The burden of improving the financial footing of the Teacher Retirement System of Texas will be shared by the state and the members — and, for the first time, many school districts, under a Senate deal struck Wednesday.
Everyone will chip in a little more to shore up the $117 billion pension fund for school and university employees with the aim of quieting political rumblings that the state’s pensions are not sustainable.
“This is a very serious and, I think, long-term fix,” said state Sen. Robert Duncan, R-Lubbock, who chairs the State Affairs Committee and authored Senate Bill 1458. “What we’ll have is a fund that is more robust, that will be fundamentally sound.”
The Teacher Retirement System, which has 1.3 million members and 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 increased contributions in the bipartisan Senate plan, which won unanimous approval Wednesday, would improve the financial health of the fund enough to allow a 3 percent cost-of-living adjustment for some retirees, who last received a bump in their pension checks in 2001.
The legislation also raises the minimum retirement age to 62 for employees with less than five years of service; they are not yet vested in the Teacher Retirement System.
Amid strong objections from teacher groups, Duncan dropped an earlier plan that would have increased the minimum retirement age for about half of the current employees. They now have no minimum retirement age but must achieve the “Rule of 80,” in which their years of service and age equal 80, so some would have to work about a decade longer.
Last week, Duncan agreed to exempt all vested employees, but in turn all the members would be asked to increase their contribution from 6.4 percent to 7.7 percent in one jump.
The compromise phases in that increase over four years and calls for the state to increase its contribution rate to 6.8 percent beginning in 2014, up from the current 6.4 percent. And for the first time, school districts that do not participate in Social Security must contribute 1.5 percent toward their employees’ retirement.
That shared burden was key to winning over the teacher groups and the Democratic support needed to get the bill to the floor.
State Sen. Kirk Watson, D-Austin, said the compromise addresses concerns that the state wasn’t shouldering its fair share and eases in the increase for employees. In the first two years, the state will contribute more than the employees.
The state has also found an additional $80 million to put toward the retiree health insurance fund, which is separate from the pension fund and is projected to have a $1.2 billion deficit come 2017.
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.
The bill now heads to the House, where Pensions Committee Chairman Bill Callegari, R-Katy, is pushing a similar measure.