We know that any consideration of changes to retirement benefits can be very frustrating and stressful, especially to those of you who are at or nearing retirement eligibility. Unfortunately, without knowing whether a bill will be filed or what the details might be of a proposed change (such as grandfather clauses, effective dates, etc.), we are not yet able to provide information on whether or how individual members might be affected. TCTA will be representing your interests throughout the session, and we strongly encourage you to continue to follow our updates and communicate with your legislators.

A November 2012 Senate committee hearing and a staff briefing for legislative offices and educator groups may have shed some light on the TRS-related issues most likely to be on the table in the 2013 legislative session. Although some lawmakers and private groups may continue to pursue the idea of a restructured Teacher Retirement System (moving to a 401(k) type plan), the emphasis in recent public forums has been on increasing contributions and changing benefits to bolster the system.

Lawmakers are sympathetic to the plight of retired school employees, who have not received a permanent increase in benefits since 2001 (though a single “13th check” was paid in 2008). This has resulted in a renewed focus on improving the system in the near term, rather than waiting to see if improvements in the global economy will pay off in significantly higher investment returns.

Senate State Affairs Committee

TCTA’s Ann Fickel testified before the committee Nov. 19 to reiterate TCTA members’ adamant opposition to any structural changes to TRS, and express our belief that benefit reductions are also not the solution to the system’s financial problems.

Committee chair Sen. Robert Duncan and TRS executive director Brian Guthrie had an extended discussion on the possibility of increasing retirement eligibility requirements to impose a minimum age of 62. There was also a fair amount of conversation about increasing state and member contributions to TRS.

Postponing retirement eligibility

  • Important note: There is no current legislative proposal that would postpone TRS members’ eligibility for retirement, only discussion of the possibility. No bills on this topic have been filed (as of Nov. 28, 2012).
  • Guthrie noted that this single change would be the most financially advantageous to the system (compared to other changes such as lowering the multiplier or increasing the years of salary included in the benefit formula).
  • Duncan commented that retirement age has become a national issue as people are healthier and living longer, and raising the age has the greatest impact on the system with, in his view, the least intrusive or least harsh impact on the members. He urged TRS members to keep an open mind on the subject.
  • Fickel promised to collect input from TCTA members on this topic, but informed Duncan that we were not sure our members would agree that the impact of such a change would be minimal.
  • As studied in the TRS sustainability report, the change would apply to all current and future TRS members who are not already eligible for retirement.
  • As discussed by Duncan, any legislative proposal would almost certainly include a “reasonable” grandfather provision to exempt employees currently near retirement eligibility.
  • Keeping people employed longer is also beneficial to TRS-Care, as younger retirees cost that program more than retirees who are 65-plus, who are covered by Medicare.

Increasing state and member contributions

  • Though having less of an impact than imposing a minimum retirement age, increasing contributions to the pension system does improve its financial status and stability.
  • Some teacher groups have already expressed support for an increased member contribution, provided the state increases its contribution to at least an equal level. (Delegates to the TCTA convention in January 2013 will take a position on increased member contributions, but TCTA welcomes input from members at any time.)
  • One option discussed (though again, not in a formal proposal or filed bill) would gradually increase both the state and member contributions by .5 percent for each of the next two years, resulting in a 7.4 percent contribution for both the state and members (up from the current 6.4 percent). Depending on investment returns in upcoming years, though, this alone would likely not be sufficient to allow for a retiree benefit increase.

Actuarial valuation briefing

On Nov. 20, education associations and legislative staffers were briefed on the newly released results of the TRS and TRS-Care actuarial valuations.

TRS pension fund results

  • The system remains technically “actuarially unsound,” although it is not insolvent. Under current conditions, TRS could pay out its obligations through the year 2065.
  • The investment return rate of 7.4 percent for the latest fiscal year, while positive, was slightly short of the 8 percent benchmark, and thus had a somewhat negative impact on the fund’s financial condition.
  • Inadequate investment returns from previous years also continue to have a negative effect on the fund.
  • Lower than projected salary increases reduced future liabilities; however, this also meant lower than expected contributions based on those salaries. (Lowered overall salary projections are the result of both minimal salary increases and job losses/fewer active employees.)
  • The system’s “funded ratio” remains at more than 80 percent, which is generally considered healthy and is higher than most other states’ public pension funds. The average funded ratio of the 100 largest U.S. public pension funds is 73.64 percent; the current TRS ratio is 81.9 percent.
  • The actuarial report includes more detailed scenarios related to potential changes in retirement eligibility, ranging from moving to a minimum age of 60 for current employees (though grandfathering those within five years of retirement eligibility) to imposing a minimum age of 62 for all employees not already eligible for retirement (with no five-year grandfather provision).

TRS-Care results

  • TRS-Care is solvent only for the next couple of years, and it will be important for legislators to take action in the 2013 legislative session to ensure that the program can continue to provide insurance coverage for retirees.
  • Potential “fixes” include increased contributions from the state (which currently contributes 1 percent of payroll), school districts (currently contributing .55 percent), active employees (currently contributing .65 percent) or retirees (in the form of higher insurance premiums).
  • A study of the sustainability of the TRS-Care program included options that would lower costs, focusing especially on retirees under age 65 (“non-Medicare retirees”). One proposal would move them into TRS-ActiveCare, which would likely increase premiums for all TRS-ActiveCare participants; other options include allowing non-Medicare retirees to enroll only in TRS-Care Level 1 (the lowest level of coverage) or providing them with a defined contribution and requiring them to obtain coverage in the private market.
  • There has not been much discussion on any particular strategy for solving the TRS-Care funding situation.

Delegates to the TCTA Convention in January 2013 will take positions on these and other key education issues, and TCTA will continue to advocate for our members as we work with legislators in the coming months.