Teacher Retirement System

Pension fund for educators

The Teacher Retirement System of Texas manages pension funds for Texas public education and some higher education employees, and oversees the health insurance programs for active members (TRS-ActiveCare) and retirees (TRS-Care). TRS is governed by a nine-member board of trustees, appointed by the governor and confirmed by the Texas Senate.

During the 2005 legislative session, the Legislature passed Senate Bill 1691, an omnibus TRS bill that made several changes to retirement benefits. Employees nearing retirement were exempted from certain changes via “grandfather” clauses. This document reflects the new, revised law; former law that applies to the employees meeting the grandfather provisions is noted in italics. Additional changes made during the 2011 legislative session are also noted below.

TRS active members contribute 6.4 percent of their monthly salary to the pension fund, and for the 2011-12 school year, the state will contribute 6.0 percent. The state contribution will rise to 6.4 percent beginning with the 2012-13 school year. Each active member also contributes .65 percent of his/her salary toward TRS-Care, the health insurance plan for retired school employees. TRS members receive an annual statement each fall reporting the status of their individual contributions, service credit, account balance and other information.

A TRS member may retire and receive the standard annuity at:

1. Age 65 with five or more years of service credit, or
2. With at least five years of service, any combination of age and years of service credit totaling at least 80 (the Rule of 80).

Employees entering the system or re-entering (having withdrawn service credit) after Aug. 31, 2007, will be subject to a minimum age requirement of 60 to be eligible for full retirement. An employee under age 60 who meets the Rule of 80 could retire, but would be subject to a 5 percent reduction in benefits for each year below 60. Example: an employee meeting the Rule of 80 who retires at age 58 would receive a 10 percent reduction in the normal benefit. Employees who began employment prior to Aug. 31, 2007, are exempt from this provision and will not be subject to a minimum age requirement (unless they withdraw contributions and re-enter the system after Aug. 31, 2007).

Early retirement

Other options are available for retirement under a reduced formula for members not meeting the above criteria. The amount of the reduction will depend on whether the employee falls under the provisions of SB 1691.

An employee can opt for early retirement if the employee is at least 55 with five or more years of service, or has at least 30 years of experience but does not meet the Rule of 80.

The penalty for early retirement can be severe for an employee who has fewer than 20 years of experience, but varies according to age; for example, an employee who is age 55 with between 5-19 years of experience would receive only 47 percent of the standard annuity, while a 64-year-old employee with 5-19 years of experience would receive 93 percent of the standard annuity.

An employee who on Aug. 31, 2005, was at least 50 years old, or met the Rule of 70 (age and years of service credit total at least 70), or had at least 25 years of service credit, is subject to a milder penalty if the employee has at least 20 years of service credit at retirement, with a reduction of 2 percent for each year by which the employee is short of the Rule of 80. A grandfathered employee with 5-19 years of service credit is subject to the larger reduction as noted above, ranging from 47 percent to 93 percent.

An employee with at least 30 years of experience who does not meet the Rule of 80 is penalized 2 percent for each year shy of the Rule of 80. For example, an employee who is 48 years old with 30 years of experience (totaling 78) would be penalized 4 percent, and would receive 96 percent of the standard annuity.

If a member leaves the school system before meeting the criteria for retirement with either full or reduced benefits, the member may withdraw the money contributed to date, plus interest earned, but will not receive an annuity.

Important note: Any employee retiring after Aug. 31, 2005, who does not either meet the Rule of 80 or have at least 30 years of service credit will not be eligible for TRS-Care, the retiree health insurance.

Calculating benefits

To calculate your TRS retirement benefits, use the following formula:

1. Multiply your years of service credit by 2.3 percent. (Example: if you have 30 years of service credit in TRS, 30 x 2.3 = 69 percent.)
2. Determine the average of your five highest years of salary. *
3. Multiply your average salary (from step 2) by the number from step 1. This is your annual TRS standard annuity. (Example: $40,000 x 69 percent. This person’s standard annuity would be $27,600 per year.)

* An individual who on Aug. 31, 2005, was at least 50 years old, or met the Rule of 70, or had at least 25 years of service credit will have benefits based on the three highest years of salary.

A member entering the system after Aug. 31, 2007, would be subject to a 5 percent reduction in benefits for each year under age 60 upon retirement, even if the employee meets the Rule of 80.

Disability retirement

An employee with a mental or physical disability that is likely permanent or that prohibits further performance of his/her duty may be eligible for disability retirement. An individual who qualifies for disability retirement and who has at least 10 years of service credit may opt for a disability retirement and receive an unreduced monthly annuity (calculated using the standard retirement formula), with a minimum annuity of $150. An employee who qualifies for disability retirement but has less than 10 years of service credit will receive a monthly benefit of $150 paid for the number of months that the employee had worked in a TRS-covered position prior to retirement, the duration of the disability, or the duration of the employee’s life, whichever is less.

There are a number of other key provisions affecting how disability retirement works and whether it is the best option for an employee with a disability; members should review the TRS Benefits Handbook (available at trs.state.tx.us) or speak to a TRS benefits counselor for more details.

Active employee and retiree health insurance

TRS is responsible for the separate state health insurance plans that serve active employees (TRS-ActiveCare) and retirees (TRS-Care).

DROP

Prior to Jan. 1, 2006, the Deferred Retirement Option Plan (DROP) was available to active TRS members with at least 25 years of service credit in the system who met the requirement for retirement with an unreduced annuity.

DROP allowed eligible school employees to continue to work while building a nest egg by accumulating funds through the retirement system that could be withdrawn at retirement as a lump sum or in installment payouts. DROP was closed to new enrollees after Dec. 31, 2005.

Partial lump-sum option (PLSO)

As an alternative to the DROP, retirees can select a partial lump-sum distribution of cash in exchange for a lower future monthly retirement benefit. This program is available only to members who are eligible for unreduced retirement benefits and who have not entered the DROP. The member must meet a Rule of 90 upon retirement in order to be eligible for the PLSO. The maximum lump sum that may be taken is an amount equal to 36 months of a member’s monthly retirement benefit. For more information and to calculate the reduced standard monthly benefit under the partial lump-sum option, visit the TRS website at www.trs.state.tx.us/Benefits/PLSO.htm.

An employee who on Aug. 31, 2005, was at least age 50, or met the Rule of 70 (age and years of service credit total at least 70), or had at least 25 years of service credit does not have to meet the Rule of 90 upon retirement in order to be eligible for the PLSO, but must meet the requirement for normal (unreduced) retirement.

Credit for partial year of service

Changes in law and TRS rules have revised how a member can receive a year of service credit. Previously, the law allowed an employee to receive a full year of service credit in TRS as long as the employee worked a full semester (this is a simplification of the rule; generally, employees could resign or retire after the fall semester and receive a year of service credit).

Under the new provisions, an employee who is not retiring must work at least 90 days during the school year in order to receive a year of service credit. An exception is made for individuals who are retiring; they can receive the year of credit for working a full semester, even if it is less than 90 days.

Retire/rehire

The laws regarding retire/rehire were changed significantly in the 2011 legislative session. Under the new law, a retiree can return to work after a complete break in TRS-covered employment (substitute service counts as “employment” for this purpose) of at least 12 consecutive months. The employee can then return to work in school employment without any loss of monthly TRS checks (the former “6-month exception” was repealed). A retiree no longer has the option to return to school employment after only a one-calendar-month break in service, except in the case of an employee returning to work part-time or as a substitute (a disability retiree returning part-time or as a substitute may work no more than 90 days in the school year).

An employee who retired prior to Jan. 1, 2011, can now return to work full-time with no loss of monthly TRS checks, even if the employee did not sit out 12 months before returning to work.

The law regarding the surcharge that a school district must pay for hiring a retiree did not change: Districts are required to make contributions to TRS (12.4 percent of salary for the 2011-12 school year) and TRS-Care (the difference between the member premium and the actual cost of the insurance coverage) on behalf of a rehired retiree. Pursuant to legislation initiated by TCTA, this surcharge is not required for employees who retired prior to Sept. 1, 2005.

State law does not prohibit districts from reducing a retiree’s salary to help offset the cost of the surcharge, though local policies may differ in this regard. However, districts cannot pay less than the amount to which the employee would be entitled under the state minimum salary schedule.

Purchase of service credit

Teachers can purchase different types of service credit in the retirement system, including:

1. Previously withdrawn credit from prior service in Texas
2. Out-of-state service (up to 15 years)
3. Military service (up to five years)
4. Credit for accumulated sick leave (one year of credit for 50 unused leave days)
5. Developmental leave (up to two years)
6. Work experience (for career/technology teachers only; up to two years)

There are limits on the aggregate amount of time purchased, and the cost of different types of service credit varies among individuals (TRS can provide assistance in calculating the cost). Purchased service credit counts toward the requirement to meet the Rule of 80 for TRS-Care eligibility.

Legislation passed in the 2011 legislative session will increase the costs of purchasing most types of service credit, in some cases significantly. Members who are eligible to purchase credit should check with TRS immediately to determine the optimal time to begin the process in order to minimize the purchase cost; generally, the deadline to purchase the credit or submit an installment agreement to avoid the higher costs is Sept. 1, 2013.

Another provision of the legislation provides that a person with unreported service (including substitute service) must verify the service within five years of when it was rendered in order for it to be creditable.

TCTA offers five FREE online continuing professional education seminars relating to TRS. Members can earn 1.25 CPE credit hours for each of the following: “TRS Contributions: Where’s My Money Going?,” “Contemplating Retirement in a Struggling Economy,” “TRS Update 2008” and “Retirement and Social Security Update,” and 1.75 CPE credit hours for “Answers to TRS questions.” All are available at tcta.org/seminars.