14 Dec 2018

TRS Board of Trustees Meets, Discusses Pension Fund Valuation

Executive Summary:

  • TRS pulled in a 7.7 percent return on its investments this year.
  • TRS lowered its rate of return assumption from 8 percent to 7.25 percent earlier this year.
  • The Legislature must work with stakeholders to achieve actuarial soundness for the pension fund.

On Friday, December 14, 2018, the Teacher Retirement System of Texas (TRS) Board of Trustees met to discuss the actuarial valuation of the pension trust fund and TRS-Care health insurance program. The TRS valuation serves as an important report that will be referenced by the Texas Legislature during the upcoming session that begins on January 8, 2019.

The report reveals the current financial health of the pension fund and insurance plan, as well as projections of the fund’s performance in the future given current contribution rates and market conditions.

Effects of the Rate of Return Assumption Change

As members of the Texas Retired Teachers Association (TRTA) may know, the TRS Board of Trustees voted this year to lower its rate of return assumption from 8 percent to 7.25 percent. TRTA reported about this significant change via the Inside Line and you may read about it here. TRTA also developed an informative video about the importance of the rate of return assumption and how the change may affect the future of the pension fund and retirees. You may view the video here.

The rate of return assumption is a measure used by TRS to project investment returns. The lowered assumption doesn’t impact the amount of money retirees are currently receiving from the pension fund. However, it makes a cost-of-living adjustment significantly more difficult going forward for all current AND future retirees. Retirees already struggle to make ends meet, living on incomes that do not match up with modern-day expenses.

Texas has a rule in place that prohibits TRS from distributing a COLA unless TRS is projected to pay off its unfunded liabilities within 31 years. Many TRS retirees have languished without a COLA since retiring. The last COLA that went to retirees was provided in 2013. The COLA only served those who retired before Sept. 1st, 2004. If you retired after that date, you’ve never seen an increase in your monthly annuity, and your annuity may have even gone down after health care costs increased dramatically this year.

Gabriel, Roeder, Smith & Company, the company that performs the actuarial valuation of the pension trust fund, provided the following summary during today’s meeting:

Pension Trust Fund Summary of Actuarial Valuation as of 8/31/18

  • The TRS Trust Fund (Fund) earned a return of 7.7 percent and ended the 2018 fiscal year at a market value of $154.5 billion compared to a market value of $147.3 billion for the fiscal year ending 8/31/17.
  • The period of time necessary to amortize the unfunded liability has increased from 32 years to 87 years. The primary reason for the increase was the change to the actuarial assumptions adopted by the TRS Board in July 2018. Decreasing the investment return assumption from 8.00 percent to 7.25 percent was the most significant change, although other assumptions were changed as well.
  • The fund recognized deferred gains from the prior year’s return, which resulted in an actuarial gain on assets in fiscal year 2018. However, given that current contributions cannot amortize the unfunded liability in less than 31 years, the System does not meet the state statutory definition for actuarial soundness. A contribution increase of 1.76 percent is needed to attain a 30-year funding period. This would cost approximately $1.65 billion for the 2020-21 biennium.
  • Results of the 8/31/18 valuation and comparisons to the 8/31/17 valuation are summarized below:

The funding period of 87 years is based on smoothed assets and assumes that all current statutory contribution levels will continue (employer—state (6.8 percent) and school districts (1.5 percent), and employee contributions (7.7 percent)) and that there will be no changes to benefits, including no COLAs.

These projections have an expectation of an increasing the funded status, although very slowly. Currently at a 76.9 percent funded ratio, it is projected to take 31 years to reach a funding status of 80 percent assuming everything stays the same. Projections also show that the Unfunded Actuarial Accrued Liability (UAAL) is expected to increase dramatically for approximately 65 years.

The estimated market return for the plan year that ended on August 31, 2018 was 7.7 percent (compared to 12.9 percent in prior year).

Gabriel, Roeder, Smith & Company stated that an immediate increase in the contribution rate is needed for the fund to attain a 30-year funding period and provided a series of potential options of contribution rates that would help to lower the funding period and save the state billions in interest over time.

Per Gabriel, Roeder, Smith & Company, even modest increases in contribution levels would drastically improve the financial security of the system and save billions of dollars in interest over the long term. Current funding expectations, and historical policies, are outside of industry best practices.

Gabriel, Roeder, Smith & Company also provided an overview of the projected funding status of the TRS-Care retiree health insurance program.

TRS-Care Trust Fund Actuarial Valuation Highlights as of 8/31/18

  • Unlike the TRS pension trust fund, the TRS-Care fund is not pre-funded. It is a cost-sharing multiple employer plan that is funded on a pay-as-you-go basis to maintain benefits each biennium.
  • The TRS-Care trust is projected to have an ending balance of approximately $544 million on an incurred basis at the end of FY 2019.
  • The 85th Legislature increased the contribution policy from 2.20 percent to 2.65 percent of payroll starting in FY 2018 and added $394.6 million in supplemental appropriations for the FY2018-FY2019 biennium.
  • In FY 2019, expected pay-as-you-go costs of $1.9 billion will exceed employer and active employee contributions of $940 million (excluding supplemental funding).
  • TRS-Care is facing a financial shortfall between $231 million and $412 million by the end of the 2020-2021 biennium, depending on health care cost trends.
  • For the 2018 plan year, the TRS Board approved the first plan changes in 12 years to increase participant cost sharing and ensure there would be sufficient funds to pay claims through the end of the plan year.
  • The plans offered to retired public education employees through TRS-Care changed significantly effective January 1, 2018 in order to sustain the plan through the end of FY2019.

Results of the 8/31/18 TRS-Care valuation are summarized below:

What to Expect in 2019 During Session, TRTA’s Legislative Agenda

As mentioned earlier, the fund’s liabilities must be able to amortize within a 31-year period in order for the Legislature to approve a cost-of-living adjustment for current retirees. Now that the period of time to amortize the pension fund’s liability has increased so dramatically to 87 years, it is more important than ever that the Legislature address making the fund actuarially sound.

TRS has released its pension design study, and it’s broken down into the following parts:

It is likely that one of two things will happen to the pension fund after this legislative session: either the Legislature will adopt a plan to adequately fund the pension system or current and future retirees will see their benefits reduced over time!

The formula is simple: contributions plus investments equal benefits! With a lowered rate of return assumption, there will be less money to ensure that the promises made will be kept.

While these changes may not happen immediately, the end result is that future retirees will receive a much lower benefit for their years of service and current retirees may never receive a COLA or benefit adjustment in their lifetime!

TRTA believes the Legislature should increase state funding for TRS by approximately 1.82 percent, which equates to $768 million per year (or $1.68 billion for the biennium). This increase, paired with strong investment returns, could open the door for a COLA. TRTA supports increasing the current employer contribution rate (6.8 percent of active teacher payroll), which includes the state and school districts, to the pension fund to 8.62 percent. TRTA’s goal is for the fund to reach actuarial soundness as soon as possible.

TRTA has sent a press release detailing the importance of these issues!

The Legislature should work with stakeholders now to address the loss of revenue that will occur as a result of changing the rate of return assumption. If the Legislature can accomplish this task, it will save the state and taxpayers billions of dollars in interest.

For TRS-Care, TRTA recommends increasing the current employer (state and school district) contribution from 2 percent to 3 percent for 2020–2021 and increasing that percentage by .25 percent for the next eight years until the total percentage reaches 5 percent. TRTA believes the Legislature should also ensure that TRS–Care participants will not have a premium increase if TRS retirees do not receive a cost–of–living increase.

TRTA is ready to approach the Texas Legislature with a comprehensive legislative agenda in 2019. By late next week, our members will receive the fourth quarter issue of our news bulletin, The VOICE, in the mail. This publication includes our legislative agenda, as well as a letter to your legislator that you may complete and send to TRTA. Members of TRTA’s State Legislative Committee will hand-deliver your letters to Senators and Representatives during their January and February Capitol visits!

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05 Dec 2018

66th Annual TRTA Convention and Day at the Capitol: Registration Now Open!

Registration is now open for the 66th Annual TRTA Convention to be held in Austin, Texas April 1-2, 2019! This year’s theme is Connecting the Dots to TRTA’s Success, a meaningful metaphor that matches TRTA’s legislative goals as we head into another challenging session in the Texas capital city!

The convention will be held at the Austin Hilton on 500 E. 4th Street. The hotel is now taking reservations and the limit is two rooms per person. The group rates for a single or double ($211), triple ($231) and quad ($251) per night are good through February 27, 2019, but rooms are filling quickly! Please note the group rate is available with a limited number of rooms on March 31 for those traveling far distances. Most attendees are encouraged to make reservations for April 1–2.

Call 1.844.291.8931 or 512.482.8000 and be sure to mention “Texas Retired Teachers” or “TRTA Conference” for the group rate! If you experience any issues when using the toll-free number, please verify the address of the hotel (500 E. 4th Street). For online room reservations, please click here.

There is no better time to be in Austin! The Texas Legislature will be in regular session, discussing vital issues such as the TRS–Care health insurance program and ways to protect the longevity of benefits for our public education retirees and pre-retirees.

TRTA has released a tentative schedule of events to help you plan your travel. View the preliminary schedule here. Convention activities will begin later in the day on Monday, April 1, allowing members to travel in the morning and still arrive in time for registration. Unlike years past, there will be no banquet, and instead members may attend a welcome dinner on the first night.

Day two (April 2) begins with the Foundation Breakfast. Previously, TRTF held a luncheon. Though the format will be somewhat different, members will still be able to present gifts to the Foundation in honor or in memory of a loved one, friend or colleague. This year, TRTF is also hosting a fundraising raffle. TRTA’s 20 districts will donate unique, valuable items and convention attendees may purchase a ticket on day one (April 1) of the convention to be eligible to win.

Training sessions and the House of Delegates fill the second day. A legislative luncheon will be held at 12:15 p.m. At the conclusion of the House of Delegates, attendees may choose from a wide variety of restaurants within walking distance of the hotel in wonderfully diverse downtown Austin for dinner.

The convention will be truncated, allowing for a full day of legislative grassroots advocacy on Wednesday, April 3! “Day at the Capitol” is open to all convention attendees and any member who wants to come to Austin for this purpose only.

The Day at the Capitol allows public education retirees to visit with their legislators, be honored by both the Texas Senate and House and enjoy a rousing speech by TRTA officers and elected officials on the Capitol grounds. All attendees at this event are encouraged to wear red! Please note, an RSVP is required for the Day at the Capitol event even if you do not plan to attend the Convention. Your RSVP ensures that enough advocacy materials and refreshments are available for all attendees.

A paper registration form will be available in the fourth quarter issue of The VOICE for those who do not wish to register online. The VOICE will arrive in members’ mailboxes by the end of December. Registration for the Convention and Day at the Capitol closes March 1, 2019. We hope you will join us in Austin in for convention, Day at the Capitol, or both and help us connect the dots to TRTA’s success!

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30 Nov 2018

TRTF Supporting Retired Educators During Natural Disasters

November has been designated by the Texas Retired Teachers Association (TRTA) Board of Directors as a time to raise funds for and honor the charitable endeavors of our partner organization, the Texas Retired Teachers Foundation (TRTF).

TRTF just launched its annual appeal to raise funds for its four primary charitable programs and its endowment fund: “A Helping Hand,” Classroom Assistance Grants, Beginning Teacher Scholarships, the Disaster Relief Fund and the Lehr-Pritchard Endowment Fund.

TRTF hopes to raise $100,000 in donations to support its programs to help educators of the past, present, and future! DONATE ONLINE TODAY!

In August 2017, Hurricane Harvey swept through the Gulf Coast of Texas and destroyed the homes and lives of many residents in the Houston area.

Arlise Wilson is a retired math teacher from Missouri City, Texas. When she heard about Harvey’s arrival, she evacuated her home. After the storm passed, she returned to see that her house had been flooded from two sides. A creek behind her house had overflowed and breached her floors. Additionally, her house lies at the end of a hill. Despite a small moat, the overwhelming rainfall had also flooded the front of her house.

Wilson, a self-described problem solver, went to work protecting her belongings and renovating the flooring of her house. One major issue was the mold from the rainfall, which meant she had to have the floor stripped out and replaced.

“When I returned to the house, I knew that there would be an awful lot of upset, disarray and mess to deal with,” Wilson said.

Wilson received two grants from TRTF, totaling $750. She used these grants to protect her belongings and hire help to clean her house. She purchased approximately 30 large plastic tubs to protect her possessions as her house was turned upside down.

“That start was a really big help,” Wilson said about the grant. “That was one of the nicest mental breaks that I could have asked for. It’s that sense of, ‘My things are protected.’”

Wilson still has some of her possessions in those tubs, and she feels that many people’s lives will never be the same since the storm.

“Even if you have the resources or the help of a grant, it doesn’t take away the event and the resulting experience. It’s bad. B-A-D. And you don’t want to wish it on anybody,” Wilson said.

No one can be sure when the next major disaster will strike. Help support retired Texas educators during their time of need by donating to TRTF’s disaster relief fund.

How the Foundation Can Help Educators of the Past, Present, and Future

If you or a retiree you know is in need of financial assistance this holiday season, please email TRTF at TRTF has assisted many retirees with home repairs, dental work, hearing aids, medical bills, space heaters and much more!

If you know of a classroom teacher who is hoping to fund a great project for his or her students and is wondering where to find the money to accomplish this goal, have them apply for one of our thirty available Classroom Assistance Grants. Download the application here. (Deadline: February 28, 2019)

If you have a family member who is about to graduate from college and plans to teach for the very first time in the fall of 2019, let them know about our Beginning Teacher Scholarship program. We may be able to assist them in paying for certification tests or supplies for their first classroom. TRTF has twenty-one scholarships to give. Download the application here. (Deadline: February 28, 2019)

Donate Today

Since November 1, TRTA members have donated more than $60,000 to TRTF’s charitable programs!

Will you please consider donating today and helping us reach our goal of $100,000?

There are more than 90,000 members of TRTA. If we all give a little, we could do a lot! If you believe in the legacy of public education in Texas and want to show your support through a tax-deductible donation to any of our Foundation’s amazing programs, you may donate online today! You may also donate over the phone with a credit card at 1.800.880.1650. Please ask for Sarah.

The third quarter issue of The VOICE also featured a special article about the Foundation, along with TRTF’s annual appeal letter and donation card. You can mail in your donation using the pre-paid envelope included with your issue.

Foundation Month is your opportunity to make a difference for a fellow retiree who could use help, create an opportunity for classroom teachers and students, or help open the door for a new teacher brimming with youthful enthusiasm to teach young minds. Thank you for your support!

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