Executive Summary:

The Senate Finance Committee met yesterday to discuss the status of the retiree pension fund and health care program. The committee received testimony from the Teacher Retirement System (TRS) of Texas as well as stakeholder groups, including the Texas Retired Teachers Association’s (TRTA) Executive Director, Tim Lee.

TRS reviewed the changes to the rate of return assumption that occurred in August 2018. TRS lowered the rate of return assumption from 8 percent to 7.25 percent. While the drop in rate of return assumption won’t impact the current amount that retirees are receiving, it will impact the potential for future cost-of-living increases.

TRS answered a variety of questions from the committee about this change. Sen. Joan Huffman (R – Houston) reviewed the change in detail, and discussed how it would take a $1.6 billion increase in state funding each biennium to make up for the lowered rate of return assumption. Huffman has proposed a bill, SB 393, which would increase contributions into the pension fund. SB 393 would generate the funding necessary to make up for the change by increasing funding from three sources: the state, school districts and active educators.

If SB 393 or a similar bill were to pass, the pension fund’s unfunded liabilities would be reduced to 19 years. With this type of influx in funding, the door would be open for Texas to provide a cost-of-living increase for retirees.

TRTA would like to see the state increase its base funding for the pension fund. Among non-mandatory Social Security states, Texas ranks last in its funding for the pension fund. TRS is the 13thlargest pension fund in the world. The state of Texas increasing its funding for the TRS pension fund would be a boon to retirees. Retirees live on modest fixed incomes, and 96 percent of Texas school districts don’t pay into Social Security. TRTA is encouraging its members to use #RAISETHEBASE when communicating with legislators on social media to raise awareness of this issue.

TRTA Executive Director Tim Lee explained the necessity of adding funding for the TRS pension fund and more permanent funding for TRS-Care. TRS-Care has another shortfall; and while the current shortfall–$214 million–is smaller than in previous years, a larger shortfall looms again in the next biennium that could reach $1 billion if nothing is done to address the program’s permanent funding structure.

“Health care is eating us alive with these costs,” Lee said of retirees’ plight.

You may view Lee’s presentation here.

It will be critical for the Legislature to address TRS-Care’s long-term solvency if it wants to avoid a repeat of last session’s additional burden to retiree health care costs.

Lee discussed both funding issues for the health care plan and the pension fund on his weekly “Facebook Friday” episode, which is available here. Be sure to tune every Friday in as Lee addresses the latest updates on retiree issues during the 86thLegislative Session.