Retired teachers in Texas face hurdle to pension boost Teachers continued on A8
State would have to OK at least $786M more in funding annually.
To give retired teachers a chance at a pension bump — something that hasn’t happened in more than a decade for some — the Legislature will have to approve at least an additional $786 million in funding annually, according to new data from the Teacher Retirement System of Texas.
Teachers say the new figure points to the need for the state to step up its contributions to the $147 billion pension fund, but conservatives say state lawmakers should consider restructuring the pension fund to make it more akin to a 401(k), a move unpopular among teacher groups.
Based on 11 different economic outlooks, system officials determined Friday that the pension’s expected return on investment likely won’t be as high over the next several years, dropping it from 8 percent to 7.25 percent. “Changes in marketplace and the global economic outlook” required the change, according to system officials.
Under state law, the pension fund must be considered fully funded for the next 30 years for the Legislature to approve an
‘If the Legislature doesn’t come up with a funding structure and all things remain equal, we won’t be solvent.’ Tim Lee Head of the Texas Retired Teachers Association
increase to retirees’ monthly payments, which averages $2,060. With the rate of return slipping, the Legislature would have to approve spending an extra $786 million per year to fully fund the pension system over the next three decades. To increase monthly pension payments, lawmakers would need to spend even more.
“If the Legislature doesn’t come up with a funding structure and all things remain equal, we won’t be solvent and be able to give retirees a raise in maybe 50, but more like 100 years,” said Tim Lee, head of the Texas Retired Teachers Association.
Any increase to the pension fund would come from the state, school districts or teachers. Teachers pay 7.7 percent of their salaries to the pension fund and the state pays 6.8 percent of the total teacher payroll. School districts pay much less, and those districts that pay into Social Security for their employees don’t contribute to the retirement system, which Lee said should no longer be the case.
Teacher groups also say the state should increase its contribution rate, which is the lowest in the country; the state with the next lowest rate is close to 15 percent, more than twice Texas’ rate, according to the National Association of State Retirement Administrators. The Texas Constitution prohibits the state from contributing more than 10 percent to the pension fund without voter approval.
“If they don’t fill in the hole, the hole gets bigger,” said Monty Exter, lobbyist for the Association of Texas Professional Educators. “But doing something doesn’t necessarily mean they have to fund the whole thing right off the bat. If (state lawmakers) were to come up with a plan that they put into law that funded the thing over a period of time ... that will be a very significant step.”
Divergent views
The pension review board of the retirement system voted 5-4 Friday to drop the rate of return assumption to 7.25 percent; the rate had been 8 percent as far back as 2007. The rate change doesn’t immediately change the amount of money retirees receive, but a lower rate can make the fund look worse than it really is, teacher groups said.
The state employee pension fund last year lowered its rate of return assumption from 8 percent to 7.5 percent.
Although teacher groups don’t dispute the accuracy of the lower assumed rate, they fear the latest change will fuel the conservative argument to toss the pension system and replace it with a defined contribution system, like a 401(k).
State Sen. Paul Bettencourt, R-Houston, a fiscal conservative, applauded lowering the rate of return assumption, saying that over the last decade or so, the actual average rate was closer to 6 percent. The actual rate of return rate tends to fluctuate — last year, it was more than 12 percent.
“If they don’t recognize the rate closer to 6 percent at some point, basically what you have is some massive deficits. The only way the fund balances is if the inflow and outflow balance,” he said.
Vance Ginn with the conservative Texas Public Policy Foundation said the 7.25 percent rate of return assumption is more transparent. He discouraged the state giving more money at the pension fund without considering restructuring the system.
“Defined contributions shores up the retirement for the workers. It will also be a plus for taxpayers across the state and really help teachers to know how much money they’ll get in their retirement and not to have to worry about how the state is investing their dollars,” Ginn said.
Louis Malfaro, head of the Texas chapter of the American Federation of Teachers, said the pension plan works and moving to a 401(k) system would cost teachers and taxpayers money.
“The far right doesn’t want defined benefit pension because it socializes the cost, it cuts the private sector out of a lot of making the money,” Malfaro said. The pension system is “such a good deal for a school employee to have this relatively small group of smart professional people doing the investment of $150 billion.”
‘A promise broken’
For Ella Wetz, who retired from Pflugerville’s school district in 2005, changes can’t come any sooner. She hasn’t seen a raise in her monthly pension check of $2,800 in 13 years while the cost of living in the Austin area has crept up and her health insurance costs have risen to $300 per month.
The Legislature last year authorized injecting $484 million in 2018 and 2019 into the state health insurance program for retired teachers, but cut some benefits by paring down the number of health care plans.
After retirees inundated lawmakers’ phone lines with concerns about the changes last summer, the Legislature in a special legislative session infused $212 million more into the system to lower premiums and deductibles, but it wasn’t enough to keep retirees from leaving the system’s health insurance program.
The American-Statesman reported in December that about 7,800 retired Texas teachers had asked to leave the state health insurance program created for them.
“This is again a promise broken,” Wetz said.