Special Note from Tim Lee, TRTA Executive Director—I am sorry to say this, but this is a LONG and somewhat complex update. The TRS-Care crisis is here, and TRTA is acting now to inform our members and ready them for the coming legislative session. TRTA members and all future TRS retirees need to know what is being discussed as we all work together to resolve this challenge. This is the first article in a short series on the options being considered by the Teacher Retirement System of Texas (TRS) to preserve our retiree health care program TRS-Care. Thank you for your interest and understanding. Please send us your comments and questions as we work together to protect current and future public education employee retirement benefits.
Now that the election season is winding down for now, the Texas Retired Teachers Association (TRTA) is focused on policy discussions and preparing for the 84th Legislative Session that begins in January 2015.
Our members know that TRS-Care is at the top of TRTA’s list for discussion as the TRS continues its sustainability study for the retiree health insurance program. The program faces a funding shortfall of $1 billion by the 2016-17 biennium.
If nothing is done to protect the program and its participants, retirees could be facing dramatically increased premiums, loss of benefits, or both!
The TRS Board of Trustees is able to appoint advisory or auxiliary committees of non-board members to assist TRS. These committees may be composed of volunteers, independent contractors, or employees. Such committees include the Medical Board and the Retirees Advisory Committee (RAC) for TRS-Care.
The TRS RAC is composed of retired members of TRS who participate in the retiree health insurance program as well as active school employees. This committee of volunteers may create cost-benefit analyses and recommendations regarding TRS-Care, and may recommend related actions to the Board.
The TRS Retiree Advisory Committee met recently with the TRS staff to discuss the current status of TRS-Care and several of the options that TRS is reviewing as potential solutions to help the program’s funding crisis and address its long-term solvency.
The TRS staff presentation has been made available to TRTA, and over the next two weeks we will explain the nine options that TRS is studying and how they impact the plan’s 240,000+ participants.
TRS-Care: The Three-Legged Stool
It is important to understand when discussing the options for TRS-Care that the program is viewed as a three-legged stool. What this means is that there are three areas of the program that can be changed that will impact its funding: benefits/eligibility (including how benefits are managed); retiree premiums; and other contributions (state, school district, active employee, federal).
TRS indicated that its menu of options when considering sustainable solutions for TRS-Care will:
- Span the spectrum from pre-funding the health care plan to a TRS-Care defined contribution arrangement;
- Have varied approaches with some concepts focusing specifically on the TRS-Care Medicare population and some on the non-Medicare population;
- Allow for the consideration that some of the options are not mutually exclusive and can be combined to increase the positive financial impact.
It is also extremely important to point out that TRS is conducting this study to provide information to the Legislature, TRTA and all interested parties. TRS is not making any recommendations at this time.
Finally, TRTA will play a vital role in whatever the outcome may be for TRS-Care. Our efforts from today until the end of the next legislative session may be the determining factor when it comes to legislative action on our TRS-Care health insurance. If you are retired and are a TRS-Care plan participant, or if you are retiring soon and believe that you will participate in TRS-Care, the next 12 months offer a critical opportunity for you to be involved.
The Teacher Retirement System of Texas does not and cannot advocate a position about your TRS-Care. It is TRTA’s job to get involved now. TRTA needs YOU! If you have ever wondered why membership matters, we promise you that the fight to protect and improve TRS-Care funding will be hard-fought, high-risk and extremely difficult.
The good news is that we have the best most active and dedicated membership in the country. TRTA members are relentless. They are passionate, organized, motivated, and battle-tested. When our pension fund was attacked by outside interest groups last session, we went to work. Our members answered those attacks by helping pass legislation that not only made our pension fund one of the best funded plans in the country, but provided a cost-of-living increase to almost 200,000 current retirees and put the system on a path to help more retirees in the future.
Now, our other core benefit plan is in trouble. You need a strong voice to represent your interests in Austin when your health care and retirement benefits are under attack. TRTA is that strong voice.
The Legislature will have many new members in 2015, and many interest groups trying to address their issues. We MUST be ready. Membership really does make a difference!
When you read these articles over the next two weeks, ask your fellow retirees to get involved. Share these emails with your friends, family, as well as our fellow public education employees. They need to hear this information just as much as current retirees.
TRTA membership is $35 per year. Your dues help us organize and represent you on this important topic. Please consider making this investment in TRTA. We assure you that other organizations are bringing in hundreds of thousands of dollars to attack your pension and health care benefits. Will you help us protect your earned retirement benefits?
TRS-Care Sustainability Study Option 1: Pre-fund the long-term liability
The first option being studied by TRS is pre-funding TRS-Care’s long-term liability. This would be similar to funding the program the way the TRS pension trust is funded. With TRS-Care, we have been spending more than we have been earning. The pension fund, on the other hand, is pre-funded and managed like a mortgage. This keeps contributions more stable for the pension fund.
Calculating a new contribution level for TRS-Care: A New “ARC”
To pre-fund TRS-Care, we must look toward the annually required contribution (ARC) funding sources. These are the contributions from the state, school districts and active education employees. Essentially, these are all the funding sources helping support TRS-Care besides the retiree premiums (premiums will be discussed a bit further into this explanation). Combining all of those contributions together, the current percentage of payroll being contributed to TRS-Care is 2.20% (1.0% from the state, .55% from the school districts, and .65% from the active employees).
By state law, retiree contributions (this includes premiums and co-pays) must account for no less than 30% of the cost of the program. Right now, retirees contribute approximately 37.8% to the total cost of the program. The state’s contributions account for 23% of the cost of the program, the school districts’ contributions account for 13.3%, and the active employees’ contributions account for 14.9%.
In TRS-Care Sustainability Study Option 1, TRS is assuming that retirees will continue to pay at least 30% of the cost of the program with their premiums and co-pays.
The Legislature has typically considered active employee contributions to the pension fund or to retiree health care separate from employer contributions (a combined view of state and school district contributions). With this consideration in mind, it is assumed that an increase in active employee contributions (.65%) in a revised pre-funded ARC may not happen. Active member contributions to TRS-Care would remain the same at .65% in this model.
That leaves the state and school district contributions (which equals 1.55%) available for increased contribution amounts for the new ARC. These contribution levels would need to increase to 5.21% (an increase of 3.66%) to pre-fund the TRS-Care liability.
This number is based on projections for TRS-Care from the fiscal year ending 2013. Please bear in mind that the program’s funding has already been established for 2014 and 2015, so the ARC would most likely need to be increased even more to adequately pre-fund TRS-Care from 2016 and forward.
The Cost to Pre-fund TRS-Care
The monetary amounts associated with these percentages are eye-opening. Right now, 1% of payroll is approximately $285 million. An extra 3.66% equals $1.043 billion! Because these figures are based on 2013 projections and do not include projections for 2014 and 2015, it may be necessary to estimate that an additional $1 billion for each year of the current biennium is needed to help TRS-Care catch up.
Without the extra $2 billion in funding for 2014 and 2015, the 5.21% mentioned earlier will likely increase to at least 6%, and the higher percentage of 6% would continue to increase for the foreseeable future to properly pre-fund the program. If we look at this like a mortgage, this is similar to saying the interest rate for the state and school districts just to make their mortgage payment is closer to 6% and a far cry from the current combined “payment” of 1.55%.
Remember that the projections in this scenario assume that retiree premiums will cover at least 30% of the total cost of the program. This means that TRS-Care retiree participants would probably see annual increases in retiree premiums over time in the single digits. At this time, TRTA cannot speculate on what those percentages might be.
A Real Long-Term Solution, But is Pre-funding the Best Answer?
TRTA would love to have a strong pre-funded retiree health care plan. In fact, that has been part of our legislative agenda for over 10 years. While we do think this is the preferred long-term solution, the price tag for prefunding TRS-Care is quite a challenge.
TRTA is not yet taking positions on the information being considered by TRS. The complete TRS-Care Sustainability Study will be released by TRS in September. It is important to hear all the facts and gather all the data that will be made available.
What TRTA is saying is that our retiree health care program is a vital part of our public school employees’ retirement planning. It should also be said that unlike other state-run health care options, TRS retirees and active employee contributors have been paying premiums and making contributions to the cost of this plan for decades.
TRS-Care is not a free ride. It is not an overly rich health care plan. It offers quality care and broad access to health care options at a reasonable price for TRS retirees. Many retirees remained loyal to the public education profession and made retirement decisions based on their ability to access TRS-Care.
We must do all we can to protect the plan and work to assure its hundreds of thousands of participants that it will continue to provide quality coverage at a reasonable price.
TRTA will be working with all our elected officials to educate them on this crisis and find real solutions for TRS-Care. Remember, this is only the first option being presented in the sustainability study. Over the next two weeks, TRTA will present all the options being considered.
Early this summer, we will release the next issue of The VOICE. It will feature a TRTA Advocacy Guide that you can use when meeting with legislators and educating them about fixing TRS-Care! You will not want to miss this important issue!!
Thank You!
Thank you for being a member of TRTA. If you are not a member and would like to join, please contact our Membership Department at 1.800.880.1650.
Please continue reading the Inside Line over the next two weeks as we provide detailed updates about the remaining eight options being studied by TRS to improve and sustain the TRS-Care health insurance program. Our next update is about Option 2: Funding on a pay-as-you-go basis.
Share these articles with every retiree you know, as well as with active school personnel! Your input is important. Your membership and support are crucial. Thank you for all your help and support.
Contact us at info@trta.org with your questions, thoughts, or concerns.
