Texas Retired Teachers Association. Preserving the TRS Defined Benefit Plan

Transcription

1 Texas Retired Teachers Association Preserving the TRS Defined Benefit Plan

2 What is TRTA? TRTA is a grassroots, non-profit organization of retired teachers, principals, superintendents, school bus drivers, & administrative personnel working together to preserve the Teacher Retirement System (TRS) and protect our TRS-Care health insurance benefits. TRTA is the only organization in the state dedicated solely to the preservation of TRS.

3 What is a Defined Benefit (DB) plan? A major type of pension plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending on investment returns It is defined in the sense that the formula for computing the employer's contribution is known in advance

4 The Teacher Retirement System DB plan You cannot outlive your benefits Funds are managed by TRS investment professionals You are guaranteed only the amount of your annuity at retirement There is no cost of living increase built into your annuity The TRS pension fund has to be actuarially sound for a pension increase (which may be approved only by the Texas Legislature)

5 The Teacher Retirement System DB plan TRS was created in 1937 and has been paying benefits to annuitants for 75 years Today s TRS Current Members: 1,003,886 Retirement Recipients: 312,680 Average Monthly Life Annuity: $1,897 Average Age of Current Retirees: 70.2 Average Years of Service: 24.6

6 Why is the issue of DB pensions prevalent now? DB plans across the nation that have experienced funding difficulties have led to widespread concern From 2009 through 2011, 43 states enacted major changes in state retirement plans to address long-term funding issues Changes included increasing employee contributions or age and service requirements for retirement, or both, and adjusting benefit provisions

7 Public DB plans in Texas are under attack! Houston area lawyer Bill King claims municipal DB plans (fire, police, etc.) in the Houston area are underfunded Texans for Public Pension Reform have lumped Texas TRS into the same category, although Texas TRS is 83% funded The Laura and John Arnold Foundation ( held a conference in September 2011 about reforming the teacher pension system in Texas

8 What are they saying about DB plans? Without significant changes to current systems, public pension payments will quickly crowd out other discretionary spending like education and public safety, says Dr. Josh B. McGee, Laura and John Arnold Foundation s Vice President for Public Accountability Initiatives. (

9 Bill King says. The truth is that we have significant problems and a looming crisis with most of Texas' public pension plans. There are many ways to address this problem. Private industry did so 20 to 30 years ago, mostly by freezing their existing defined-benefit plans and converting future pension benefits to defined-contribution plans. (

10 What they want to do Change Texas TRS and other public pension plans in the state from DB plans to defined contribution (DC) plans In a DC plan (such as a 401(k)) you are only guaranteed the balance in your account, which can fluctuate significantly due to investment earnings and employers not contributing as much to the account when budgets are tight.

11 Why are they promoting DC plans? To allow employers to reduce both benefits and their contributions significantly Ironically, the taxpayers of Texas have paid less for retirement contributions to TRS over the last 17 years than they would have paid under mandatory Social Security for public education employees

12 Why is a DC plan bad for Texas public education retirees? 95% of all Texas school district employees do not pay into Social Security and may not be eligible for any Social Security benefits TRS is often the only guaranteed form of retirement security for Texas public education retirees

13 Why is a DC plan bad for Texas public education employees? Among early Baby Boomers (born ), 35% are at risk of being unable to maintain their pre retirement standard of living after they stop working. This number is much larger for those with defined contribution plans (49%). In other words, having a defined contribution plan does not reduce retirement risks at all. DC plans cost almost 50% more than DB plans to administer, for the same amount of benefits!

14 Mandatory Social Security? If a transition is made to a DC plan, Congress could invoke mandatory Social Security. With 800,000 public school employees, the state or the school districts would need to find nearly $5 billion out of the budget per year to pay into Social Security (at the 6.2% employer rate). By comparison, the state put $4 billion into TRS in 2011 and only $3.64 billion in Current employees would also have to pay in the normal employee rate of 6.2%.

15 This could also harm current retirees Changing TRS to another type of retirement plan today would hurt current retirees, because a contribution source for the fund (active employees) would disappear. 61% of TRS consists of investment earnings. Without contributions from active employees, which accounts for 20% of the value of the pension fund, TRS will be unable to maintain its current level of investment returns (9.2% over the last 25 years).

16 What can we do to change this discussion? GET INVOLVED NOW

17 Know the facts! The Public Pension Crisis in Texas is a Manufactured Crisis. Opponents have manufactured a crisis that doesn t exist in Texas They re attacking your retirement plan at the Texas Legislature They re counting on uninformed legislators and general public

18 Tell the Truth About Texas TRS! TRS is a fiscally healthy fund and is NOT in crisis like other plans across the country! TRS is well-funded at 82.9%. A national standard & prominent accounting guideline for measuring a fund's health is a funding level of 80% or higher. Many plans are considered actuarially sound if they meet the 80% threshold.

19 TRS is an economic stabilizer! In 2011, TRS paid almost $7.2 billion in retirement benefits. Nearly 95% of these benefit payments, over $6.7 billion, went directly to retirees who live in and spend these dollars in Texas. These benefit payments serve as a significant source of economic stimulus for Texas, providing for 98,900 permanent jobs statewide.

20 TRS is Good for Texas! Retirement benefits generated an estimated $690 million in state revenues and $280 million in local government revenues in $17 million in annuity benefit payments were made in Brown County alone in 2011! Benefit payments to all counties in District XV in 2011=$101.2 million!

21 TRS is Good for Texas! TRS provides capital for businesses in Texas. TRS has investment holdings in 73% of the 51 Texas companies included on the May 2011 Fortune 500 list.

22 TRS is the 5 th largest pension fund in the nation! Over the past three years the Texas teacher s fund has earned more than $45 billion, ranked in the 13th percentile on total return. TRS was named North America's 2011 Limited Partner of the Year by Private Equity International, recognizing TRS "as one of the most trusted and reliable partners to managers in the industry. (

23 Share our message! Contact your legislators, candidates for political office, active teachers, and fellow retirees! Remember, 1 out of every 20 Texans is a member of TRS! TRS Texas impacts all of us. We want to preserve the defined benefit plan for public education retirees now AND in the future!

24 Help us preserve the TRS defined benefit plan! Find out who your legislator is: Call or visit Contact TRTA with questions: Call or

25 Preserving the TRS defined benefit plan