Expansion and Certainty are Key Points
Two bills moving through the legislative process would provide some TRS retirees with a pension increase. The raise is contingent upon the passage of other benefit changes for future TRS retirees. It also suggests the raise will only be provided when other conditions are met. The proposed 3% cost-of-living increase would be provided to those who retired August 31, 1994 or before. For a complete overview of the SB 1458/HB 1884, please click here.
TRTA has heard from numerous members and our friends in the active educator community. The groups representing active employees are working with legislators to address their concerns with the proposed legislation.
TRTA primarily is focused on three key concepts of this proposed TRS legislation.
- We believe the pension fund needs to be actuarially sound (or have a measurable funding period) this session;
- TRTA believes the state contributions to the TRS pension fund have been unreasonable since 1995. TRTA supports passage of HB 1383, a bill in the Texas House with over 100 co-sponsors. HB 1383 sets the pension fund contributions at 6.9% in FY 2014 and 7.4% in FY 2015;
- TRTA believes that any benefit increase provided through legislation should go into effect immediately. We also believe more people should benefit from the increase than is proposed currently.
TRTA is working to get as many TRS retirees a raise as possible this session and make TRS actuarially sound! We need your help. Please click here and send an email to your Senator and your House member and ask them to support TRTA efforts with SB 1458 and HB 1884! These bills still need some work, but let’s get our legislators’ attention on this issue!!
Actuarial Soundness/Funding Period
As of August 31, 2007, the TRS pension fund was actuarially sound. That funding condition, along with TRTA’s work in the Legislature, allowed TRS to issue its first-ever 13th check to TRS retirees. At the time, it provided immediate relief for retirees that had not had an increase in many years. It was also considered a “first step” towards getting TRS back on track, and giving retirees a real cost-of-living increase.
We know the rest of the story. In September of 2008, the market declines were underway, and the country was entering a great recession. TRS investments were not immune. By February 2009, the system reported a funding level of only 67% and a total actuarial loss of over $40 billion.
Since then, the fund has recovered, with a funding level of just over 81%! TRS has earned back billions in actuarial value, with total assets now exceeding $113 billion.
Still, the fund is not able to amortize its unfunded liability within 31 years. This is the statutory hurdle that must be overcome in order to receive a pension increase. Perhaps worse, the pension fund has a “never” funding period. Put simply, the pension fund will run out of assets by 2072 if nothing is done to fix this issue.
The picture will be bleaker if action is not taken this session to address the funding period. A national regulatory group known as the Governmental Accounting Standards Board (GASB) has a new set of guidelines for pension fund accounting methodologies. These standards go into effect January 2014.
If the Texas Legislature fails to ensure the fund’s long-term funding period (a date when it will be funded versus depleted), GASB will require the state to book its pension liabilities at a much higher rate. This means our problem will look worse than it is, and may carry with it unwelcome changes to our pension plan.
Action this session is imperative. TRS Texas is one of the healthiest plans in the country. Now is the time to preserve this plan for multiple generations to follow!
Contributions to the TRS Fund
Contributions to the TRS fund have been unreasonable since 1995. The state cut funding to the pension plan in 1995 from 7.31% to 6%, the constitutional minimum.
After 1995, the state funded at a higher level in only 5 of the past 18 years. This shortsighted budget strategy has cost the pension fund over $8 billion in contributions and interest earnings.
Consider the key points: only 5% of Texas school districts pay into Social Security; the average private sector hourly worker receives an employer sponsored 9.5% contribution to their retirement security (Social Security and an employer-sponsored contribution to a private retirement plan).
The vast majority of Texas career educators depend on TRS as their primary source of retirement security. With no Social Security, TRS is their foundation.
The state has saved billions by not covering school employees under both Social Security and TRS. Many school districts also have saved billions by making minimal levels of contributions to other retirement savings for its employees.
We know this is a politically divisive issue. School districts can point to the state for not making school funding a larger priority. TRTA is not assigning blame, we are stating a fact. The public servants in our schools have not received a reasonable contribution towards their retirement costs for more than a decade, period. The bottom line is that we must all work TOGETHER to protect this fund.
On the issue of funding, TRTA believes that more must be done by the Texas Legislature. Active school employees are being asked to put a lot of “skin in the game.” This could amount to several billion dollars in benefit modifications for future education employees.
The state is upping its contribution by a much more modest $120 million. TRTA supports HB 1383 and its proposed state contribution levels.
Putting more money in the fund today means future costs are far more manageable. It also ensures our traditional defined benefit plan will remain intact for future retirees.
TRTA members received a 13th check in 2008. It was a much needed benefit at the time and helped hundreds of thousands of TRS retirees. Now, the Texas Legislature is focused on a plan that will ensure TRS actuarial soundness and begin to provide raises to TRS retirees.
This legislative proposal focuses on helping as many of our senior retirees as possible. TRS retirees that have been retired since 1994 are in desperate need of help now. We believe all reasonable efforts should be made to provide a retirement increase to as many TRS retirees as possible.
Areas that Still Need Work
SB 1458 and HB 1884 are far from perfect. Many organizations and active public school employees have good reasons to dislike them. TRTA is working with all our friends in the Texas Legislature as well as our partners in the active school community to support solutions to these legislative proposals.
TRTA wants to see more people eligible to receive an increase. We believe all retirees are in need and that they need the increase now. Some TRTA members have asked about a 13th check versus a cost-of-living raise. Generally speaking, 13th checks are less costly over time than raises and can impact more people. The downside is that the base annuity is not affected long-term like a real cost-of-living raise. We are working with our legislative friends on this section of the bill.
It is quite an accomplishment by TRTA members that we are even discussing any benefit increase for TRS retirees, considering that at the start of session we were focused on restoring contribution cuts from the last biennium and fending off attacks of the defined benefit plan.
The most controversial part of this bill is the age-adjusted annuity for future retirees. This proposal reduces an employee’s benefit by 5% for every year of age less than 62 at the time of retirement. The provision has a grandfather clause exempting a large percentage of active workers from being impacted by this legislation. If you are:
- Age 50, or;
- Meet the Rule of 70, or;
- Have accrued 25 years of service already, you will not be impacted by this proposal.
We know that this is a very discouraging benefit change proposal. We are working with our friends in the active educator community to address this portion of the bill.
These bills are a work-in-progress. There are many issues at stake and we must all be engaged to know how these proposals can benefit the long-term health of the system and provide financial relief to our current TRS retirees.
TRTA supports a unified approach on these bills. We must recognize the great need that so many TRS retirees are experiencing. We also must ensure that the Legislature is doing all it can through the budget process to minimize future retirement benefit changes as much as possible.
TRTA members are the most active and prepared grassroots advocates. Thank you for your support and strong efforts as we work through these various legislative proposals.
If you are not a TRTA member and want to join in our advocacy efforts to protect TRS and improve benefits for all retirees, please call us at1.800.880.1650.