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TRS Update

April 18, 2013

Education Community Protests TRS Bills

The Senate Committee on State Affairs and the House Committee on Pensions heard testimony on the TRS omnibus bills, SB 1458 and HB 1884. Committee substitutes were offered for both bills, which would substantially alter retirement eligibility requirements and benefits. Notwithstanding these bills, the TRS defined benefit plan does appear to be secure at this time. No action has been taken on the bills yet.  TSTA, committee members, and numerous witnesses from other educational organizations have raised a number of concerns.

TRS Bills Being Heard Monday, April 22, 2013


TRS Update

By John Grey, TSTA Government Relations Specialist

September 5, 2012

Last Friday, TRS released the final drafts of the legislatively-required studies on the Pension Fund and TRS-Care. According to the General Appropriations Act, TRS was required to conduct a comprehensive review of potential plan design and other changes that would improve the long-term sustainability of TRS-Care, and the actuarial and fiscal impacts from potential changes to the TRS pension plan. The Trust Fund is actuarially sound for around the next 60 years, but the legislature is taking steps now to look at options in an attempt to make the Fund even stronger. As directed, TRS made no recommendations in the study. TRS instead presented facts and analysis. It is important to note that the Board of Trustees may not alter the benefit design or funding structure of the Trust Fund. That role rests solely with the legislature. In addition, current retirees will not be affected by any changes that could be made by the legislature.

TRS Pension Trust Fund Study
The study finds that maintaining the current defined benefit system is a better deal for the state and retirees. TRS was charged with studying: (1) changes to final average salary, eligibility, and multiplier; and (2) moving to a hybrid plan or cash balance plan. TRS also explored the following pension design issues: (1) balancing risk; (2) providing adequate replacement income; (3) offering value to members, the state, and other stakeholders; and (4) managing human capital.

The study on the sustainability of the Pension Fund clearly shows that if the plan is changed to a self-directed defined contribution (DC) plan (401k) or a pooled DC plan (401k), returns would be less than the current defined benefit (DB) system and administrative costs for these DC plans would be much greater than the DB system. In total, the study shows, compared to the current DB system, a DB/DC Hybrid Plan (401k), a 100% Pass-Through Cash Balance Plan (401k), a DC Pooled Funds Plan (401k), and a DC Self Directed Plan (401k) will all cost more and produce less. Further, those options mentioned also displace the outcome risk from the employer to the employee. It is painfully obvious that the current DB plan is the most cost-effective system that provides the greatest returns and benefits. In addition, completely changing the administration of the system would come at enormous cost.

TRS-Care Study
TRS estimates that TRS-Care will be financially depleted after the next biennium. Accordingly, TRS-Care is the more immediate concern. The law requires a basic plan at no cost for retiree only coverage. Optional coverage may be offered at a cost to retirees.

In the study, TRS focused on benefits and eligibility (including how benefits are managed), retiree premiums, and other contributions (state, district, active employee, and federal). TRS-Care funding from the state is based on payroll, which is actually declining. All possible options were explored in the study. TRS came up with nine options for the legislature to consider: (1) pre-fund the plan; (2) a pay-as-you-go system; (3) retiree pays full cost for optional coverage; (4) require eligible enrollees to purchase Medicare Part B; (5) opt-out consequences for participants eligible for the Medicare Advantage and Medicare Part D plans; (6) tighten eligibility requirements; (7) TRS-Care 1 only for non-Medicare retirees; (8) DC plan for non-Medicare retirees to shop in the private market; and (9) move non-Medicare retires to TRS-ActiveCare.
Once again, TRS made no recommendations regarding the direction of TRS-Care, but did suggest that options could be combined to achieve a favorable outcome.

Pension Hearing Next Week
Both of these studies will take center stage next week at the public hearing of the House Committee on Pensions, Investments & Financial Services. The hearing will take place over two days, September 12 &13, 2012 at 9:30 a.m. (each day) in the Capitol Extension, Room E2.010, and we highly encourage all those who are able to attend the hearings. It is estimated that TRS will appear and testify at the hearing on September 12 around noon. TSTA will appear and testify on behalf of our members regarding both studies. This hearing is important, but because the Chair of the committee (who favored keeping the Fund a DB plan) was beaten in her primary, it is unknown who the new Chair will be, and thus, the direction the committee may take next session.

TSTA is currently a member of a national pension coalition gathered to fight off the current onslaught of pension reformers, but we need your help as well. We need you to contact your state legislators to let them know where you stand on pension reform and TRS-Care. The so-called pension reformers know they will have a tough time changing the administration of TRS’ Pension Trust Fund, but we must remain vigilant in our advocacy for a defined benefit system. Stay tuned for more updates on the Pension Fund and TRS-Care.

The Board received an update on the legislatively-required TRS-Care Study. The study is supposed to address long-term sustainability of the plan. TRS-Care funding from the state is based on payroll, which is actually declining. Because this is a pay as you go system, the main factors that must be considered are eligibility, premiums, and benefits. All possible options will be explored in the study, which is expected to be made public in late August.

TRS revealed a couple of items that will be included in their Legislative Appropriations Request. The state currently contributes 6.4% to the Pension Fund. TRS is requesting that the state increase its contribution to 6.9% the first year of the next biennium and 7.4% the second year of the next biennium. TRS is also requesting the state contribute 1% to TRS-Care each year of the next biennium.

TSTA will be in constant contact with TRS over the summer as the legislative studies on the Pension Fund and TRS-Care are completed. Do not hesitate to contact us and TRS with your questions and concerns on these extremely important matters.


TRS Update

By John Grey, TSTA Government Relations Specialist

The Board of Trustees of the Teacher Retirement System of Texas held its quarterly Board Meeting on June 7 & 8, 2012. There was a lengthy discussion of the Pension Benefit Design Study, but there was nothing new to report. Staff discussed the actuarial modeling of benefit design structures, including cost and replacement ratios. If the four plans (100% pass through cash balance; DB/DC hybrid; DC pooled funds; and DC self directed) being compared to the current plan were set up to provide the same level of benefit, the relative costs and replacement ratios indicates that all of the alternative structures are more expensive than the current plan. Also, if the four alternative plans were set up so that the cost was the same as the current plan, a lower benefit level would be provided. The study still indicates that the current plan is the most cost effective and delivers the greatest benefit.

TRS- Care was the hot topic of the meeting. The new pharmacy benefits manager, Medco, was acquired by Express Scripts, and now Express Scripts will begin on September 1, 2012, as the new pharmacy benefits manager. This new contract is supposed to save the plan up to $75 million over a two-year period.

The Board adopted a resolution naming Aetna as the vendor for the Medicare Advantage Plan. The contract with Aetna is for two years, with four optional one-year renewals. To be eligible for the Advantage Plan, a member must be enrolled in either TRS-Care 2 or 3, and must have Medicare Parts A and B. The Advantage Plan will go into effect on January 1, 2013. Every eligible member will be automatically be enrolled with the ability to opt out. Enrollees will have their premiums lowered by $15 per month and their deductibles lowered by 50%. TRS expects significant savings to the plan with the introduction of the Medicare Advantage Plan, however, the savings will depend upon the participation rate.

In February, the Board voted to become a Medicare Part D provider. That decision is slated to save the plan up to $125 million over a four-year period. Today the Board approved plan design and premiums for Part D. To be eligible, a member must be in either TRS-Care 2 or 3 and be enrolled in either Medicare Part A or B. The plan will kick off on January 1, 2013. Eligible members will be automatically enrolled with the ability to opt out. Enrollees will receive a $5 reduction in their co-pays for Tier 1 generic drugs and Tier 2 preferred drugs. There will be no penalty for using brand name drugs when generics are available. Low income and catastrophic qualifiers will see a further reduction in co-pays. TRS' continuation as a Part D provider will depend on the U.S. Supreme Court's ruling on the constitutionality of the Affordable Care Act.

The actions by the Board regarding the Medicare Advantage Plan and Medicare Part D should make sure the plan stays funded through 2015.

Premiums for TRS-Care 1, 2, and 3 will remain the same for 2012-2013 and there will actually be some benefit enhancements during that time, including expanding the list of preventative services that will be allowed.

The Board received an update on the legislatively-required TRS-Care Study. The study is supposed to address long-term sustainability of the plan. TRS-Care funding from the state is based on payroll, which is actually declining. Because this is a pay as you go system, the main factors that must be considered are eligibility, premiums, and benefits. All possible options will be explored in the study, which is expected to be made public in late August.

TRS revealed a couple of items that will be included in their Legislative Appropriations Request. The state currently contributes 6.4% to the Pension Fund. TRS is requesting that the state increase its contribution to 6.9% the first year of the next biennium and 7.4% the second year of the next biennium. TRS is also requesting the state contribute 1% to TRS-Care each year of the next biennium.

TSTA will be in constant contact with TRS over the summer as the legislative studies on the Pension Fund and TRS-Care are completed. Do not hesitate to contact us and TRS with your questions and concerns on these extremely important matters.


TRS and the Public Pension Fight – TSTA Preparing for 2013
First Meeting on TRS Retirement Fund in Lubbock

By Ed Martin, TSTA Director of Public Affairs

Background

During the last legislative session, the legislature asked TRS to conduct a study of the TRS Trust Fund (retirement) and TRS Care and report its findings to the next session of the legislature. The TRS Board will have its first hearing on the TRS retirement fund in Lubbock on Thursday, February 16, beginning at 8 a.m.  TRS will be hearing "invited testimony" from "experts" on Thursday and is encouraging public testimony at its March meeting in Austin.

However, the Lubbock meeting will be available on the web. TRS is providing “Ask a Question” feature for TRS meeting/webcast to allow Teacher Retirement System members, retirees, and beneficiaries to watch the Feb. 15-17 board meeting live via webcast. And they will also be able to ask questions during the Feb. 16 discussion about the retiree health care and pension plan study. The meeting will also be recorded and available for viewing on demand.

During the last session, TSTA vigorously and successfully opposed changing the Teachers Retirement System of Texas’ defined benefit plan to a defined contribution plan. The TRS Trust Fund, unlike many local pension plans that are in financial trouble due to poor administration, is considered actuarially sound and secure for both retirees and Texas taxpayers.

However, groups like the Texas Public Policy Foundation and “Texans for Public Pension Reform” (a group headed by a private investment manager who sees an opportunity to make a profit) plan to make public pensions a big issue next session. Many smaller municipal and county retirement systems do not have the kind of investment safeguards that TRS has. Unlike TRS, many smaller DB plans have continually and drastically changed their contribution and investment structure and have included COLAs when the plans were not actuarially sound. These county and municipal plans have failed to protect the future of their members, but the same cannot be said of TRS. 

In short, TRS has been portrayed to be the poster-child for solid DB plans – not just in Texas, but around the country. We should expect a major push to change all DB plans to DC plans, but there are indications that TRS and ERS may be carved out of any reform legislation due to the performance and administration of their funds. However, TSTA and other groups will remain vigilant in our defense of our teachers’ retirement investments.

TSTA Presence at Lubbock TRS Meeting

TSTA staff will be present at the hearing and our local President, Cherie Jenkins of the Lubbock Education Association, will be joined by local TSTA leaders, TSTA-R members and other concerned citizens at a press conference on Thursday morning. TSTA has also produced "Don't Gamble With Our Retirement" signs that will be prominent at the meeting. And of course, we will update you after the meeting. The bottom line is simple: a defined benefit plan is better for both retirees and taxpayers. Here are the key elements of our message:

Don't Gamble With Our Retirement

  • Most teachers do not get Social Security. The Teachers Retirement System of Texas is the only retirement nest egg that many teachers have. They have earned it through years of dedicated public service to Texas children.
  • Teachers contribute more than half of the TRS premium - more than the state.
  • TRS is a solid, actuarially sound pension plan. Replacing it with a defined contribution plan would result in less-secure benefits for retirees and higher administrative costs for government.
  • A defined benefit plan attracts quality people to the teaching profession and encourages long-term service. It helps compensate Texas teachers for below-average pay.
  • Switching to a defined contribution plan would increase teacher turnover, erode valuable experience in the classroom and increase training costs for school districts.
  • TRS also provides school employees with disability and survivor benefits. A 401(k) plan would require state government or school districts to obtain these benefits from another source at a higher cost. Or, teachers would have to dig deeply into their own pockets to provide these benefits, further eroding their own modest incomes.

Ed Martin, TSTA Director of Public Affairs


 

TRS Update (12/06/2011)

by John Grey, TSTA Government Relations Specialist

Many educators in Texas have been misinformed or are unaware of Social Security laws that affect their retirement. The following question-and-answer document presents the facts about Texas educators and Social Security.

Will my eligibility for a TRS pension prevent me from collecting Social Security benefits?

No. However, all employees eligible for a government pension such as that provided by TRS who are also eligible for Social Security benefits are subject to two offset rules that can reduce the amount of Social Security benefits they are eligible to receive.

The Government Pension Offset (GPO) will affect you if you are eligible for a spousal or widow/er Social Security benefit.

The Windfall Elimination Provision (WEP) will affect you if you are eligible for a Social Security pension either from previous employment that paid only into Social Security or from employment in a district that pays into both TRS and Social Security. (Most Texas school districts do not pay into Social Security.)

Which Social Security benefits am I eligible to receive?

To be eligible for a Social Security pension benefit, you must be at least 62 years old and have a minimum of 40 Social Security credits. A credit is equal to a designated amount of earnings that increases from year to year based on national earnings averages. For example, employees received one credit for every $1,050 of earnings on which they paid Social Security taxes in 2008. Since an employee can earn a maximum of four credits per year, you must have worked in a job in which you paid Social Security taxes for at least 10 years or 40 quarters to meet Social Security eligibility requirements.

However, if your spouse is eligible for a Social Security pension, you might be eligible for a spousal or widow/er benefit. Typically, spousal benefits are equal to 37 percent to 50 percent of the spouse’s Social Security benefit and are paid to the dependent spouse while the other spouse is still living. Widow/er benefits are usually equal to 71 percent to 100 percent of the spouse’s benefit and are paid to the dependent spouse after the other spouse’s death. Eligibility is based on age and the number of years married to a qualified spouse. Contact your local Social Security office for complete information on which benefits you are eligible to receive.

How will my spousal or widow/er Social Security benefit be affected by my eligibility for TRS benefits?

Texas educators eligible for both a spousal or widow/er Social Security benefit and their own TRS pension benefit are subject to the GPO. The GPO reduces the amount such educators are eligible to receive as a spousal or widow/er Social Security benefit by two-thirds of the amount of their TRS pension benefit. In many cases, this results in a negative amount so these educators do not receive spousal or widow/er benefits.

Why does the GPO affect Texas educators?

Social Security spousal and widow/er benefits were created to provide security for people dependent on their spouses. They provide the spouse who does not work with some Social Security benefits based on the other spouse’s Social Security earnings.

However, if both spouses worked and are eligible for their own individual Social Security pensions, one spouse could still file for a spousal or widow/er benefit even though he or she is not dependent on the other spouse. This is known as dual entitlement. To prevent dual entitlement, the government implemented rules that reduce the amount of spousal or widow/er benefits a person can receive by the amount of his or her own Social Security pension benefit. These dual entitlement rules prevent double-dipping, or receiving both a Social Security pension benefit and a spousal or widow/er benefit.

However, some government employees, such as Texas educators, work in jobs that pay into government pension programs (such as TRS) rather than Social Security. Because these employees have little or no Social Security-covered employment, it appears that they are dependant on their spouses when in reality they are not. This situation allowed these employees to apply for spousal Social Security benefits without being subject to dual entitlement rules. The GPO was designed to mirror dual entitlement rules and prevent people eligible for a government pension (such as a TRS pension) from receiving a benefit created only for dependent spouses.

Is anyone exempt from the GPO?

As of July 1, 2004, House Resolution (HR) 743 stipulates that employees who work in a position covered by both Social Security and the government pension system for the last five years before retiring are exempt from the GPO. HR 743 also includes a transitional rule that would allow educators with previous employment in an entity that paid into both Social Security and TRS to count that time toward the five years required to gain exemption from the GPO. For example, if an educator worked three years during her career in a district that paid into both TRS and Social Security, that educator would only have to work her last two years before retirement in a district that paid into both systems in order to receive the exemption. However, the transitional rule cannot reduce the amount of time required to receive exemption from the GPO to less than one month and will only be effective until April 1, 2009.

Anyone who applied for spousal or widow/er Social Security benefits before April

1, 2004, can gain exemption from the GPO by working their last day before retirement in a position covered by both Social Security and their government pension system (TRS).

Trying to receive exemption from the GPO is a complicated matter that carries a significant risk. It is possible for those seeking exemption to lose accrued benefits such as pay increases, back pay and other incentives by leaving their current jobs. TSTA encourages members to schedule appointments with their local Social Security offices and meet with benefits counselors to investigate their options and situations thoroughly before making any decisions.

Can I return to work after retiring from a district that pays into both TRS and Social Security without losing my spousal Social Security benefits?
Yes. You will not lose your spousal Social Security benefits as long as you maintain your status as a retiree under TRS. You can retire and return to work in a TRS-covered position while still maintaining your status as a retiree by following the guidelines for employment after retirement outlined in the TRS Benefits Handbook.

I am eligible for both a TRS pension and a Social Security pension of my own. Which offset rule will affect me?

You will be subject to the Windfall Elimination Provision (WEP).

How does the WEP work?

The WEP affects Social Security benefits for people who are eligible for both Social Security and government pensions (such as TRS) by modifying the formula used to calculate their Social Security benefit.

The standard formula for figuring Social Security benefits averages a person’s pre-retirement earnings by dividing total pre-retirement earnings by 35 years, then dividing that amount by 12 to find the average monthly earnings (AME). The formula then multiplies the first $761 of the AME by 90 percent. The next $4,586 of the AME is multiplied by 32 percent, and the remaining amount of the AME is multiplied by 15 percent. The three amounts are then added together to determine a person’s monthly annuity.

The WEP modifies this formula for employees who are eligible for a government (TRS) pension by multiplying the first $761 of the AME by a smaller percentage that is based on the number of years the person paid Social Security taxes on substantial earnings (a designated amount adjusted yearly to reflect economic trends).

The percentage increases from 40 percent to 90 percent as an individual’s years of substantial earnings increase from 20 years to 30. For example, a person who has paid Social Security taxes on substantial earnings for 20 or fewer years will have the first $761 of his AME multiplied by 40 percent, whereas a person with 26 years of substantial earnings will have the first $761 of his AME multiplied by 70 percent, and so on up to 30 years. Once a person reaches 30 years of substantial earnings he or she is restored to the full 90 percent multiplier and is no longer affected by the WEP.

Why does the WEP affect Texas educators?

The Social Security system figures employees’ incomes based on the total amounts of their Social Security contributions. When figuring incomes in this way, employees such as Texas educators, who work most if not all of their careers in jobs that do not pay into Social Security, appear to have low incomes. The formula used to figure Social Security benefits is designed to provide low-income workers with a larger percentage of their pre-retirement earnings than that provided to high-income workers. The WEP modifies the formula to prevent providing employees, such as Texas educators, who haven’t paid into Social Security with a higher percentage of their pre-retirement earnings than that given to employees who have paid into Social Security for their entire careers.

Will working my last five years before retirement in a position covered by both TRS and Social Security exempt me from the WEP?

No. The exemption rule applies to the GPO only. The only way to be exempt from the WEP is to pay into Social Security for 30 or more years of substantial earnings.

If I rescind my TRS membership and withdraw my contributions from TRS so that I will not receive a TRS pension, will I still be subject to these offsets?

If you withdraw from TRS before meeting the minimum eligibility requirements for a TRS pension, you will not be subject to the WEP. If you withdraw after meeting the minimum eligibility requirements for a TRS pension, you will be subject to the WEP. You will not be subject to the GPO if you withdraw from TRS, regardless of whether or not you meet the eligibility requirements for a TRS pension. However, you will only be able to withdraw your own contributions plus interest and not the contributions made by the state on your behalf. Furthermore, you may be subject to penalties and taxes on the contributions you withdraw, further reducing the value of the investment. It is possible to avoid these penalties and taxes by rolling your TRS contributions into a qualified investment. Contact a financial planner for details.

For those considering TRS withdrawal to avoid the GPO, it is important to remember that the overall benefits you would receive if you are eligible for full spousal Social Security benefits would not be more than those you receive by being eligible for both a TRS pension and Social Security spousal benefits reduced by the GPO.