Tag Archives: cost of living adjustment (COLA)

Setting the record straight on the myth of “temporary” teacher retirement

After representatives affiliated with a national teachers’ union held a conference call with Texas reporters last week, at least one news story sparked confusion and a flurry of inquiries by reporting that it would be possible for teachers to retire “temporarily” during the coronavirus pandemic and later return to their previous jobs.

“Many teachers are capable of temporarily retiring,” the media report stated, erroneously adding that Texas teachers could “sit out a year or two, still get paid, and come out of retirement after COVID is under control.” The staff of the Teacher Retirement System of Texas (TRS) asked ATPE and other stakeholders to help them clear up the confusion. The simple fact is that “temporary retirement” is not an option for educators under Texas law!

TRS had this to say in a statement responding to the June 24 news story:

“There are no provisions in the law that allow a teacher to ‘temporarily retire.’ A news article published on June 24 by a north Texas media outlet stating as much is mistaken. While the law allows a retired teacher to return to employment without restriction after a 12-month break in service, the teacher’s retirement annuity amount would be fixed as of the retirement date. Any employment after retirement does not increase the annuity amount.”

Exactly what is the law, and what considerations should educators be aware of as they are making retirement decisions in the wake of COVID-19? The first step is considering whether or not an educator is eligible to retire.

Educators who began teaching prior to 2007 and have not had a break in employment since then may be eligible to retire and receive a regular pension if they are at least 65 years of age with five or more years of employment, or they meet the “Rule of 80.”  The Rule of 80 is met when an educator’s age plus their years of service credit equal 80 or more. (For example: 50 years of age plus 30 years of service credit equals 80.)  Those educators who have not worked continuously since 2007 must meet the rule of 80 and be at least 60 years of age to retire, or they may retire at 62 years of age if the educator had not earned five years of service credit prior to 2014 or has not worked continuously since 2014.

Educators who are not eligible for full retirement may still be eligible for early retirement, but they are subject to early retirement penalties. To be eligible for early retirement, an educator must either be  55 years old with five years of service credit or have at least 30 years of service credit without having met the Rule of 80. The penalty for early retirement can be as much as a 53% reduction of your standard annuity if you are between ages 55 and 64 and have between five and 19 years of service credit, but do not meet the Rule of 80.

Additional factors to consider include the fact that the amount of your pension is greatly impacted by your pre-retirement years of service, TRS’s lack of an automatic cost-of-living adjustment (COLA), and the impact of the retire-rehire surcharge.

The amount of an educator’s annual annuity is determined by taking the average of their highest three to five years of salary and multiplying that figure by a percentage, which for those receiving a regular retirement, is determined by multiplying their years of service by 2.3. For example, a teacher with 20 years of service credit would have 46% applied to their salary figure; if their highest average salary amount is $60,000, the educator would be eligible to receive an annuity of approximately $27,600 per year. A teacher whose highest average salary was also $60,000 but had 30 years of service credit would be eligible to receive approximately $41,400 annually.

Once you retire, you cannot earn additional service credit and your annuity cannot be recalculated, even if you go back to work after sitting out a year.

In addition to lost credit for service worked after retirement, the unpredictability of a COLA is another factor that can make early retirement less attractive. A fixed annuity with no regular COLA built in, and the possibility of only infrequent one-time COLAs, tends to lose its purchasing power over time due to inflation. Locking in the amount of your annuity much earlier than you might have otherwise planned to retire may magnify this effective decrease in your annuity’s value over time, on top of the other reductions discussed above.

Finally, although you can retire and then return to work after sitting out for 12 months, those retired educators who do return to work on more than a half-time basis will be subject to retire-rehire surcharges. The amount of the pension surcharge is equal to the amount of both member and state contributions on the compensation paid, which is currently 15.2%.  A health benefit surcharge is also due for TRS-Care, which is currently $535. While the educator’s employer can choose to cover these surcharges, they often pass them on to the retiree.

As you can see, an educator’s decision to retire early, with the intention of making it a “temporary” retirement in which the educator would sit out a year or two before returning to the classroom, comes with many significant financial consequences. ATPE urges educators to carefully consider these factors before they take an action that could permanently and negatively impact their future standard of living and their ability to truly and fully retire at a later date.

Note: There are a number of variables that affect an educator’s annuity, including start date, breaks in service, total years of service, retirement age, and other individual benefit decisions. Figures cited in this blog post are used for illustrative purposes only. Texas educators should contact TRS directly for assistance calculating the individual pension benefits they are eligible to receive.

More detail on the last TRS meeting of 2019

As we mentioned here on Teach the Vote last week, the Teacher Retirement System of Texas (TRS) board of trustees met last Thursday and Friday, Dec. 12-13, 2019. The board opened its final day of meetings for 2019 with public comments before taking up an agenda that included adoption of a new funding policy and considering where the TRS agency should be housed in the future. The TRS board heard testimony last week from ATPE and the Texas Retired Teachers Association (TRTA) as well as some individual retirees. ATPE Senior Lobbyist Monty Exter addressed the association’s concerns with language in the proposed funding policy to be considered for adoption later in the meeting.

Senate Bill (SB) 2224, as passed during the last regular session of the legislature, requires the TRS board to adopt a written funding policy detailing its plan for achieving a funded ratio equal to or greater than 100 percent for the pension trust fund. The original language proposed to the board could have been interpreted as creating a policy that was more prescriptive than current law with respect to cost of living adjustments (COLAs), potentially putting the board at odds with mandates from future legislatures. The legislature, not the TRS board, determines whether or not TRS should grant a COLA to retirees.

After considering the concerns voiced, the board struck the objectionable language before adopting the remainder of the proposed policy. The new funding policy as adopted will require TRS staff to include additional requests for funding in the agency’s legislative funding requests anytime they determine that current funding is not sufficient to keep the pension fund on track toward paying off the balance of its unfunded liability in less than 30 years.

Currently, the $160 billion TRS trust fund is on track to pay off its unfunded liabilities in 29 years. This is largely due to this year’s passage of SB 12, which phases in higher contribution rates for school districts, educators, and the state over the next five years. Prior to SB 12, the fund’s payoff date was more than 87 years into the future, cutting off the possibility of benefit enhancements for retirees for nearly six decades.

With the state of the TRS pension fund significantly shored up after the 2019 legislative session, it is likely that lawmakers will return their focus to improving TRS health insurance. In fact, the Texas House of Representatives recently appointed a new special committee to study statewide healthcare to be chaired by Rep. Greg Bonnen, a neurosurgeon from League City and the co-sponsor of SB 12. Chairman Bonnen was present at the TRS board meeting last Thursday  for a discussion by its Benefits Committee regarding primary care directed models and how to improve outcomes and costs associated with TRS-Care and TRS-Activecare. As the largest single insurer and one that covers members both during their working years and into retirement, TRS is in a unique position to influence a new round of early discussions on improving healthcare in Texas.

TRS has come a long way over the last 30 years. The fund has grown from less than $20 billion to just over $160 billion. Over that same time TRS staff has grown from around 300 employees to more than 700, at the same time that the number of TRS members has increased from around 500 thousand to more than 1.6 million. TRS has moved six times since 1937 before locating the agency in its current home in 1973. Growth in the number of members and exponential growth in the size of the trust fund has pushed TRS’s staffing needs beyond what its current physical location can accommodate.

As the TRS board and staff seek a new home for the agency, they are keeping certain priorities in mind. The space should be centrally located and user-friendly for the members; the new space should provide a long-term solution; and the move away from the current space to a new one should result in a net positive for the fund. These priorities translate into building a new space in central Texas, but outside the downtown Austin business district. Additionally, it means leasing the current TRS space in order to maximize profits for trust fund.

For more on last week’s TRS meeting, click here to view the board materials or watch archived footage.

TRS is coming to town

The board of trustees of the Teacher Retirement System (TRS) will convene in Austin for its last board meeting of the year starting Thursday morning, Dec. 12, 2019, and wrapping up Friday afternoon, Dec. 13.

The proceedings will begin at 8 a.m. Thursday with meetings of the following board committees: the Strategic Planning Committee; the Benefits Committee; the Budget Committee; the Investment Management Committee (IMD); the Policy Committee; and the Audit, Compliance, and Ethics Committee. Committee agendas can be found at the links above. After the committee meetings conclude, the full board will convene briefly before going into executive session for the rest of the afternoon. On Friday morning, the full board will reconvene and take up its public agenda.

After taking public comments and making some recognitions, the board will discuss TRS space planning needs, including where the agency may be housed in the future. Other items on the agenda include a review of the TRS Pension Trust Fund Actuarial Valuation for the fiscal year ending August 31, 2019, and consideration of adopting the funding policy for the TRS pension fund. The funding policy is a written plan that provides a road map for how TRS can get to 100 percent funding of its pension liabilities and includes consideration of how and when TRS might provide a cost of living adjustment (COLA) for retirees

It’s important to note that actuarial soundness and being 100% funded are not based on the same metric. The fund is considered actuarially sound under state law when its funding period is below 31 years, at which point TRS has typically been funded at around the 80 percent level. However, there is not an exact correlation between the number of years it takes to reach full funding and the percentage at which TRS is funded.

Click here to access links to the livestream of the Thursday and Friday TRS meetings.

New School Year, New Laws: Retirement Benefits

In last week’s “New School Year, New Laws” blog post, we discussed changes to the ethical and professional responsibilities of Texas public school educators. These included big changes to reporting requirements for non-certified employees and the creation of a “do-not-hire” registry. This week, we will shift gears to talk about educator pensions and retirement benefits, which also saw major changes as a result of the 2019 legislative session.

Senate Bill (SB) 12 by Sen. Joan Huffman (R-Houston): Increasing funds for TRS

SB 12 was the most important bill for improving the Teacher Retirement System (TRS) that was passed during the 86th legislative session. ATPE supported SB 12 because it infused enough additional funding into the TRS pension fund in order to make it “actuarially sound.” This also made possible the issuance of a 13th check of up to $2,000 to retirees last month. SB 12’s changes also make it more likely that the TRS will be able to offer a cost of living adjustment (COLA) in the next two to four years, which could provide a much-needed permanent increase in benefits to current and future retirees.

Actuarial soundness was achieved by gradually increasing the state, educator, and school district contributions to the fund over the next six years. Through these increased contributions, SB 12 lowered the time frame needed to pay off the unfunded liability of the TRS pension fund to reach an acceptable standard under state law. For those not familiar with pension lingo, unfunded liability refers to the amount by which the cost of future benefits that a fund is obligated to pay exceed the cash on hand in the fund, similar to carrying credit card debt. While SB 12 made great strides in supporting educators who rely on TRS, Texas remains 50th in the nation when it comes to the state’s contribution rate for educator retirement benefits. Moving forward, ATPE will continue to press the legislature to improve the retirement benefits that educators so greatly deserve.

House Bill (HB) 2820 by Rep. Dan Flynn (R-Van): Deregulating 403(b) investment options

Under previous law, TRS kept a list of approved investment vendors that could offer educators 403(b) investment products. These 403(b) investment plans are similar to 401(k) plans in that they offer a tax-advantaged way to save for retirement, but 403(b) plans are designed for public employees and tax-exempt organizations, like churches and charities. HB 2820 deregulates 403(b) investment offerings by eliminating the TRS list of approved vendors, as well as the requirement that vendors abide by TRS’s caps on fees. These caps limited the amount that a vendor could charge for each transaction. Under this new law, educators who choose to invest in a 403(b) will have to more closely monitor the administrative fees they are being charged. Additionally, without the fee cap, vendors might offer investment products that are very expensive now.


Join us next week on our “New School Year, New Laws” blog series here on Teach the Vote as we will discuss legislative changes impacting charter school laws.

For more information on new laws impacting educators, be sure to read the new report from the ATPE Member Legal Services staff, “Know the Law: An Educator’s Guide to Changes Enacted by the 86th Texas Legislature.”

Pension review board discusses recent legislation

The Texas Pension Review Board (PRB) met Thursday, June 27, 2019, in Austin with a focus on reviewing pension-related legislation passed by the 86th Texas Legislature.

Members began by recognizing outgoing Chair Josh McGee, who passes the gavel to new Chair Stephanie Leibe. The PRB governmental relations team then walked the board through a handful of items resulting from the most recent legislative session. The bills include:

  • Senate Bill (SB) 2224 by Sen. Joan Huffman (R-Houston) requires every public retirement system to adopt a written funding policy that details the system’s plan for achieving a funding ratio equal to or greater than 100 percent. Each plan must be submitted to the system’s sponsor and the PRB.
  • SB 322 by Sen. Huffman relates to the evaluation and reporting of investment practices and the performance of certain public retirement systems. Public retirement systems must now include in their annual financial report information about how much investment managers are being paid, as well as hire an independent firm to evaluate the system’s investment practices.
  • SB 12 by Sen. Huffman relates to contributions into and benefits under the Teacher
    Retirement System of Texas (TRS). This bill increases the annual base employer contribution, supplemental employer contribution, and member contribution rates over a five-year period. Certain retired members will also receive a 13th check this year capped at the lesser of the amount of their monthly TRS annuity check check or $2,000.
  • House Bill (HB) 2763 by Rep. Dan Flynn (R-Canton) relates to the police pension fund in certain municipalities.

The agenda book for the current PRB meeting included additional bills related to pensions, such as HB 3. While the school finance bill does not directly address TRS, PRB staff suggest that a significant increase in the salaries of some educators could affect the financial position of TRS over the short term. You can read the full agenda book for today’s meeting here.

PRB Executive Director Anumeha Kumar also explained the agency’s legislatively approved budget, as well as the revised rule review plan for the board. This plan will lay out the process by which the board will review rules for adoption, revision, or repeal.

Staff indicated that as a result of legislation passed this session, the TRS pension’s amortization period is projected to drop from 87 years to under 30 years. This would meet the minimum requirements for being considered actuarially sound and therefore eligible to provide members a cost of living adjustment (COLA). The plan’s amortization period jumped to 87 from 32 last year as a result of the TRS board’s decision to change actuarial assumptions to reflect more conservative economic forecasts.

TRS is by far the largest active plan under the purview of the PRB, with more than $154 billion in assets. The next largest plan, the Texas County & District Retirement System, is worth $30 billion. The PRB briefly mentioned a new resource that is available for members of the public to see a snapshot of the health of the state’s various public pension plans. The Texas Public Pension Data Center can be found here.