Tag Archives: pensions

Teach the Vote’s Week in Review: April 5, 2019

It was another groundbreaking week in the Texas legislature, and here’s a look at the headlines from ATPE Governmental Relations:


On Wednesday, the Texas House of Representatives passed landmark school finance reform legislation. By a vote of 148-1, Chairman Dan Huberty’s (R-Kingwood) House Bill 3 passed the lower chamber, clearing the way for its consideration next by the Texas Senate.

The ATPE-supported school finance bill as finally passed by the House allocates billions in new money for public schools, reduces recapture, and provides homeowners with property tax relief. The House added bipartisan compromise language to HB 3 during Wednesday’s floor debate to ensure that all full-time public school district employees in non-administrator roles will also receive pay raises.

Read more about the bill and Wednesday’s major vote in this blog post from ATPE Governmental Relations Director Jennifer Mitchell. Stay tuned to Teach the Vote for updates as attention turns to the Senate to find out how the upper chamber will respond to the school finance bill.


The Senate Education Committee and House Public Education Committee both held multiple meetings this week to hear a variety of education bills.

The Senate Education Committee’s meeting on Tuesday, April 2, 2019, largely focused on hearing bills pertaining to dual credit. The agenda for Thursday, April 4, included a host of bills relating to virtual schools, including some bills that ATPE opposes. Other pending bills previously heard by the committee were also voted out with favorable recommendations for the full Senate. Read more about the Senate committee’s activities this week in blog posts here and here from ATPE Lobbyist Mark Wiggins who covered the hearings.

On the other side of the Capitol, the House Public Education Committee’s Tuesday hearing covered topics ranging from pre-K to technology and educator preparation. The agenda for the committee’s Thursday hearing also featured a wide variety of issues, including one bill that ATPE opposes to require school districts to let home-schooled students participate in UIL activities. ATPE Lobbyist Andrea Chevalier covered the House Public Education Committee hearings, and you can read her reports on the two meetings from this week in blog posts here and here.


ATPE is urging educators to oppose two Senate bills that would endanger free speech rights and limit the ability to teach students about content that relates to “a political philosophy” or “a matter of public interest.” The bills are Senate Bill 1569 by Sen. Pat Fallon (R-Prosper) and Senate Bill 904 by Sen. Bryan Hughes (R-Mineola), and both of them got a favorable nod from the Senate State Affairs committee this week.

SB 1569 and SB 905 would expand current laws that restrict the use of public resources for “political advertising.” The bills are unnecessary, since state law already prohibits using school resources for electioneering which is enforced by the Attorney General, and these two bills will have harmful unintended consequences.

SB 1569 would broaden the definition of political advertising, impose harsh restrictions on political speech by public school employees, and make it nearly impossible to teach students about elections or civic responsibility or anything deemed to fall under the vague category of “a matter of public interest.” SB 904 also tries to limit political speech by restricting access to government communication systems like a school district’s Wi-Fi network. It also calls for fining any third party that sends political advertising to a government email address. SB 904 will unreasonably penalize innocent third parties and have a chilling effect on free speech and political involvement by educators, even making it hard to teach students about anything related to politics.

Both SB 1569 and SB 904 appear to be reactions to the surge in educator participation in elections last year, and both bills are likely to spark constitutional challenges if passed. Based on their obvious targeting of the education community, both bills are reminiscent of unsuccessful efforts last legislative session to dissuade educators from joining professional associations that advocate for public education. With yesterday’s committee vote, these two bills have the potential to reach the full Senate for a floor debate very soon. ATPE is urging educators to contact their senators and ask them to reject SB 1569 and SB 904. Read more about the bills in this blog post. ATPE members can click here to visit Advocacy Central and send a quick message to their senator.


As we have been reporting here on Teach the Vote, the legislature is considering ATPE-supported bills to increase contributions into the TRS pension fund. This week the House Committee on Pensions, Investments and Financial Services considered one of the bills, Senate Bill (SB) 12 by Sen. Joan Huffman (R-Houston), which the full Senate has already passed unanimously.

SB 12 is being sponsored on the Senate side by Rep. Greg Bonnen (R- League City), who chairs the Article III (education) subcommittee in House Appropriations and is the author of another bill to increase funding for TRS via House Bill (HB) 9. (That bill, which ATPE also supports, was already heard by the House Pensions committee last week.) ATPE Senior Lobbyist Monty Exter reports that during this week’s hearing on SB 12, Chairman Bonnen offered a committee substitute version of Senate Bill 12 that would replace its language with the language from his HB 9. After a brief hearing on the bill, the committee took the somewhat unusual step of immediately voting the committee substitute version of SB 12 favorably out of committee and recommending that it go to the full House for further consideration. The bill, which appears to be on an expedited track, will next go to the House Calendars Committee which has the authority to set the bill on a House calendar for a scheduled for debate. Once the bill has been approved by the full House, which it is expected to easily do, it will return to the Senate where Sen. Huffman will likely send SB 12 to a conference committee to work out differences between the House and Senate language.

While both versions of the bill would increase the overall contribution rate into the TRS pension system and provide current retirees with a 13th check, the House language does so by focusing the entire increase on the state’s contribution rate without raising the rates of educators or school districts. Additionally, the House version provides for a substantially larger 13th check, up to $2400 per retiree vs $500 dollars per retiree in the Senate version of the bill.


 

TRS bills move forward in both chambers

ATPE State President Byron Hildebrand testified in the House Pensions Committee, March 26, 2019.

The 86th Legislature has been considering bills to increase contributions to the Teacher Retirement System (TRS), which ATPE supports. Preserving the solvency and defined-benefit structure of the Teacher Retirement System (TRS) pension program for educators is an ATPE legislative priority this session.

On the Senate side, one high-profile measure on the move pertaining to this priority is Senate Bill (SB) 12 by Sen. Joan Huffman (R – Houston). After the bill received approval last week from the Senate Committee on State Affairs, which Sen. Huffman chairs, the full Senate passed SB 12 unanimously out of the upper chamber on Monday, March 25, sending it on its way to the House.

Meanwhile, a House committee today heard its own version of how to increase financial support for TRS, as well as for the state’s current retired educators. House Bill (HB) 9 by Greg Bonnen (R – Friendswood) was heard this morning by the House Committee on Pensions, Investments & Financial Services. The bill was left pending in committee today but is expected to receive a favorable committee vote in the near future.

Byron Hildebrand

ATPE State President Byron Hildebrand delivered our association’s testimony strongly supporting HB 9 in committee today. Hildebrand, who is also a retired educator, thanked legislators for taking a positive step forward with legislation aimed at making the TRS pension found sound, and he encouraged lawmakers to continue to take steps to do great things for active and retired teachers. Click here to watch today’s committee hearing, where HB 9 was the first bill considered. (Hildebrand’s testimony begins at approximately the 43-minute mark in the archived broadcast.)

While SB 12 and HB 9 both increase contributions to TRS and provide a 13th check to current retirees, the bills differ on the amount of the increased contribution, who would pay for it, and the size of the 13th payment. At 2.5%, the overall increase in TRS contributions under SB 12 would be a half percent more than the 2% increase called for by HB 9. However, HB 9 puts the responsibility for paying for the entire contribution increase on the state by raising the state’s rate from 6.8% up to to 8.8%. SB 12 only raises the state’s contribution rate from 6.8% to 8.25%, while also raising the active member rate from 7.7% to 8.25%, and raising the school district contribution rate from 1.5% up to 2%. HB 9 also begins and finishes raising the contribution rate a year sooner than SB 12 would. In terms of 13th payments, SB 12 offers all retirees a $500 bonus, while HB 9 would provide current retirees a 13th check in the same amount as their regular monthly annuity up to $2,400.

Stay tuned to Teach the Vote for updates on these two ATPE-supported bills as they continue to move through the legislative process.

TRS board meeting in Austin this week

The Teacher Retirement System (TRS) board was in Austin for their regularly scheduled board meeting on Thursday and Friday of this week. The board kicked off its hearing with a resolution celebrating the life and service of Mike Lehr, former executive director of the Texas Retired Teachers Association with more than 50 years working as a public school educator or on behalf of active or retired public school educators.

Also of note, TRS executive director Brian Guthrie updated the board on interactions TRS has had with legislators as a part of the ongoing legislative session. TRS recently presented on its general outlook and budgetary requests before both House and Senate budget committees as well as the House Pensions Committee. The agency will still have one more general presentation to the Senate State Affairs Committee, and then the agency role will shift to assisting lawmakers more behind the scenes.

The remainder of the first day’s morning session covered topics such as internal staffing policy, customer service, and how the agency communicates with TRS members. Thursday afternoon the board underwent ethics training and had an in-depth discussion of healthcare and healthcare design related to the TRS-Care and TRS-ActiveCare insurance programs.

The board’s Friday agenda focused on the TRS investment program, including the agency’s emerging manger program, a view of national and global financial trends, and TRS’s own strategic asset allocation.

Those who are interested can watch an archive of the board’s Thursday meeting and Friday meeting.

 

Teach the Vote’s Week in Review: Dec. 14, 2018

From school finance and retirement to school accountability ratings, here’s your weekly wrap-up of education news from the ATPE Governmental Relations department:


School finance commission meeting Dec. 11, 2018

The Texas Commission on Public School Finance met on Tuesday of this week to begin deliberating recommendations for the body’s final report due at the end of this month. Among the suggestions discussed Tuesday were (1) outcomes-based funding hinged upon early literacy and student preparedness for entrance into college, the military, or a career field without remediation; and (2) a high-quality teacher allotment that would require school districts to develop local, multi-measure assessments of their educators. Those assessments would need to comply with criteria outlined by the legislature.

While some members of the commission bristled this week at the idea of requesting more funding from the legislature, others, including House Public Education Committee Chairman Dan Huberty (R-Humble), stated that he would refuse to sign a report that did not request more funding. Sen. Paul Bettencourt (R-Houston), chair of the commission’s working group on revenues, suggested that the full commission adopt Gov. Abbott’s plan to cap property taxes at 2.5% annually. Meanwhile, Leo Lopez, Chief Finance Officer for the Texas Education Agency, pointed out during Tuesday’s hearing that the governor’s plan is more of a property tax relief plan than a school finance reform plan.

A more detailed breakdown of Tuesday’s meeting can be found in this week’s blog post from ATPE Lobbyist Mark Wiggins.

Other recommendations in the commission’s draft report, which can be previewed here, include prioritizing the state’s “60×30” goal, which is to have 60 percent of high school graduates eligible to enter the workforce with an industry certification, successfully join the military, or enter college without the need for remediation by the year 2030. More technical recommendations include reallocating $5.34 billion in existing revenues and revising the current weights and allotments in order to boost the basic allotment, which provides a baseline of funding for all 5.4 million school children in Texas. Throughout the commission’s year of deliberations, scores of education stakeholders and experts have shared their input, including invited testimony from ATPE back in February.

The commission will meet once more on Wednesday, Dec. 19, to vote on its final recommendations before submitting its report to the legislature as required on or before Dec. 31. Stay tuned to Teach the Vote for updates on the final vote.


The Teacher Retirement System of Texas (TRS) Board of Trustees met in Austin at the TRS headquarters on Thursday, Dec. 13, and Friday, Dec. 14, for its final meeting of 2018. Board committees met on Thursday. Each committee’s meeting materials can be found below. The full board met Friday morning to consider the following agenda. Video of the board committee meetings and the full board meeting is also available for viewing.

For additional information, view the following TRS board meeting materials:


Today the Teacher Retirement System of Texas (TRS) released an updated Pension Benefit Design Study. This recent study augments the body of knowledge generated by a 2012 study on the pension program for Texas educators. The updated study released today by TRS outlines benefits and statistics about the pension system, and includes such findings as these, which are in line with ATPE’s positions on TRS:

• A total of 96 percent of public school employees do not participate in Social Security. For many TRS members, the only source of lifetime income in retirement is their TRS benefit. A lifetime benefit helps mitigate the risk of a retiree who — due to longevity, market volatility or failure to invest adequately — outlives his or her savings.

• A majority of TRS members would end up more financially at-risk by investing on their own in a plan with a defined-contribution component.

• The TRS benefit, as currently designed, replaces roughly 69 percent of a career employee’s pre-retirement income when that person initially retires.

• Alternate plans would be 30 to 124 percent more expensive than the current defined benefit plan to provide the same benefit level upon an employee’s retirement.

More information about the study can be found in this TRS press release, along with a one-pager about the pension program. The full text of the new report can be accessed here.

Preserving the integrity and solvency of the TRS defined-benefit pension plan for educators is one of ATPE’s priorities for the 86th legislature.


The Texas Education Agency (TEA) has released its final academic accountability ratings for the 2018 year. The ratings include results for 1,200 school districts and charters and over 8,700 campuses within the state. While preliminary ratings were released in August, this final release includes the ratings of districts and charters that contested their initial ratings. More information about the accountability ratings can be found here. To search the ratings by district or campus, visit TXschools.org 

 


 

Teach the Vote’s Week in Review: August 3, 2018

Here’s your weekly wrap-up of education news from ATPE Governmental Relations:


The State Board for Educator Certification (SBEC) met today in Austin. As ATPE Lobbyist Kate Kuhlmann reported earlier this week, the board’s agenda included a controversial proposal to finalize rulemaking for an abbreviated educator preparation program for Trade and Industrial Workforce Training, Marketing, and Health Sciences certificates. Here is Kate’s recap of the board’s deliberations today:

The board adopted the proposal on a voice vote, but not without opposition from board members and stakeholders. ATPE was joined by teacher groups, administrator groups, and educator preparation programs offering opposition that together covered four primary areas of concern: (1) The proposal irresponsibly reduces the number of pre-service hours required of these specific educator candidates; (2) the proposal inappropriately adds the marketing and health science certificates; (3) the proposal allows entities other than approved educator preparation programs to provide some training; and (4) the proposal fails to prevent the certificate holders from seeking other certifications by merely passing an exam without required additional training.

Several board members also expressed concerns about the proposal. Members Suzanne McCall and Laurie Turner, who are teachers, and citizen member Tommy Coleman spoke to the importance of standards and consistency. They voted for an amendment to alter the proposal, but the amendment failed. Along with Texas Higher Education Coordinating Board (THECB) Assistant Commissioner Rex Peebles, who serves as a non-voting member of the board, Turner and Susan Hull stressed that success in an individual trade is not the same as knowing how to teach that trade to young students. This is why abbreviated pre-service and even overall training hours are concerning; the lowered standard fails to support these candidates and their students with adequate training. While other members of the board argued the proposal was innovative, Coleman countered that as much as he likes innovation, he doesn’t want to see innovation at the expense of standards. The board ultimately passed the proposal on a voice vote. It now advances to the State Board of Education for final review.

 


Following up on its June announcement that districts and charters affected by Hurricane Harvey would be eligible for accountability waivers, TEA announced earlier this week that 109 independent school districts and open enrollment charters would qualify for such waivers. School districts where all campuses are eligible for a Harvey Provision or where 10% or more of the district is eligible for a Harvey Provision that receive B,C, D, or  ratings will be listed as “Not Rated”  in the upcoming school ratings due out in August. The agency also announced that 1,188 campuses directly affected by Hurricane Harvey would qualify for a special evaluation in this year’s accountability ratings. A list of eligible campuses and districts can be found here.

 


Last week the Teacher Retirement System (TRS) reduced the expected rate of return on its pension fund from 8% to 7.25%.This change will make it more difficult for educators to obtain the cost of living increases they so desperately need.  The onus is now on the legislature, which will convene in January of next year, to provide increased funding in order to ensure that the pension remains healthy and can meet the requirement to be fully funded in 30 years as the law says it must. ATPE Lobbyist Monty Exter was on hand to provide testimony and comment to the media. Read more at the links below:

Full coverage of the TRS meeting

From the San Angelo Standard-Times: As changes loom over retired teachers’ pensions, retirees look to Legislature for more money 

From the Austin American-Statesman: Retired Texas teachers face giant hurdle to pension boost 

From KHOU11: Texas teachers urging for better pension system 

 


 

Earlier this week, Sen. Tim Kaine (D-VA) proposed legislation aimed at addressing teacher and principal shortages nationwide. The Preparing and Retaining Educators Act of 2018 aims to expand Teacher Quality Partnership Grants and require colleges and universities to report yearly on the number of licensed educators who graduate from their institutions, among other things. You can read the bill in its entirety here.

 

 


UPDATE: As we reported last week, President Trump signed the Perkins Career and Technical Education Act overhauling the primary laws that govern CTE. Read more about the bill in this post by ATPE Lobbyist Kate Kuhlman.

 


After competing in a special election triggered by the early resignation of Sen. Carlos Uresti, Republican Pete Flores and Democrat Pete Gallego will face off in a runoff election later this year. Read more about it in this post from the Texas Tribune.

What’s happening at TRS this week?


This week, the TRS board of directors will discuss and likely take action on a recommendation to lower the assumed rate of return (RoR), based on investment forecasts provided by independent financial experts hired to assess all of the assumptions TRS staff uses for planning purposes. Should the board lower the assumed RoR it would be in line with broader trends in the public pension sector, including TRS’s peers. The vast majority of experts expect less robust investment returns in the near and mid-term future.

In order to maintain the long term health of the fund without decreasing pension benefits, contribution rates will need to be increased to offset an anticipated decrease in investment revenue. Unlike many local pension systems (e.g., municipal, police, and fire), the TRS board does not set contribution rates for either employees or employers; nor does the board set the benefits paid out to retirees. Both TRS contributions and benefits are completely determined by the Texas legislature. Should the legislature fail to pass a plan to provide adequate contributions over time, the only remaining options would be to reduce benefits, further weakening current and future retirees’ retirement security, or put the fund into a situation where benefits being paid out exceed revenues coming in, which would place the fund on a path to eventual insolvency.

The bottom line is that the burden is on the Texas legislature to step up and provide the necessary funding to ensure actuarial soundness of the TRS pension fund and give educators peace of mind that they will not face cuts in their pensions or other dramatic pension plan changes. Historically, the legislature has not been proactive in this area and has not prioritized funding for retired educators’ needs, opting to delay action until the pension fund reaches a crisis level.

Some educator groups have urged their members to flood TRS board members with calls and emails this week. We believe their calls to action, while well-intentioned, are misdirected, as the TRS board has virtually no authority over contributions or benefits and, with regard to investments, has a fiduciary duty to act in what it believes to be the best interest of the fund based on the prudent advice of its financial experts. In other words, TRS has few options at this time, given the legislature’s disregard over the course of decades for the growing financial needs of the pension fund.

The only way to avoid a major TRS funding shortfall that will hurt the educators who depend on the fund is legislative action, not action from TRS. With that in mind, educators who care about the short- and long-term health of TRS should be focused on the legislature, not the TRS board members. Current legislators who have not prioritized TRS funding have caused the current problem. Is it reasonable to expect those same legislators to now fix it, or does it make more since go to the polls in November and elect legislators who will prioritize TRS funding as part of a general dedication toward public education?

Check back tomorrow for a follow-up report on what action the board takes on the assumed RoR.

Texas Pension Review Board adopts principles of retirement plan design

A subcommittee of the Texas Pension Review Board (PRB) has been working over the last several months on a set of non-binding guidelines meant to impart what the board feels are best practices with respect to retirement plan design for use by the retirement plans that are required to report to the board.

Despite some concern expressed by smaller funds over how the board’s non-mandatory recommendation on vesting periods might be made into a legal mandate by the Texas Legislature, the full PRB unanimously adopted the proposed principles, which can be found here, at its most recent meeting.

The Texas Teachers Retirement System (TRS) pension fund is one of the many funds, and certainly the largest fund, required to report to the PRB. While the design of the TRS pension fund by and large already meets the voluntary standards enumerated in the PRB’s principles document, the two areas where it does not are notable. First, the principles document calls for “contributions to retirement plans [to] be consistent with the PRB Pension Funding Guidelines.” Those guidelines call for plans to be funded at a level that would allow the plans’ unfunded liability to be amortized over less than 30 years. Second, the PRB principles say that a plan’s “retirement benefits should be protected against the erosion of the benefit’s value due to inflation.” Essentially that means plans should include built in COLAs (Cost of Living Adjustments). In both instances, that the TRS pension plan does not comply with these best practices is a function of the Legislature choosing not to fund the plan adequately.

Perhaps the Legislature and the Governor should take a note from the PRB, a body the legislature created whose chairman the Governor appoints, and fund TRS adequately to comply with the PRB’s newly adopted principles.

 

 

Teach the Vote’s Week in Review: May 11, 2018

From Austin to the nation’s capital, here’s a look at how ATPE’s lobby team has been working hard for you this week:


Early voting starts Monday for Texas’s Republican and Democratic primary runoffs on May 22. This week ATPE continued to highlight races across the state where education has pushed to the forefront of political discourse heading into the runoffs. We encourage you to learn more about the races in your district by visiting the candidates section of TeachtheVote.org and by checking out our runoff spotlights for candidates in House Districts 4, 8, 54, 62, and 121.

Remember, if you voted in a party primary back in March, you may only vote in the same party’s runoff election this month. If you are registered but did not vote at all in March, you may choose to vote in either party’s runoff election. You can find more information on eligibility to participate in the runoffs and what you need to do here.

Early voting for the runoffs is May 14-18, 2018, and runoff election day is May 22,2018.

 


ATPE’s lobby team has been working to prevent a controversial private school voucher amendment from being added to a national defense bill that is on the move. The U.S. House Committee on Armed Services met this week to consider the National Defense Authorization Act. Our Austin- and Washington-based lobbyists have watched the development of this bill closely since learning that discussions of adding a voucher were underway in the House. As ATPE Lobbyist Kate Kuhlmann reports today, the potential voucher, in the form of an Education Savings Account (ESA), would funnel existing federal Impact Aid dollars to military families without accountability for how those funds are spent. While the ESA didn’t make it into the bill during committee, it now heads to the floor of the House for debate. There, it could still be added through the amendment process.

ATPE sent a letter this week to Chairman Pete Sessions (R-TX), who leads the committee that determines which amendments will be considered on the House floor, asking him not to allow the voucher amendment. The letter highlights that we join the Military Coalition, a group of 25 organizations representing more than 5.5 million active and former members of the U.S. Military, in opposing the voucher. “The $2,500 voucher program created by HR 5199,” ATPE Governmental Relations Director Jennifer Mitchell Canaday wrote, “would drain limited dollars from both the public school system in Texas as well the Federal Impact Aid Program, hurting the very military-connected students it purports to help.” Read the full letter here and check back for developments on this issue.

 


An article by the Texas Tribune this week explored how charter schools operate in a precarious gray space that makes them a government entity at some times and a private entity at others. ATPE Lobbyist Monty Exter is quoted in the full-length article by Emma Platoff, which is republished here on Teach the Vote.

 


In an effort to encourage parents, teachers, and school leaders to actively participate in the rulemaking process, TEA sent a letter to school administrators on Wednesday requesting that school districts and open-enrollment charter schools post upcoming rulemaking actions on their websites. Learn more about the request and ATPE’s involvement in rulemaking changes in this blog post by ATPE Lobbyist Mark Wiggins.

 


 

House Pensions Committee meeting May 10, 2018, in Dallas.

The Teacher Retirement System (TRS) of Texas was one of the many items discussed at Thursday’s meeting of the House Committee on Pensions held in Dallas, TX. The meeting, which focused on the committee’s interim charges, featured testimony from TRS Executive Director Brian Guthrie plus a number of active and retired educators. ATPE Lobbyist Mark Wiggins attended the hearing and provided full details in his blog post here.

 


House committee discusses teacher pensions, health care

The House Committee on Pensions met Thursday morning in Dallas to discuss items listed under the committee’s interim charges, including the Teacher Retirement System (TRS) of Texas.

The committee met in the chambers of the Dallas City Council, which oversees pensions for the city’s police and firefighters that have come under scrutiny as of late. Dallas Mayor Mike Rawlings was the first witness to testify, thanking the committee for legislation dealing with issues pertaining to Dallas police and firefighter pensions and updating members on changes the city has put in place since the legislation’s passage.

House Pensions Committee meeting May 10, 2018 in Dallas.

Executive Director Brian Guthrie testified for TRS, laying out the basics of the $152 billion trust fund that serves 1.5 million active and retired members. The fund earned a return of 12.6 percent for fiscal year (FY) 2017, under an assumed rate of return of 8 percent. The fund carries $35.5 billion of unfunded liability and is 80.5 percent funded with an amortization period of 32.2 years, which Guthrie noted will change if the assumed rate of return is lowered. TRS manages two major healthcare programs: TRS-ActiveCare for active teachers and TRS-Care for retirees. Guthrie testified that TRS undertook a study in 2013 looking at the fund’s defined benefit structure, and will be producing an updated study this fall.

Turning to health care, Guthrie described TRS-Care as a “pay as you go plan.” The state’s contribution to the plan is 1.25 percent of active employee payroll, while school districts contribute .75 of active employee payroll and active employees contribute .65 percent of their paycheck. Retirees contribute to the plan through premiums. The plan faced a $1 billion projected budget shortfall heading into the last legislative session, and lawmakers of the 85th Texas Legislature put $700 million into the system in order to keep the fund from folding. While the infusion was able to prevent retirees from losing their health care, it wasn’t enough to avoid increases in costs and reductions in benefits.

Even with the changes, which included increasing premiums, the fund faces a $400-600 shortfall heading into the next biennium and ongoing shortfalls moving forward. Guthrie attributed the increase to legislation accompanying the added funding that directed the agency to ease cost increases. Guthrie indicated the primary problem is with the fundamental design of the funding formula, noting that healthcare costs are increasing far more quickly than revenue received from active employee payroll, which is the basis for the funding formula.

The largest cost increases are associated with plans that include coverage for dependents, and TRS initially offered retirees the option of permanently leaving TRS-Care for an insurance plan on the private market. Chairman Dan Flynn (R-Canton), members of the committee and legislators representing the Dallas/Fort Worth Metroplex pressed Guthrie to find a way to protect benefits, in particular prescription drug costs. Guthrie testified that the agency is studying all possible avenues, but the fund design presents the largest challenge.

Finally, Guthrie explained TRS-ActiveCare as a group insurance program for small to midsize school districts that would be otherwise unable to provide their own insurance programs. The state provides $75 per member, per month through the school finance formulas, districts contribute a minimum of $150 per month, and individual members are responsible for the remainder. Minimum state and district contribution levels have not changed since the plan’s inception in 2002, and employees’ share of the premiums has increased to 60 percent from 30 percent over the last 14 years. Because of rising healthcare costs, TRS board members voted at their most recent meeting to raise premiums for individual members between five and nine percent, or seven percent on average.

Because TRS-ActiveCare is funded through the school finance formulas, Guthrie suggested that any changes to TRS-ActiveCare would best be addressed as part of lawmakers’ broader efforts to reform the school finance system.

House Public Education Committee Chairman Dan Huberty (R-Houston) sharply questioned Guthrie over the board’s anticipated July vote to lower the fund’s assumed rate of return to 7.5 percent from 8.0 percent, despite returning 12.6 percent for FY 2017. This would cost an additional $1.2 billion on top of the $400-600 extra needed for TRS-Care, for a total ask of $1.6 billion on top of the $3 billion in base funding already designated for TRS. Guthrie testified that the agency’s fiduciary responsibility requires staff to provide an accurate estimate of what the fund is anticipated to produce.

A representative from Arlington ISD asked the board to consider allowing school districts with more than 1,000 employees to opt out of TRS-ActiveCare and provide their own insurance programs, pointing out that family healthcare costs under the TRS-ActiveCare high-deductible plan could account for more than a third of a first-year teacher’s annual salary. Chairman Huberty noted that such an arrangement could adversely impact TRS funding by reducing the broader pool of active TRS members.

Texas Retired Teachers Association (TRTA) Executive Director Tim Lee thanked the Texas Legislature for making the minimum changes necessary to keep TRS-Care from failing entirely. Lee suggested that 14 years may have been too long to go without increasing premiums, and pointed to the Employee Retirement System (ERS) as an appropriate benchmark for TRS. Going forward, Lee testified the only long-term solution is pre-funding the program, which would be even more costly than migrating TRS members to ERS. Lee indicated that retirees will be unable to countenance further cost increases, and noted that 36,400 people have decided to leave TRS-Care for the individual market.

Staff from the Pension Review Board (PRB) testified regarding the agency’s efforts to improve defined benefit programs. The board has ordered staff to develop an online dashboard of Texas public pension data, to study potential legislative recommendations regarding how systems whose funding is set by legislative statute can respond to changes in market systems, to study how systems of scale could be utilized to improve groups of smaller plans, and to conduct intensive actuarial reviews of systems with risk that threaten their long-term stability. PRB staff noted that ERS has already lowered its estimated rate of return to 7.5 percent from 8 percent, which TRS is currently contemplating.

The committee then opened the table to public testimony, and dozens of retired teachers voiced their concerns regarding healthcare and the defined benefit structure of the TRS pension program. Many shared heartbreaking stories of seeing fixed incomes virtually consumed by skyrocketing premiums even before paying the increased costs for services and medication. Retirees also expressed concerns regarding changes to the assumed rate of return.

 

Making better use of the state’s rainy day fund when it’s not raining

The Senate Finance Committee met today to take up a number of Senate interim charges. Among them, the committee took up the charge to examine options to increase investment earnings of the Economic Stabilization Fund in a manner that minimizes overall risk to the fund balance and to evaluate how the Economic Stabilization Fund constitutional limit is calculated; considering alternative methods to calculate the limit, and alternative uses for funds above the limit.

the Texas Economic Stabilization Fund, often referred to as the state’s rainy day fund, is a mechanism that diverts a part of the severance taxes the state collects on oil and gas production and sets those monies aside to fill budget shortfalls resulting from temporary economic downturns. The fund, which has been used many times since its inception, has in recent years grown to approximately $11 billion, larger than at anytime in its history.

During the last session lawmakers facing stiff budget constraints began to discuss how they could better utilize the rainy day fund, other than continuing to stuff cash into the state’s proverbial mattress. One idea floated by Texas Comptroller Glenn Hegar was to take a portion of the fund and invest it as an endowment such that the investment returns could be used to help pay for state priorities, like shoring up the state’s pension funds. Legislators were not comfortable acting on that idea without more time to vet it.

In today’s hearing Hegar reintroduced the idea of investing the whole of the rainy day fund in very liquid assets that would allow for a return that roughly matches the inflation rate and investing a portion of the fund, in excess of what legislators think they might need quick access to, in less liquid assets that would generate a higher return. The Comptroller’s office predicts that an investment of $3 billion, with additional biennial investments over a certain threshold, would within 10 years accumulate to a fund that generates $1 billion a year in usable revenue. In 20 years, that projection jumps to more than $2 billion a year. The idea was received fairly favorably.

One of the things the state has used the rainy day fund for in recent years is to justify credit rating firms’ assignment of a AAA (the highest) credit rating to the state. Having a AAA rating allows the state and school districts through the Permanent School Fund (PSF) bond guarantee program to pay the lowest possible rate on bond debt. It was pointed out in the hearing however, that the rainy day fund is only one factor those firms look at when assigning a score. Another, more heavily weighed factor is the health/unfunded liabilities of a state’s pension funds. Both TRS and ERS need improvement to ensure the state is able to keep its current rating. A downgraded rating could cost the state billions in additional interest over the life of the state’s and school dostricts’ many bonds.