As we gear up for the 83rd Texas Legislature to convene in January 2013, TCTA offers you this series of “Session Prep” articles that provide the facts on hot-button issues you may discuss with your legislators. See also:
Session Prep: Charter school performance

Session Prep: Test-based accountability
Session Prep: Vouchers/tax credits
Session Prep: School discipline
Session Prep: Texas schools' success

Session Prep: Communicating with your legislators

Your TRS pension fund:

Why it’s a hot issue

Nationwide, public pension funds are under attack. As the private sector has moved away from defined benefit plans (in which benefit levels are guaranteed) toward defined contribution plans (similar to 401(k)s, in which only the contributions are specified), policymakers and think tanks have begun to question whether defined benefit plans are a drain on state budgets.

In Texas, the statewide pension funds (specifically the Teacher Retirement System and the Employees Retirement System, which serves state employees) are in reasonably good shape. Benefits are modest and contributions have been stable – which has not always been the case in other states and local systems that are currently experiencing serious financial problems.

Because TRS does not provide an automatic cost-of-living increase, there is no immediate pressure to increase state contributions. However, the lack of a recovering global economy has hurt pension fund investment returns, which are the largest source of funding, and TRS has not been able to fund a cost-of-living increase for retirees since 2001.

A rider in the Texas Legislature’s 2011 budget bill required TRS to study and report back on the impact of potential cost-saving changes to the TRS pension plan, including “retirement eligibility, final average salary, benefit multiplier, and the creation of a hybrid plan that includes defined benefit and defined contribution features.”

On Aug. 31, 2012, TRS released its completed study. In September, an interim legislative committee held a hearing on the study’s findings, which will be brought before the full Legislature in 2013. No recommendations were made, and several legislators on the committee expressed support for the TRS defined benefit plan, but TRS staff and the study findings emphasized the need to address the system’s billions of dollars in unfunded liabilities (primarily caused by investment returns that have averaged below the 8 percent benchmark in recent years). The tools available to legislators – if they choose to take action this session – are increasing state and/or member contributions, and lowering benefits.

The facts on your TRS pension

  • TRS currently provides a defined benefit plan, meaning that a certain level of benefits is guaranteed to TRS members at retirement.
  • TRS retirement benefits are determined by law, and contributions from the state and TRS members can be adjusted as needed to provide those benefits. (The Texas Constitution requires the state to contribute 6 to 10 percent of payroll, and employees must contribute at least 6 percent.)
  • The TRS study results clearly show that any changes to the structure of the TRS pension fund (such as moving to a defined contribution plan or a hybrid) would NOT save the state money. Other states’ experiences demonstrate that any savings to state governments usually comes as a result of lowering benefits, not changing the structures of their funds – and in fact, a structural change can cost the state more in the near term.
  • The TRS study compared TRS retiree benefits to those of other states and other systems and found that Texas educators’ retirement benefits are relatively very modest, in large part due to the lack of automatic cost-of-living adjustments and the lack of participation in Social Security. In addition, benefits were reduced as recently as 2005.
  • Because 95 percent of public school employees do not participate in Social Security, TRS is their only source of a lifetime retirement benefit.

See the executive summaries and full reports of the TRS study for more detail and valuable discussion points.

TCTA testimony on the TRS pension fund

TCTA testified repeatedly during development of the study, asking that TRS staff review the impact of proposed changes not only on the pension fund, but on current and future retirees. TCTA staff noted that any negative changes to retirement benefits would be “adding insult to injury.”

On Sept. 13, 2012, TCTA testified before the House Committee on Pensions, Investments and Financial Services. We strongly advocated for retention of the current TRS structure and defended current benefit levels.

TCTA’s stance on educator retirement/TRS

TCTA has a number of policy positions relating to TRS issues (as adopted by the TCTA Directors’ Council for the upcoming legislative session, subject to amendment by the Representative Assembly at the January 2013 annual convention), including:

  • Oppose any effort to restructure the system as a defined contribution (or hybrid), rather than a defined benefit, program
  • Support maintenance of and enhancements to retirement and health insurance benefits

In addition, TCTA’s preliminary legislative priorities include the following statement:

Short-term budget/economic issues should not result in long-term “solutions” that will lead to eventual financial problems for school employees (and, consequently, to taxpayers). State contributions to the retirement fund and retiree/active health insurance programs must be maintained and enhanced, when possible, so that these crucial public servants are provided a measure of financial security after years of service to the state.