Analysis by Vance Ginn, item on-line. Key excerpts:
"With the 86th Legislature getting into full gear, Texas Gov. Greg Abbott has listed school finance reform and increased teacher pay as the first emergency item. Directly related to teacher pay is a teacher’s pension in the Teacher Retirement System (TRS) of Texas. Unfortunately, this pension plan is in dire need of reform.
We note that as of August 2017, TRS was funded at 76.1 percent. Some consider a funded ratio of 80 percent as “actuarially healthy,” but anything below 100 percent isn’t fully funded. At that time, the unfunded obligation was $35.4 billion (with an assumed rate of return of 8 percent).
The average annual return has been only 5.8 percent in the last decade—during a period of otherwise high returns in the markets. Assuming a more realistic rate of 6 percent would put the unfunded obligation at a staggering $85 billion.
Clearly, TRS has a massive problem on its hands, which must be addressed so that teachers don’t have to worry about these retirement funds, and so that current and future teachers don’t begin to avoid the profession because of this uncertainty.
One valiant attempt this session to address TRS’s problems is Senate Bill 393.
The bill requires that the contribution rates for the state, school districts, and active members increase gradually over a six-year period. The state would increase its contribution from 6.8 percent to 8 percent. Districts that don’t contribute to Social Security (most don’t) would increase their contributions from 1.5 percent to 2 percent. And employees would increase theirs from 7.7 percent to 9.5 percent.
SB 393 is a good start to the conversation to get to a fully funded plan that secures current teachers’ and retirees’ funds for retirement. Putting TRS on a path to a cash balance plan with a hybrid system would be better."
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