Tag Archives: rate of return

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.

Showdown at TRS quarterly board meeting

The TRS board met for its quarterly meeting in in Austin this week. Per the board’s new schedule all subcommittee meetings were held on Thursday, April 19, with the full board meeting today, Friday, April 20.

Thursday’s subcommittee meetings included the Benefits Committee; the Budget Committee; the Strategic Planning Committee; the Policy Committee; the Audit, Compliance and Ethics Committee; and the Investment Management Committee. Committee agendas are attached in the links above.

Perhaps most significant among the committee discussion was the recommendation of new rates and policy design for TRS-ActiveCare for the 2019/20 school year. ActiveCare is a pass-through program, meaning the amount of money coming in from the state is fixed and any additional expense to run the plan is passed through directly to ActiveCare participants. In addition to some level of recommended increase for each of the ActiveCare plans, the staff recommended that enrollment for ActiveCare-2, the traditional PPO plan, be capped to existing participants. The Benefits Committee moved to recommend the staff recommendations to the full board, which adopted those recommendations during their Friday meeting. More detail about each of the ActiveCare plans including costs can be found in tab 3 of the attached Benefits Committee Board book.

Other committee highlights included a discussion of the need for increased authorization to hire additional full time employees (FTEs). The additional FTEs would primarily be utilized to increase staffing (and decrease wait times) in the TRS call center, as well as to continue providing for the midrange staffing needs associated with TRS’s efforts to update its technology infrastructure, known as project TEAM. The new Strategic Planning Committee also held a lengthy conversation with TRS’s new director of communications. In laying out her vision, she emphasized being more proactive and less reactive in the agency’s communications.

The full board began its meeting today by taking public testimony. A number of active and retired educators were present to testify, as well as governmental relations professionals from three of the four statewide teacher groups (including ATPE) and Tim Lee, the executive director of the Texas Retired Teachers Association. By and large the testimony was focused on the board’s upcoming decision to change the expected rate of return on the pension fund later on today’s agenda, as well as personal stories of the real world consequences of changes made to the TRS-Care health insurance program. The TRS members expressed compelling arguments that the expected rate of return should not be lowered at all from the current 8 percent mark. Organizational testifiers were in agreement that lowering the rate from 8 percent to 7.25 percent was overly aggressive, and all supported a much more gradual approach to lower the rate, starting with dropping it first to 7.75 percent.

After public testimony concluded, the rate of return discussion was the first item taken up by the board. TRS executive director Brain Guthrie presented the staff position, which heavily favored a rate of 7.25 percent. At the end of that discussion, one of the board members appointed to represent TRS members moved to set the rate at 7.5 percent. The motion failed on a vote of four to four. Then one of the board members appointed from the financial sector moved to set the rate at 7.25 percent. That motion also failed on a vote of four to four. At that point the board postponed further action on the item until its July board meeting, and the board moved on to consideration of the rest of its Friday agenda.

You can watch an archive of the full Thursday committee meeting here and the full Friday board meeting, including public testimony, here.