Today, the Texas Retired Teachers Association (TRTA) continues its discussion about the Teacher Retirement System of Texas (TRS) sustainability study of the retiree health insurance program TRS-Care.
In our first Inside Line article about the TRS-Care study, we reviewed Option 1: Pre-funding the long-term liability. Our second article covered Option 2: Funding on a pay-as-you-go basis for the biennium. Today we will discuss Option 3: Funding for 10-year solvency.
As you know, the program faces a shortfall of $1 billion by the 2016-17 biennium if nothing is done to protect it. TRS-Care faced a similar major shortfall in 2003. Since then, TRTA has been able to work with the Legislature to maintain (even improve) TRS-Care benefits and operate the program with NO premium increases. This strategy was pursued by the Legislature and TRTA to help retirees when the pension fund was unable to provide cost-of-living raises.
In 2004, TRS faced a major challenge when the federal government closed the “Social Security Loophole.” That resulted in massive numbers of new retirees and put pressure both on the pension fund and TRS-Care. The Legislature responded with a higher state contribution to the program, with enough of a surplus to allow TRS to manage it more efficiently and use the funds to protect premiums.
These efforts have allowed TRS to manage cash flow and hold the crisis off until a later date. Unfortunately, that day has come, just as we knew it would.
Like any other TRS benefits situation that TRTA has faced in the past, we believe that our membership can and will make a difference! Now is the time to educate our members, legislators and friends in the active school employee community. If we work together, we will find ways to address this crisis. Our retirees’ health care is too important for us not to put every effort into dealing with this new challenge.
Now, let’s review TRS-Care Sustainability Study Option 3.
Option 3: Funding for 10-Year Solvency
Option 3 suggests an approach that would sustain the program for another 10 years, using one of the following methods:
- Increasing the state contribution only
- Increasing the state, school district and employee contributions proportionally
- Increasing the state, school district, employee and retiree contributions proportionally
You may notice that this option is similar to Option 1 (pre-funding the long-term liability). The major difference between these two options is that in Option 1, TRS-Care we would amortize the unfunded liability over 30 years (much like the way we pay for a mortgage). In Option 3, TRS-Care would be pre-funded for only 10 years.
The benefit to Option 3 is that it is less expensive than Option 1, meaning the contribution increases to TRS-Care would be lower than in Option 1. However, just as with Option 1, the $1 billion shortfall must be addressed first and then more funding will still be necessary to sustain TRS-Care for 10 more years. Option 3 is still an expensive approach, but the “bite at the apple” may be more manageable.
Currently, these are the contributions being made to the TRS-Care fund (a total of 2.20% of payroll):
- State: 1.0% of payroll
- School districts: .55% of payroll
- Active employees: .65% of payroll
In Option 1, TRS projected that the combined employer contribution (state and school districts) would need to increase from 1.55% to 5.21% to pre-fund the TRS-Care long-term liability. Recall, too, that these projections are from 2013 and do not account for the cost of the program for 2014 and 2015.
TRTA projected that if we include costs from 2014 and 2015, that 5.21% would need to be closer to 6% to adequately pre-fund TRS-Care.
In Option 3, because the goal is to pre-fund TRS-Care for only 10 years, we can make some educated guesses that the employer contributions (state and school districts) would need to increase to approximately 4% instead of 6%. We make this guess based upon the fact that the $1 billion shortfall must be addressed, and that enough money must be put into TRS-Care to pay for the program for the next 10 years.
As we mentioned with Option 1, 1% of payroll equals about $285 million today. If the employer contribution rates (state and school districts) increase from 1.55% to 4%, that is an increase of about 2.45%. That 2.45% equals roughly $700 million. That means we are looking at an annual contribution of $985 million, which would then increase each year.
As with Option 1, in Option 3 the projections 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. At this time, TRTA cannot speculate on what those percentages might be.
Another downside to Option 3 is that we would have to approach the Legislature again in another 10 years with a shortfall that could be potentially larger than the one we are facing now. The benefit is that our retirees could be assured of having a health care plan for at least another 10 years.
More to Come
TRTA will continue to provide as much information as we can about the health care funding options being studied by TRS.
On Friday, TRTA volunteers and staff will attend the TRS Board of Trustees meeting. We will provide a recap of our public comments, as well as any other happenings at the TRS meeting. Look for our review of the TRS-Care options to resume next week.
For now, we need you to share these updates with friends, family, legislators, fellow TRS retirees and TRTA members, and our friends in the active school community.
Many of you know that TRS also administers a plan for active school employees known as TRS-Active Care. The premiums for TRS-Active Care have risen at alarming rates. Health care for hundreds of thousands of active school employees is rapidly becoming unaffordable. TRTA wants our friends in the active school community to know that we are ready to help advocate for your improved health care funding. We cannot lose quality education professionals because they cannot afford health care for themselves or their family.
Preserving our health care access and options is a responsibility that we all share and can achieve far more by working together. If you are an active school employee, please know that TRTA supports you and we want to help any way we can.
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 six options being studied by TRS to improve and sustain the TRS-Care health insurance program. Our next update is about Option 4: Retirees pay for the full cost of optional coverage.
Your membership and support are crucial! Contact us at firstname.lastname@example.org with your questions, thoughts, or concerns.