TRTA Inside Line April 19, 2011

Supplemental Payment Bill Heard in House Committee

Legislation would use fund’s investment earnings to make payment

Legislation authored by Representative Larry Gonzales (R-Round Rock) would provide Texas public education retirees with a supplemental payment similar to the one provided in 2008. The legislation intends to set some temporary benchmarks on when and how the payment could be made if various conditions are met. The innovative piece of this legislation utilizes a portion of the TRS pension trust fund investment earnings to cover the cost of the supplemental payment.

HB 3542 has several key components:

  • The legislation designates TRS investment earnings as the funding mechanism for the supplemental payment;
  • It mandates that the system must first meet its actuarial expected return on investments of 8 percent, and that investment earnings above the 8 percent could then be used to fund the supplemental payment;
  • The legislation models the supplemental payment authorization from 2007 and allows the TRS Board of Trustees to make a payment if the bill’s statutory provisions are met;
  • Provides for a payment to be equal to a retiree’s one-month annuity amount up to $2,400;
  • Requires the TRS pension trust fund be at least 80 percent funded for the payment to be made, and that the payment cannot lower the fund to be less than 80 percent funded if issued;
  • The legislation provides for a temporary suspension of the statutory provision that prohibits retirees from receiving a supplemental payment if the system cannot amortize its unfunded liabilities over a 31-year period;
  • Legislation sunsets in 2014.

TRTA supports HB 3542 as a method to fund a TRS supplemental payment. The benefit of this legislation is that it offers a way to fund a supplemental payment to public education retirees without requiring additional state general revenue (or budget dollars), allows retirees to receive the payment even though the fund does not meet the statutory definition of actuarial soundness, it protects the system by requiring an 80 percent funding level for the payment to be authorized, and it utilizes the a small portion of the investment earnings to help retirees today without sacrificing the future of the fund.

Representative Gonzales made a great comment about his bill during today’s hearing, “…these are extraordinary times and we are just trying to find ways to help extraordinary people.” TRTA appreciates Representative Gonzales for authoring this innovative approach to help public education retirees who have not seen a permanent increase in their pension benefits for a decade. We also express our sincere appreciation to Representative Truitt, Chairwoman of the House Pensions, Investments, and Financial Services Committee for allowing the bill to receive a hearing.

Over 20 TRTA members from Representative Gonzales’ district and the surrounding area attended today’s hearing and filed witness affirmation slips in favor of the legislation. Several constituents provided critical and succinct testimony for the legislation.

The bill has been left pending in committee for future action. TRTA will continue to work with committee members to have the bill voted out of committee and sent to the House floor. In addition, HB 3542 has a companion bill in the Senate authored by Senator Robert Deuell (R-Greenville). That bill, SB 1333, is in the Senate State Affairs Committee and has not yet been posted for a hearing.

TRTA members should know that even if the legislation is adopted, it in no way gurantees a supplemental payment will be made. Testimony provided by the Teacher Retirement System of Texas (TRS) suggested the fund investment earnings may need to be as high as 21 percent just to keep the system above the 80 percent funded status as required by HB 3542. While this is not unheard of, it is a significant challenge. Still, HB 3542 provides one of the only supplemental payment options for retirees this session and its unique approach is one that could provide immediate financial relief to hundreds of thousands of public education retirees. TRTA will keep you informed as these bills move through the legislative process.

Thank you for your support and for your membership in the Texas Retired Teachers Association. If you are not a member and would like to join, please contact us at 1.800.880.1650 and we will answer any questions you may have.

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