Reprinted with permission from the Quorum Report

The Quorum Report
Editor: Harvey Kronberg
P.O. Box 8 Austin, Texas 78767
Voice: 512-292-8191
Fax: 512-292-0099
Email: kronberg@quorumreport.com
October 18, 2006      4:43 PM

Copyright October 18, 2006 by Harvey Kronberg, www.quorumreport.com, All rights are reserved
DESPITE BENEFITING FROM GOOD MARKET, TRS SAYS BENEFIT BOOST SEVERAL YEARS DOWN THE PIKE
Considering options to get more dollars to retirees

Buoyed by several years of good returns on its investments, the state’s teacher retirement system is on a good financial footing. But for a number of reasons, the fund still cannot provide a benefit increase to retired teachers.

That’s a real problem for retired teachers who receive a pension check in lieu of Social Security benefits. Factor in cost of living increases and a retired teacher has seen his pension benefits erode by 15 percent since the last benefit adjustment five years ago, said Eric Hartman of the Texas Federation of Teachers.

The questions raised at a Senate State Affairs Committee hearing on the subject today centered on the best way to get some extra money in the hands of retired teachers as soon as possible.

All seemed to agree that the state should raise its contribution rate to the retirement system from the constitutional minimum of 6 percent. Teacher Retirement System of Texas executive director Ronnie Jung said that the state could quickly get the fund to the point where a benefit increase could be offered in the subsequent legislative session. However, it would require the state to up its contribution rate by more than a percentage point to 7.19 percent. That translates to lawmakers finding $622 million in extra money for the retirement system in a budget year that is already shaping up as a tight one.

If that price tag turns out to be too steep, lawmakers have other options to look at in the short term. For example, the state could give retired teachers a supplemental payment, a so-called "13th check." Hartman and other teacher group representatives said, though, that they would prefer another option. The problem with a "13th check," they said, is that it is a one-time solution, akin to a Christmas bonus when a pay raise is needed. They would prefer to see an automatic cost of living adjustment (COLA) – which they argued would provide more predictability to a retired teacher’s benefits – or lower health care premiums.

Jung said that the cost of a COLA is beyond what the state can pay for. However, a survey of active teachers conducted on behalf of the committee seems to show that COLAs are an important issue for teachers. The survey of 700 active teachers was conducted by the University of North Texas. Nearly 98 percent of those surveyed thought an automatic cost of living adjustment was an important or very important retirement benefit. Almost 64 percent thought it was the most important retirement benefit.

UNT researchers also surveyed 400 retired teachers on how best to increase funding for retirees. Most favored the state upping its contribution rate. Only 17.4 percent listed a "13th check" as their top option for helping current retirees.

State Affairs Chairman Sen. Robert Duncan (R-Lubbock) said that lawmakers have to look at several options for helping the retirement system. That could include asking school districts to come up with some matching money as well for the retirement system. He anticipated some pushback from school superintendents but he said that everybody would benefit from a retirement system trust fund that is on surer financial ground.

Duncan said the state should have increased its contribution rate to TRS last session and "should do it this session." He did not have a specific percentage in mind but suggested the state as a minimum should match teachers’ contribution rate of 6.4 percent.

He also said he would resist calls to substantially modify his bill passed last session which reduces pension benefits for new teachers who decide to retire before the age of 60. The legislation also changed the way pension benefits were calculated for the system’s younger teachers – from the average salary of a teacher’s final three years to his final five years. That change has the effect of shrinking the base from which a teacher’s retirement benefits are calculated. Duncan said, though, that the changes were an important part of the reform package which addressed the TRS’ long term soundness.

The state’s decision more than 10 years ago to lower its contribution rate coupled with the market downturn early this decade had a negative impact on the TRS trust fund. While the fund was never in danger of becoming insolvent, it was actuarially unsound. For a pension fund to be actuarially sound, it must have enough assets to cover all its obligations for the next 31 years.

The most tangible effect of the change in TRS’ actuarial status was felt by retired teachers. By law, the state cannot increase benefits for retired teachers until the trust fund becomes actuarially sound again.

ã Copyright October 18, 2006 by Harvey Kronberg, www.quorumreport.com, All rights are reserved

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