined benefit plan.” TRS is also more cost effective for employers because, as a qualified replacement plan to SS, this saves an estimated $1.65 billion annually.

I know and like Ron and am extremely grateful for his public service. On this issue, I am proud to say the body of evidence in favor of the traditional defined benefit plan for our TRS retirees and current education workforce is clear. Alternatively, working to move toward a defined contribution plan for Texas TRS is bad for retirees, bad for active school employees, bad for the TRS pension trust fund, and bad for Texas.

Both active and retired educators would prefer to serve the children of the State of Texas and be engaged citizens who can focus on voting, thanking their legislators for their service to the state, and volunteering in their communities. They should not have to worry about their retirement future.

As TRS and the Legislature like to say, “we are in the forever business.” Together, they work to make prudent decisions now to benefit all current and future retirees for the long term, and to honor these unsung heroes’ dedication to Texas school children by keeping their promise.

Tim Lee
Executive Director
Texas Retired Teachers Association

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15 Jul 2022

TRS Board Lowers Investment Return Assumption, Comptroller Increases State’s Revenue Estimate

Executive Summary:

  • The Teacher Retirement System of Texas (TRS) Board of Trustees voted to lower the return assumption for the pension fund from 7.25 percent to 7 percent.
  • Additionally, the Board adopted a resolution to recognize $7 billion in gains to help keep the funding period at 26 years, meaning the fund will remain actuarially sound.
  • The pension fund must be considered actuarially sound for the Texas Legislature to consider benefit enhancements, including a cost-of-living adjustment (COLA), for TRS retirees.
  • The Texas Retired Teachers Association (TRTA) provided compelling public testimony, reminding the trustees that the most important factor in making this decision is ensuring the retirement security of TRS retirees and providing a path forward for retirees to receive a much-needed COLA in the coming 88th Legislative Session that begins in January 2023.
  • Texas Comptroller Glenn Hegar increased his November estimate of General Revenue-related funds available for certification by $13.75 billion, meaning more money is available next session for the state’s budget.
  • Combined with the changes made by the TRS Board, additional general revenue in the state budget could bolster TRS retirees’ chances of receiving a COLA next session.
  • Nothing in the legislative process is easy, predictable, or guaranteed. It takes hard work, organization, dedication, grassroots passion, and all the amazing qualities our retired education professionals have in full measure. We need you!

The Teacher Retirement System of Texas (TRS) Board of Trustees met July 14 and 15 for their quarterly meeting. The TRS Board of Trustees voted to lower the pension fund’s investment return assumption from 7.25 percent to 7 percent.

The prospect of reducing the investment return assumption is significant for retired educators because it potentially increases the timeline of when TRS projects it will pay off its unfunded liability. The Texas Legislature uses this information when deciding whether to provide retirees with a much-needed cost-of-living adjustment (COLA).

Brock Gregg, the Texas Retired Teachers Association’s (TRTA) Associate Director, provided public testimony at the meeting.

“TRTA members advocacy is focused on one thing and one thing only as we head into the 2023 Legislature: securing the most substantial and meaningful cost-of-living increase that takes as much of the bite out of this record inflation as we can possibly afford to help get them on track to meaningful retirement that allows them to have different choices than just taking care of survival needs,” Gregg said. Read Gregg’s full statement here.

Joe Newton of Gabriel, Roeder, Smith (GRS), an actuary firm, provided the Board with the Experience Study, which examines the health of the pension fund. The rate of return assumption is a major factor in setting the baseline information for decisions to be based on during the legislative session.

Newton said the current assumption rate was found to be generally appropriate but is at the upper end of the respective ranges. More than 70% of the nation’s pension plans are at or below 7.00% as of June 2022.

GRS projects that changing the investment return assumption to 7 percent will move back the funding period from 23 to 32 years. The funding period must be below 31 years to allow for a benefit increase according to Texas statute.

GRS suggested to the Board the possibility of making the change to 7 percent and recognizing $7 billion in deferred gains now to keep the funding period around 26 years. Initially, when the Board met in April 2022, that recommendation was to recognize $5 billion in gains. That recommendation was based on the assumption that the market return would be as expected.

In the past two months, however, the markets have changed, and TRS expects to have a loss for the year. This scenario of recognizing $7 billion in gains keeps TRS on track with being actuarially sound and is still on track with the Legislature’s plan passed via Senate Bill 12 in 2019.

The TRS Board voted unanimously to approve a resolution to adopt the 7% return assumption and recognize the $7 billion in gains.

While the decision to lower the return assumption is not the only factor that will impact a potential COLA, it sets the stage for the next legislative session. TRTA has been meeting with legislators during the interim to discuss the possible ways a COLA could be funded for TRS retirees.

Earlier this week, TRTA’s 20 District Presidents visited the Texas Capitol and heard from Senator Bryan Hughes, Representative Giovanni Capriglione, and Representative John Bucy all of whom expressed strong interest in working with TRTA to file bills to provide a COLA for retirees in 2023. There are a variety of ways a COLA could be funded, including amortizing it through the pension fund itself, using the state’s General Revenue fund or Rainy Day Fund, or a combination of these methods.

Additionally, a report was released on July 14 by Texas Comptroller Glenn Hegar increasing his November estimate of General Revenue-related funds available for certification by $13.75 billion. In a letter to state leadership, Hegar said the state will have $149.07 billion in GR funds available for general-purpose spending for the 2022-23 biennium, resulting in a projected fiscal 2023 ending balance of $26.95 billion, an increase of $14.95 billion from the November projected balance.

TRTA perceives this as welcome news. Our mission is secure a meaningful COLA for TRS retirees in the coming legislative session. TRTA knows the state budget writers will have many obligations to address in the next session, but the goal for TRTA and its members is to work with the Legislature to help TRS retirees as much as possible.

We are encouraged to know the state may have more resources to work with next year. TRTA members are already working with state leaders on how we can all bring strong and prudent ideas to the process of providing a COLA. With Texas public education retirees experiencing rising inflation that is depleting retiree buying power by 30% or more, TRTA will rely on our grassroots advocacy power and our strong relationships with elected officials to help pass a COLA in the coming session.

TRTA is calling on all TRS retirees to join our association and help pass a COLA and protect TRS pension funding. 

Nothing in the legislative process is easy, predictable, or guaranteed. It takes hard work, organization, dedication, grassroots passion, and all the amazing qualities our retired education professionals have in full measure. We need you! 

If you believe in the power of educators working together to help each other and win in the legislative process, JOIN TRTA! If you are one of our amazing TRS retirees who needs a COLA and you want to help us in the legislative process, JOIN TRTA! If you know a TRS retiree and believe they need an increase in their modest retirement benefits, tell them to JOIN TRTA

Now is the time to get involved as your membership ensures TRTA is the strongest and most organized advocacy organization for all TRS retirees as we work for you!

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06 Jun 2022

House PIFS Committee Meets, Discusses a Path to a COLA for TRS Retirees 

Executive Summary:

  • The House PIFS Committee received testimony from retirees on a COLA
  • Chairman Anchía vowed to make a COLA a priority in the 2023 legislative session
  • TRTA provided testimony and is advocating for a meaningful, substantial COLA for retirees
  • TRTA’s documentation for the committee is available here

The Texas House Pensions, Investments, and Financial Services Committee (PIFS) met on Monday, June 6, 2022, to review and evaluate the actuarial soundness of the Teacher Retirement System of Texas (TRS) pension fund and to study possible benefit enhancements, including a cost-of-living adjustment (COLA), for TRS retirees.

PIFS Committee Chairman Rafael Anchía used the meeting to focus on meeting the financial needs of TRS retirees. The discussion about a COLA is just the beginning of what will be a deeper look into how much retirees are hurting due to increased inflationary pressure.

More than half of current TRS retirees have never received a COLA. The last COLA that was passed by the Texas Legislature went to those who had retired in August 2004 or before. Legislation to pass a COLA could be considered in the upcoming 88thLegislative Session that begins in January 2023.

TRS Testimony

TRS Executive Director Brian Guthrie reviewed the actuarial soundness of the pension fund. Guthrie stated that the fund was at its highest value ever as of August 31, 2021, at $201 billion. The fund had a 25% return in 2021. Since the war in Ukraine began, the market has taken a tumble, and the pension fund currently sits at around $190 billion due to natural volatility. Guthrie said TRS will continue with its long-term investment philosophy, as there no need to change it due to short-term variances.

TRS presently is actuarially sound and ahead of schedule in paying off its unfunded liability of $48 billion, with a funding period of 23 years.

Guthrie explained that the TRS Board of Trustees is considering lowering the investment return assumption for the fund—the single most significant determinant in the fund being sound—from 7.25 percent to 7 percent, as recommended by TRS actuary Gabriel, Roeder, and Smith (GRS).

The change should also not have an impact on coming legislative decisions about granting benefit enhancements to TRS retirees. Guthrie also provided several potential scenarios on ways that a benefit enhancement could be funded and cost estimates of different types of COLAs.

For example, a COLA could be paid for by allowing the pension fund to finance the cost, which adds liability to the system that can be paid over time. Another method is to pay for an increase upfront, which costs less but may require an outlay from general revenue. There are also multiple options available between the two funding policies.
Guthrie stated that TRS has also started to look at the loss of purchasing power TRS retirees are experiencing and the impact of inflation on their monthly income and will provide information at the discretion of the Legislature.

TRTA Testimony

The Texas Retired Teachers Association’s (TRTA) Executive Director Tim Lee could not attend the hearing due to a family obligation but sent a message of gratitude to Chairman Anchia and the committee members for working with TRTA in the past and agreeing to work with us as we move forward to pursue a benefit enhancement for TRS retirees.

Brock Gregg, TRTA Associate Director Strategic Partnerships and Member Outreach, represented the TRTA staff at the hearing. He began his testimony by saying that “the need is great (for a COLA)…there’s no doubt about that,” adding that “by next session, it will have been 19 years since any TRS retiree received a permanent COLA.”

Compounding the issue is that inflation is the highest it has been in 40 years. “The need is more than we can afford,” Gregg added, but expressed that now is the time to provide a meaningful, substantial COLA, “as substantial as we can afford.”

Referencing the federal Social Security program as an example, Gregg said that SS recipients received a 5.9 percent increase last year and could receive one as high as 8% this year.

Gregg reminded the committee members that a quarter of TRS retirees get $1,000 or less per month in their monthly annuities, while 50 percent receive $2,000 or less.

TRTA members also provided public comments during the hearing.
Susie Hager retired in June 2005 after a 30-year career and had hoped to work five more years before experiencing health issues. She is now unable to do any supplemental work due to being homebound. Hager said, “I consider my service as a calling and never expected a hefty salary,” but she struggles to be able to live on the same income she’s had for 17 years. Like many TRS retirees, she is also subject to the federal Windfall Elimination Provision (WEP).

Nancy Byler, who currently serves as the TRTA State Legislative Committee Chair, retired in 2005 and has never had a COLA.
Byler said she has spoken with active teachers who don’t want to come to Austin to beg for a COLA when they retire. “It’s hard to recruit and retain active teachers when retired teachers are not taken care of,” she added.

She said that “retirees do the best they can with what they have,” explaining that when TRTA speaks, the organization is speaking for all TRS retirees, not just the ones who can afford to pay membership dues.

“The time is now—right now—for a substantial COLA for all Texas public school retirees,” Byler said.

Dora Cackley also serves on the TRTA state legislative committee. She worked as an educator for 32 years in the Rio Grande Valley. She explained that many South Texas counties experience great financial hardship, forcing many retired school personnel to supplement their income. One retiree she knows told her he is cutting back on food by buying cans of beans to make his dollars stretch.

“These were your teachers!” Cackley said.

“We gave our full measure of devotion to all the children in Texas classrooms,” Cackley said, and then asked the committee members to study, evaluate, and execute a COLA for the retirees who are in dire financial need.

Jeanne Paull-Turner said she taught for 40 years, “and I would do it again.” She told the story of a fellow retiree who is a two-time cancer survivor with a house that 44 years old and in need of multiple repairs she cannot afford. Her friend also needs surgery she cannot afford. She described the situation as “horrid.”

“Twenty years with no COLA is just not right…it’s disrespectful,” Paull-Turner said.

Chairman Anchía thanked everyone for their heartfelt testimony, adding he does not know anybody on the committee who is not in “complete lockstep” with the retirees, calling the committee members “demonstrated allies.” Though this hearing did not propose any specific legislation, it is the first step on a path forward for a benefit enhancement for TRS retirees in the 88th Legislative Session.

TRTA thanks Chairman Anchía and all the members of the PIFS committee for making TRS retirees a high priority ahead of the next that begins in January 2023. Our work to help TRS retirees receive a COLA already is kicking into high gear! Please stay tuned to the Inside Line as we continue our work to get all TRS retirees much needed financial relief.

Thank You!

TRTA is the only group that focuses solely on your TRS retirement security! Please join us today!

Thank you for being a member of TRTA and supporting issues that affect retired Texas public school personnel. Be sure to download the TRTA app to receive all of the latest updates and communicate with your fellow retirees.

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