The state of the TRS pension trust fund and healthcare programs
Date Posted: 11/13/2015
Since the dawn of time, of all of the questions that arise from students in classrooms, one question has been more pervasive in mathematics classes than any other: “Why do I need to learn this if I am never going to use it?” (typically followed by a mental exclamation point, at the very least). For so many of us who pursued interests or professions that are not necessarily mathematically based, or simply for those who knew they were not particularly mathematically inclined from an early age, we begrudged the notion that we needed to learn parametric equations, or integration by substitution, or long division, for that matter. Thankfully for all of us, the good people at the Teacher Retirement System (TRS) of Texas, who serve more than 1.3 million active and retired public education members, are very good with numbers. Maintaining the financial solvency of the pension trust fund involves mortality tables, long-term diversified investment strategies, cash flow liquidity, and countless other factors that all affect how each of you will or do receive retirement benefits. After years of sitting through yearly valuation updates from TRS actuaries such as one that took place this week, I have developed a very special appreciation for the people who wake up every morning and know that they are going to work to make projections of financial risk factors for healthcare plans and pensions. When it comes to managing both the pension trust fund and TRS-Care, very small changes in a variety of factors can have large-scale implications on long-term solvency. For instance, unforeseen changes in life expectancy, public education real wage growth and payroll assumptions, year-to-year investment returns, inflation, and even changes that amount to tenths of a percent in state, school district, or active employee contribution amounts can make the difference between an actuarially sound plan and one that is on pace for exhausting its funding. This is why it is crucial that the projections made on a yearly basis be as accurate as possible. Your benefits literally depend on it. After yesterday's TRS actuarial briefing, I can gladly report that the pension trust fund is healthy. Year-to-date investment returns are not what we would hope, but long-term investment returns are still above the eight percent assumed rate. Changes made in 2013 to employee and employer contribution amounts, as well as retirement requirements, have made a real difference in the solvency of the pension trust fund. There is a very simple equation that all public education employees should know about their retirement benefits: C+I=B. Contributions + Investment returns = Benefits. It is that simple. Any change in benefits necessitates a change in the amount of contributions or the long-term performance of investment returns. Benefits that are promised without being paid for through either contributions or investment returns eat away at the trust fund and, in turn, future benefits. As of today, your benefits are safe at current levels; however, contribution amounts and/or investment returns must increase over time to ensure that future generations receive the same benefits you are promised. As for the retiree healthcare program, TRS-Care, the numbers are not nearly as rosy. For the first time in the history of the program, the balance of the TRS-Care trust fund must be watched on a month-to-month basis to ensure that there will be enough funding to make it through the current two-year funding pattern. By the end of 2017, TRS-Care is projected to run out of funding, and by the year 2019, the plan is on a path to be more than $2 billion in the red. If the Texas legislature intends to continue to offer a healthcare plan to public education retirees, then lawmakers have a few basic options: increase contribution amounts from the state, school districts, or active public education employees; or increase premiums and out-of-pocket expenses for retirees. The legislature's preferred option in the past has been a combination of these factors. The problem is that retiree income has been static at best without factoring in inflation, and overall active member and school district contributions have increased. Since the budget cuts of 2011, only the state contribution rate has decreased. TRS-ActiveCare, the healthcare program made available to most active education employees, has a different affordability problem; however, the culprit is still largely the same. Funding from the state has been frozen at $75 per employee per month since the program was introduced in 2002. The relevancy of this amount, along with the required district contribution, is that it was supposed to reflect the average private sector employer contribution in 2001. It doesn’t take actuarial math to see that it is now 2015, premiums have increased nearly 250 percent on employees, and state funding hasn’t budged. Active employee healthcare, much like overall public education funding, faces a problem of politics, not of practicality, and it must be solved through the will of elected officials. A Kaiser Family Foundation 2015 Employer Health Benefits Survey found that average employer contributions dwarf that of the Texas public education system. For employee and family coverage, TRS-ActiveCare participants pay approximately 80 percent of the cost of premiums, while the Kaiser study found the employer average is for employees to pay nearly 30 percent. The trend is nearly as bad for employee-only coverage, which rests at more than 60 percent for ActiveCare employees and below 20 percent of the cost of premiums for other employers. Again, this is a manufactured problem stemming from a long-term failure of the state to keep up with private sector employer contributions to health insurance. An interim committee created to study the long-term solvency of both TRS-Care and ActiveCare is expected to begin meeting after the beginning of 2016. ATPE will be heavily involved in these hearings and will be promoting practical solutions that do not further burden active and retired educators. The committee will offer recommendations back to the full legislature for action in 2017. If you have any questions or concerns, please contact the ATPE Governmental Relations Department. As always, stay tuned to TeachtheVote.org for updates.
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