Senate Searches for Answers
TRTA Advises Senate to Increase Contributions
The Senate Finance Committee met to discuss the Teacher Retirement System of Texas (TRS) budget allocation in their version of the budget, or SB 1. The meeting did not provide much new information, but it did provide TRTA a forum to push for increased appropriations to the pension trust fund and the TRS-Care health insurance program. Perhaps most notably, though, was the sense of immediate crisis that surrounds the funding of the TRS-Care health insurance program and what may happen to retiree health care if new solutions are not developed.
Stating that the TRS-Care projected funding shortfalls represented an “immediate crisis,” Mr. Brian Guthrie, TRS Executive Director, said there are no easy answers to solve this problem and that waiting to deal with it would cause more pain down the road. Prefacing these comments, TRS officials did say the vitally important TRS-Care program could survive another session of no additional state funding, no retiree premium increases, and no additional revenue enhancements IF the retiree population stayed in the TRS-Care Medicare advantage program and the Medicare D prescription drug program at levels of 80 percent or more. Early estimates from TRS do not indicate participation in the TRS-Care Medicare advantage program at an 80 percent range, and may be more like 75 percent participation. When asked about this lower enrollment, TRS said that there are pockets of medical providers that are not accepting the Medicare Advantage plan and those retirees have less incentive to remain in the advantage plan.
The news for enrollment participation in the Medicare D option for Express Scripts is much higher. TRS reports an overall 95 percent participation rate in the Medicare D plan. TRS testified that the savings to the plan are realized without a disruption of service to the members. The Medicare D option is not contingent on medical professional participation, and is a transparent savings to the plan and to the member that occurs simply by the retiree’s willingness to participate under the plan so that TRS can receive the cost savings yielded by the program.
Special Note (Tim Lee): This does not mean that both TRTA and TRS are unaware of some of the service issues that have resulted from Express Scripts’ transition to take control of the plan last September. These disruptions of service have little to nothing to do with TRS participating in the Medicare D savings and are being handled by TRS and Express Scripts at an administrative level. TRTA will continue to provide TRS with your updates, concerns, and frustrations if you have experienced any such issues.
The total savings to the plan by the participation in the Medicare Advantage option (though less than the 80 percent) and the TRS Medicare D option (which is about 95 percent and helps offset for some of the lower participation in the Medicare D option) is close to $500 million for the biennium.
Senator Kevin Eltife (R-Tyler) spoke up for retirees and said that his constituents are very fearful of losing their health care benefits if the legislature does not offer better solutions this session. He said that retirees have not had an increase in their base retirement benefit in over a decade and they cannot afford exploding premiums, nor should they have to. Senator Royce West (D-Dallas) echoed this sentiment and said that retirees need to be treated with the same dignity and respect that they gave this state and their students when they were actively working in our state’s public schools.
TRTA commends this strong show of support by two long-time champions for TRS retirees. Tim Lee, TRTA Executive Director, testified that a primary association goal this session is to assure all TRS-Care participants that their health care plan will remain intact, viable, beneficial, and affordable.
Tim Lee also testified that the state subsidy for a TRS-Care participant is about $110 per month. “There is no private sector option that can provide the level of coverage, the equivalent prescription drug benefit, the low administrative cost, or the assurance of quality service like the TRS-Care plan,” Lee said. TRS-Care participants are paying the highest portion of cost related to their health care through premiums, deductibles, copays, and other out of pocket costs.
In addition to retiree costs, the active school employees and the school districts are also paying into the TRS-Care plan. Their portion is not paying to pre-fund the benefit (like the TRS pension contribution is pre-funding their retirement benefit), but to help cover the current retiree population.
TRTA did express the association’s appreciation for having a baseline budget proposal that is higher for TRS-Care this session than what we received last session.
That, though, will not be enough to avert a funding crisis for the TRS-Care program in the coming years. TRS reports that by 2015, the TRS-Care plan may have a $1.2 billion shortfall. It seemed clear to everyone in the hearing today that pushing this issue down the road was not the best public policy decision. It certainly is not in the best interests of TRS-Care participants. As TRTA member Tom Rogers testified, “it’s pay me now or pay me later…,” but the cost to wait is exponentially higher than finding solutions today.
Health care was not the only issue discussed by the Senate Finance Committee. A considerable amount of time was dedicated to discussing funding or benefit change options that may reduce the pension fund’s unfunded liability.
TRS reported that a state contribution to the TRS pension trust fund of 8.62 percent is needed to make the pension trust fund actuarially sound today. It is important to point out that the legislature has not made a contribution to the TRS pension trust fund in an amount higher than 7 percent for almost two decades. TRTA believes the savings the state has realized from this underfunding benefited other legislative priorities, but NOW is the time to focus on the TRS fund.
The Senate Finance Committee, however, focused more so on benefit changes for future retirees and marginal state increases to the pension fund. TRS was asked to report on various cost savings proposals by changing benefit levels for future retirees. Options such as raising the retirement age, changing the Rule of 80, modifying benefit calculations based on final average salary and others were all discussed, BUT NO RECOMMENDATIONS OR CONCLUSIONS WERE MADE ABOUT ANY OF THESE POTENTIAL CHANGES. TRS did not advocate one option over any other; they did, though, answer direct questions that were asked by Senate Finance Committee members. Nearly all of the discussed benefit changes were consider in a context of grandfathering existing employees who are close to retirement.
TRTA testified that the state has saved billions of dollars on retirement security costs for public school employees, because 95 percent of those employees do not participate in Social Security.
In addition, the state contribution for public school employees is less than the average private sector hourly employee whose employer pays into Social Security and some form of defined contribution plan (a much less beneficial and far less secure retirement plan).
TRTA testified that the national average for employer contributions on hourly workers to Social Security and private retirement plans is 9.5 percent, or 3-plus percent higher than the state contribution for TRS active members.
Since 1995, the state contribution to TRS has never exceeded 7 percent. It has rarely exceeded 6 percent. If the legislature had maintained the 7.31 percent state contribution that was changed in 1995, TRS unfunded liability would be $7 billion less than it is today.
TRTA is very appreciative of the state’s commitment to increase contributions in the base budget to an amount equal to what active members are contributing! This was a promise made to TRTA and all TRS retirees last session and is a promise kept by the Senate and the House in their base budget proposals.
That said, the 6.4 percent state contribution rate by itself is simply not enough to improve the actuarial condition of the fund in a way to ensure its long-term soundness or to provide existing retirees a much needed pension increase.
TRTA encouraged the Senate Finance Committee to continue their good work and to adopt a minimum level contribution for the TRS trust fund at 6.9 percent in FY 2014 and 7.4 percent in FY 2015. These amounts are based on the TRS actuary recommendations. Increasing the TRS contribution by .5 percent in each year of the biennium would move TRS in the right direction, but more must be done to help retirees who are in desperate need of a cost of living increase.
Considering that over 40 percent of all current TRS retirees do not earn more than $1,500 per month in their retirement benefit, the state legislature MUST make pension funding and actuarial soundness a real priority now.
Thousands of TRS annuitants NEED an increase in their base annuities and getting the system to actuarial soundness as quickly as possible will provide the legislature numerous options to help these retirees.
TRTA is committed to helping find solutions to these big challenges. TRTA’s professional legislative team and our 75,000-plus member advocates must take every opportunity to work with the legislature this session.
Over 3,000 TRTA members responded to yesterday’s call to email your senator. We know your efforts are making a strong impact and are providing insight, encouragement, and clarity to these elected officials. TRS retirees MUST be a priority for this legislature!
As always, thank you for your continued support. TRTA works every day at all levels with one thing in mind…your retirement security! Our business is to protect and improve your annuity and your TRS-Care health insurance program. We are facing substantial challenges this session, but TRTA has a motivated and powerful membership. I know we can and will make a difference.
If you are not a member and want more information on joining TRTA’s legislative and membership efforts, please contact our office at 1.800.880.1650. We will continue to update you throughout this legislative session.