Texas school and university employees face a trade-off to shore up their pension fund: work longer or contribute more.
Members of the Teacher Retirement System of Texas objected strongly last week to a legislative proposal that would have required about half of current employees to work until age 62 to receive full retirement benefits. They now have no minimum retirement age but must achieve the “Rule of 80,” in which their years of service and age equal 80.
The latest counteroffer, released Thursday by state Sen. Robert Duncan, R-Lubbock, would apply the higher retirement age only to employees with less than five years on the job, about 20 percent of Teacher Retirement System members. They were hired under a different set of rules and already have a minimum retirement age of 60.
But everyone, in turn, would have to contribute more from their paychecks: 7.7 percent beginning in 2015, up from the current 6.4 percent. And school districts, most of which aren’t part of Social Security, for the first time would have to chip in 1.5 percent for their workers’ retirement to supplement the state’s 6.8 percent contribution.
The compromise addresses concerns that the state was changing the retirement rules in the middle of the game, said Duncan, who chairs the State Affairs Committee and authored Senate Bill 1458. And it provides long-term funding sources that don’t depend on the vagaries of the investment markets or the Legislature, which have taken their toll on the pension funds over the years.
The combined effect would significantly improve the financial health of the $112 billion pension fund and allow a 3 percent cost-of-living adjustment this year for members who have been retired for at least 15 years, about 102,000 people.
It’s unclear if Duncan’s new proposal will catch fire. To bring up the measure for a vote on the Senate floor, Duncan needs two Democrats to join all the Republicans who have signed on. Several Democrats said Thursday they are reviewing the details and have not determined whether they could support it.
Educators groups have split on the proposal.
“This bill is a compromise that goes in the right direction by making the system stable and providing a much-needed benefit increase to retirees while honoring the promises made to current public education employees,” said Josh Sanderson of the Association of Texas Professional Educators. “It is a compromise that no one loves, but it shows that educators care about their retired colleagues and believe in their pension system enough to sacrifice to protect it.”
Others say the state is asking too much from their members while not significantly increasing its own contribution.
“We’re willing to do a whole lot more, but we want to see the state get there, too,” said Ted Melina Raab of the Texas chapter of the American Federation of Teachers. “We’re not shirking our responsibility by any means.”
Ann Fickel of the Texas Classroom Teachers Association said many of her members are concerned that they could not receive comprehensive health care coverage under the retiree plan until age 62. Only catastrophic coverage would be available during the intervening years if employees retired earlier.
At the same time, Fickel said, they welcomed Duncan’s willingness to keep working to improve the proposal.
For retirees, the prospect of a boost in pensions for the first time since 2001 is quite appealing.
“The plan does require some higher contributions by the state, the school districts and the members, but the result is a far more stable defined benefit plan that will be there for our current and future TRS retirees,” said Tim Lee, executive director of Texas Retired Teachers Association.
The Teacher Retirement System, which provides lifetime pension checks to about 300,000 retirees, is considered to be in good fiscal health.
But it has struggled to chip away at its “unfunded liability” through investment returns alone, and the liabilities will appear bigger under accounting rules that go into effect in coming years. The rules, in part, call for lower assumptions on investment returns when the state reports its finances.
Some conservatives have complained that public pensions aren’t sustainable and instead want to move toward retirement options akin to the 401(k) plans commonly found in the private sector.
Duncan has said the fundamental changes in the retirement age and funding sources are needed to stave off attempts to do away with the guaranteed pension benefit.
Teacher pension proposal
Proposed changes to the Teacher Retirement System of Texas would put the fund in a financial position that would allow a 3 percent pension increase for some retirees for the first time since 2001.
- Minimum retirement age of 62 for new hires and current school employees with fewer than five years of service.
- Retirement eligibility remains the same for all vested members: ‘Rule of 80’ — age and years of service equal 80 — with no minimum age.
- Members: 7.7 percent, up from 6.4 percent
- State: 6.8 percent, up from 6.4 percent
- School Districts: 1.5 percent (new contribution)
Retiree Health Plan:
Members who retire before age 62 wouldn’t be eligible for the comprehensive health insurance plan until turning 62. Members would be grandfathered with the ‘Rule of 70’ or 25 years of service.