Last week’s ruling by the Texas Attorney General prohibiting the payment of a $500 "13th check" to retirees caused shock waves in the education community, and among state employees as well, since state retirees were also affected by the ruling. For those who might not have followed the story from the beginning, more details and clarification may be helpful.

We refer to the payment as a "13th check" due to popular usage – however, it should be noted that a true 13th check is in the amount of the retiree’s regular monthly annuity. The payment authorized by the Legislature was limited to no more than $500.

Because the Teacher Retirement System (TRS) fund has suffered from investment losses in recent years, the fund itself is unable to afford any kind of benefit increase for retirees. In order to approve a 13th check for retirees, the Legislature had to either contribute enough money to TRS to bring it back to financial health and then include enough to allow TRS to pay for the check, or simply fund the payment directly from state coffers. The latter option was considerably more affordable. However, there were some concerns about whether this would be legal, since the Texas Constitution includes a provision banning additional compensation to public employees after service has been performed.

So when the state budget was passed at the end of the 2009 legislative session, it included a provision authorizing a supplemental payment of up to $500 to school and state retirees, contingent on approval by the Attorney General.

TCTA and other stakeholder groups provided legal arguments to support the $500 payment, but Abbott’s opinion hinged on language in the bill that required the Attorney General to "provide a conclusive opinion that such one-time payments are constitutionally and statutorily permissible." Some speculate that the strong language was used to purposely set the bar too high, so that Abbott could not approve the 13th check.

Legislators were generally supportive of providing retirees with a supplemental payment this year, but some state leaders, particularly in the Senate, were concerned about increasing retiree benefits when the overall health of the retirement fund had been adversely affected by market losses. Under the language of the bill, if the payment was not approved, the money would be used to temporarily increase the state’s contribution to the TRS and the Employees Retirement System. In the case of TRS, the contribution will be raised from the current 6.4% to 6.644%. Sen. Robert Duncan (R-Lubbock), chair of the Senate State Affairs Committee, was quoted in the Texas Tribune as saying "Good policy wins with this opinion."

The next opportunity for retirees to receive a benefit increase will be in the 2011 session. However, given the anticipated budget deficit (barring a significant economic turnaround) and TRS’s ongoing financial problems, retirees will face an uphill battle.