The Texas House Pensions, Investments & Financial Services (PIFS) Committee held its first interim hearing Monday, June 6, 2022, to discuss the following charges:

• Monitoring recent legislation regarding the Teacher Retirement System of Texas (TRS),
• Reviewing the fiscal soundness of the TRS pension fund, and
• Providing a cost-of-living adjustment (COLA) for retired Texas educators

The committee opened with a review of House Bill (HB) 1585, the TRS agency sunset legislation, passed during the 2021 regular session. TRS Executive Director Brian Guthrie laid out the major provisions of the bill and his agency’s response to them. A representative of the Texas Retired Teachers Association (TRTA) praised the implementation. Highlights included a discussion of employment after retirement (retire/rehire), the new ombuds position, and customer service issues.

The sunset bill allowed TRS to adopt significantly more lenient rules for retire/rehire. Penalties have been fully waived for anyone who retired before January 1, 2021. Those who retire after that date and return to work within the 12-month-layout period now receive two warnings before suffering a penalty if they work more than half time during a given month. To date, no retirees have exceeded the two warnings and faced a retire/rehire penalty. The committee lamented that there were still excessive barriers to reemployment after retirement and that more work in the area may need to be done.

The committee also reviewed HB 1444 regarding active teacher healthcare. ATPE Senior Lobbyist Monty Exter testified that while educators appreciate the additional federal dollars that state leaders just dedicated to TRS-ActiveCare, which will avoid any premium increases in the upcoming school year, Texas educators need a long-term solution to the runaway cost of health insurance. The state has not increased the amount of its monthly statutory contribution since 2001, when the current system was put in place. As a result, it is not uncommon for increases in the cost of healthcare to outpace compensation increases, resulting in an effective pay cut year after year.

Finally, the committee jointly considered the pension fund’s actuarial soundness and the need and ability to provide a COLA. TRS staff walked the committee through the decision-making process the board is going through on setting the pension fund’s assumed rate of return (ARoR). Many expect the board to lower the current rate from 7.25% to 7%. ATPE supports the move because the fund can mitigate the stress that lowering the ARoR has on metrics that indicate the soundness of the fund by using unrecognized gains from strong investment performance in the last fiscal year, combined with reducing reliance on speculative investment returns to maintain the long-term health of the fund.

After hearing from TRS officials, the committee spent two hours taking testimony on the need for, structure, and size of a COLA. Retirees who testified made a compelling case that after nearly 20 years without an increase, they are in dire need of a COLA to maintain even a basic standard of living. This is because inflation, over time, dramatically reduces the purchasing power of a fixed annuity. ATPE fully supports giving retirees a COLA that is prefunded using state general revenue. In addition, ATPE testified that the state should consider how to set up a fiscally responsible system of automatic COLAs for future retirees who are active educators.

Although this meeting was just the opening of a conversation about a COLA for retired educators, it was clear that for the members of this committee, the question is not whether there should be a COLA, but how much and how to structure it.

View archived video of the hearing here.