Pension fund remains stable, actuarial value dips slightly

The TRS Board of Trustees received a briefing at its December meeting on the current fiscal health of the pension fund. The fund is examined by actuaries each year based on an Aug. 31 “snapshot” of market value and other factors. Its long-term status is determined by considering the actual value of the fund ($133.4 billion on Aug. 31, 2016) along with anticipated income (state and employee contributions and projected investment returns) and anticipated costs (benefit payments to retirees) into the future.

The news is generally good. The pension fund is stable and healthy, though it is just shy of some key benchmarks. This could be problematic going into a legislative session where a few prominent and vocal lawmakers have expressed concern about the long-term viability of public pension funds and may propose to restructure the teacher retirement program as a defined contribution/401(k)-style plan.

Investment markets have been somewhat volatile, but the fund managed a 7.3 percent return for the fiscal year, just below the target 8 percent rate. That investment performance ensured only a slight change in the pension plan’s funding period (the time it would take to pay off liabilities, given projected income). Ideally that period would remain under 30 years, as state law prohibits any benefit increases if the period is above 31 years. Because investment performance was under 8 percent, the funding period increased from 33.3 years to 33.9 years. This means that while the fund remains in decent financial condition, it would not be possible for the Legislature to increase retiree benefits this session without adding money to the fund to pay for the increase.

Actuaries warned that contributions should be increased to improve the fund’s long-term financial health, noting that Texas contributes far less toward school employee retirement than other states.

Retiree health insurance program woes continue

Trustees also were briefed with the latest information about TRS-Care (retiree health insurance). Because funding for the plan — which is based on a percentage of employee salaries — is inadequate, the plan will be insolvent at some point after the current budget cycle unless funding is increased or benefits decreased in 2017. In the past, lawmakers have opted to put supplemental funding into TRS-Care to keep it running; last session, the state budget included a $768 million funding bump. But the amount needed in the 2017 session is projected to be nearly double that, causing many legislators to, for the first time, seriously consider not providing the required funding.

There is grave concern among retirees that legislative refusal to increase state funding will force higher premiums and/or reduced benefits, such as higher deductibles and co-pays.

A recent legislative report recommended restructuring health care for retirees who are not Medicare-eligible (typically under age 65) to help offset their considerably higher costs to the plan. As an example, claims for a retiree with Medicare Parts A and B enrolled in TRS-Care 3 averaged $967, while a non-Medicare retiree in that plan cost more than $10,000.

Active employees need help with premiums

Active employees are experiencing their own problems with health insurance affordability. The TRS briefing focused on ActiveCare because it is administered through TRS, but the funding for active employees is the same whether a district is participating in ActiveCare or offers a local health insurance plan. In all cases, premium costs are rising steadily and the willingness or ability of districts to increase employer contributions proportionately varies considerably across the state. The state has not increased its level of funding for active employee premiums since the current program began more than 15 years ago, so employees have primarily borne the burden of rising costs.

With additional volatility at the federal level in how health insurance will be structured in the near future, it is very difficult to predict what might happen in the coming months at either the federal, state or local level. TCTA continues to lobby for increased state contributions toward active employee health insurance, and we encourage our members to make this issue a priority when communicating with your legislators.