No “Silver Bullet” to Fix TRS-Care Funding

Fund Surplus Will Suffer Massive Shortfalls by End of Next Fiscal Year

The Teacher Retirement System (TRS) Board of Trustees met for their regularly scheduled meeting in Austin this week. During the meeting, TRS trustees received a report that today’s health fund surplus is being depleted completely. This is prompting the TRS staff to study proposals such as Medicare Advantage plans and alternative prescription drug benefit managers as changes for this fiscal year.

TRS staff said that TRS-Care revenues are being outpaced by program expenses, causing a massive change in program reserve funds. The projected shortfall will exceed $700 million by 2015; however, the fund will likely be operating in the red by 2014.

TRS proposals for solving these funding problems range from introducing Medicare advantage programs to reworking the prescription drug benefit. These changes are being considered for possible implementation this biennium. Rough estimates offered at today’s meeting suggest possible savings of $25 million per year. Of course, this is purely speculative, as the issue is still being analyzed.

TRTA fought hard during session to keep health care costs from rising. Legislators know the financial pressure all TRS retirees are facing with 11 years of no pension increases. Through the legislature’s help, we secured a no-increase premium plan for TRS-Care participants this biennium. TRTA members remember that the original budget proposal for the TRS-Care program this biennium was to zero out funding; however, with the help of Senator Robert Duncan and many others, we were able to pass a plan that provided full statutory funding this year with a reduced amount next year.

As of today, TRS is reporting a $900 million surplus in the TRS-Care reserve fund. Preparing for the future, with medical costs outpacing program revenues, is the issue.

The challenge we face is improving funding for the program by linking revenues to medical trend. The hardest part is finding an approach that does not heavily impact the current revenue sources; particularly, the retirees whose premiums are already very expensive.

Today’s discussion yielded no solutions for this crisis, but TRS staff did commit to working directly with TRTA to better understand the issue and consider the many possible solutions that may be employed to achieve lasting results.

Protecting your TRS-Care health insurance program is one of TRTA’s highest priorities. We will continue to meet with TRS as well as industry leaders and elected officials to develop best practices for preserving and improving your TRS-Care benefits and costs. This issue is one that will be discussed for many months to come.

Other TRS Meeting Information

The TRS Board reviewed their policies for investment staff compensation. The issue focused primarily on incentive compensation for investment staff members who exceed certain benchmarks and may qualify for performance bonuses.

The issue has received a great deal of attention in recent years due to changes that made the performance bonuses higher for investment staff while also increasing the benchmarks necessary to qualify for receiving the payment. Some have criticized the bonus structure because TRS has been unable to provide pension increases to retirees for 11 years.

After considerable discussion, however, the TRS Board decided to make no changes to their current incentive compensation policy. The trustees believe there is value in providing an incentive compensation plan, and that it has helped retain highly qualified investment staff who have professionally managed the fund through a very difficult economic period. One trustee commented after the meeting on the crucial role the TRS investment team plays in ensuring the overall health of the fund. For example, on average, the fund must earn about $40 million per day on investments in order to meet the benchmarks set by TRS.

Final Note

The TRS fund value is about $106 billion. While the fund is not actuarially sound (not able to provide a benefit increase), it is still in very good financial health.

TRTA will continue to be your voice on these important issues. Thank you for your membership and support. If you are not a member but would like to join, please contact our office at 1.800.880.1650. We are happy to answer any questions you may have. Please feel free to send your questions or comments to tim@trta.org.