TRTA to Legislature…Now is the time to adequately fund programs!

Today, the Teacher Retirement System of Texas (TRS) presented its 2014-2015 budget request to the Legislative Budget Board (LBB) and the Governor’s Office of Budget Planning and Policy (GOBPP). The LBB is a permanent joint committee of the Texas Legislature that develops budget and policy recommendations for legislative appropriations for all agencies of state government, as well as completes fiscal analyses for proposed legislation. The LBB also conducts evaluations and reviews for the purpose of identifying and recommending changes that improve the efficiency and performance of state and local operations and finances.

Brian Guthrie, Executive Director of TRS, provided a summary of the system’s budget needs for the 2014-2015 biennium. Mr. Guthrie stated that the TRS baseline budget calls for a state contribution of 6.4% to the pension trust fund for both years of the biennium. Mr. Guthrie also requested that an exceptional item be considered to help move the fund towards actuarial soundness. He stated that if the state contributed 8.13% to the fund today, the fund would become sound.

Understanding the current budget environment, Mr. Guthrie noted that this request may not be reasonable and recommended that instead, the Texas Legislature consider making incremental increases to the fund. Under exceptional items TRS is requesting that the state make a 6.9% contribution in 2014 and 7.4% contribution in 2015, an increase of half a percent each year.

Mr. Guthrie also discussed the results of the pension benefit design study that was mandated at the end of the last legislative session. The final report is due to the Legislature on Saturday, September 1 and will also be posted on the TRS website at that time. Mr. Guthrie discussed eight key findings from the study, including that the system can continue to pay benefits to all of its members without making any changes until the year 2075.

The study looked at a variety of possible methods for reducing the trust’s unfunded liability, which is presently $24 billion. Some options that would have a significant impact on the fund include raising the minimum retirement age from 60 to 62 or changing the multiplier. TRS will make no recommendations to the Legislature about what options should be used to address funding issues; the study was done as an objective means of reviewing all possible options. TRTA will report more about this study after it has been released officially.

Mr. Guthrie also presented the budget request for TRS-Care. Mr. Guthrie asked that the 1% (of the aggregate active teacher payroll) state contribution be restored in both years of the upcoming biennium. During the previous legislative session, the state contribution was 1.0% in the first year of the biennium and 0.5% in the other. TRS-Care has more immediate funding issues than the pension fund, which has resulted in TRS taking action over the past several months.

As you know, TRS is implementing an optional Medicare Advantage plan for retirees who are Medicare A and B eligible. Mr. Guthrie discussed that with the cost savings from this plan, combined with the restored state contribution, TRS-Care will remain solvent through 2015. Without the restored contribution, TRS- Care may experience a shortfall in 2016 or 2017. Funding for the healthcare plan is a long-term problem that was also addressed in the legislatively mandated study.

TRTA provided public testimony at today’s hearing. We stressed that TRTA fully supports the TRS budget plan to gradually increase the state contribution to the pension fund and to restore full funding to the TRS-Care program. Retirees need to be reassured by the state’s commitment to the 1% contribution for their healthcare. Members of the LBB were reminded that retirees have not received a cost-of-living increase since 2001, and that members can receive one only if the fund is actuarially sound.

Many TRTA members did receive a much needed supplemental payment in 2008, and this benefit increase provided vital short-term financial relief. Since that time, inflation continues to erode our members’ ability to maintain a reasonable standard of living and pay for medical care, basic goods and services.

TRTA believes that higher state contribution rates are reasonable and appropriate given that 95% of the public school employees in Texas are not covered by Social Security. By not participating in Social Security, state and local taxpayers save billions of dollars that would otherwise be sent to Washington, D.C. For the last 15 years, state and local taxpayers (as a percentage of payroll) have been paying less for TRS retirement and Social Security combined than private sector employers pay.

TRS members are being asked to make changes by participating in the new TRS Medicare Advantage plan in order to help save money and extend the life of TRS-Care. TRTA’s expectation is that the state will honor its statutory commitment to extend the life of the health care fund by contributing 1% each year.

That being said, significant changes are being considered to make it viable in the future. TRTA’s concern is that retirees are already paying a significant share of the total health care costs.

Absent additional TRS-Care funding sources in the future, retirees may no longer be able to afford adequate health care(this is a key fact legislators need to know).

TRTA believes it is critical to address the long-term funding needs for TRS-Care NOW, rather than taking action when the fund runs out of money.

TRTA is committed to working with the Legislature to devise long-term solutions for TRS-Care that are fair and equitable.

We will need your help in the coming session to work with the Legislature and help bring much needed action on this vital issue.

Membership Matters

Thank you for being a member of TRTA. Our network of informed and involved education retirees continues to grow. If you are not a member and need more information on how to join, please contact our office at 1.800.880.1650.

Final Note: TRTA will provide an important update on new Medicare Advantage information tomorrow!