Because teachers deserve a secure retirement

Open Letter to the Texas Legislature

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Pay Your Bills Texas

The Teacher Retirement System (TRS) of Texas was created to provide retirement benefits to educators and their families as a form of deferred compensation for their service to the state and its children.

However, since 2003, contributions authorized by the legislature have not been enough to fully pre-fund future promised retirement benefits. As a result, there is at least a $46 billion shortfall in the dollars TRS should have on hand today to earn investment returns and be available to pay out earned monthly pension benefits promised to the education workforce.

This level of pension debt has been building for nearly two-decades. Back in 2001, TRS had more money on hand than it thought it needed. But by 2007, before the financial crisis, it had accrued $12 billion in debt. In 2013, TRS pension debt had ballooned to approximately $30 billion—and the shortfall has only gotten worse over the past five years.

The simple reality is that contributions into TRS are not adequate to ensure appropriate funding for the retirement system that 420,000 retired teachers, educational staff, and their dependents rely on for retirement security.

We are calling on the state legislature to take meaningful steps to address this issue. It would be a huge missed opportunity to end this session without adopting a serious plan to get TRS on a path to fiscal sustainability.

Why the Legislature Should Care

  1. The retirement security of TRS members — both current retirees and active employees in the education workforce — is being put at risk by not appropriately contributing to the system.
    • The existing $46.2 billion shortfall is not a hypothetical amount of money needed in the future. It is money that should be in the TRS trust fund today, earning investment returns, so that there is enough available to pay promised monthly retirement incomes without requiring higher contributions from taxpayers in the future.
    • Most teachers in Texas do not have access to Social Security, and many retired teachers rely on TRS as their primary source of retirement savings.
    • Further, for some TRS retirees, the lack of a cost-of-living-adjustment (COLA) on their pension has significantly eroded its value, making it hard to manage growing healthcare costs. Until the funded status of TRS improves, retired Texas teachers have little hope they will ever see a meaningful COLA.
  1. The estimated pension debt of TRS is equal to nearly all other state debt in Texas combined ($53 billion). It is fiscally imprudent to allow this debt to continue growing by not allocating appropriate contributions.
    • The longer Texas takes to reduce the shortfall, the greater the long-term cost of getting the debt paid down. Delaying appropriate action will mean more money than necessary in the future will be spent on interest payments as opposed to teacher salaries or funding for students.
    • The legislature should increase contributions to TRS to prevent the accumulation of further unfunded liabilities and eliminate the existing pension debt over time so that it does not pose a long-term fiscal threat to Texas’s fiscal stability. This will require further contributions.
    • Pension debt is a highly weighted factor that credit rating agencies use when they determine a credit rating. If Texas’s state credit rating were to be downgraded, it would cost the state far more in increased interest rates on bonds than the cost to shore up the TRS pension fund.

A fiscally sustainable, resilient, successful retirement system for teachers should not be a partisan issue. Doing the responsible thing and appropriately funding TRS is something that all members of the legislature can support.

What Needs to Change

The legislature needs to commit to a plan that will solve the funding problem by putting TRS on a path to fiscal health.

  • Teachers contribute 7.7% of their salary with every paycheck. The state contributes another 6.8% of total payroll, and school districts that do not pay into Social Security contribute an additional 1.5% of district payroll.[i]
  • These contribution rates are not insignificant, but they are insufficient.
  • Without a serious change, TRS estimates that it would be nearly 90 years before the retirement system gets back to being fully funded. And that estimate assumes that every actuarial assumption over those nine decades is exactly right. If there is another recession and financial downturn, the funded level of TRS could erode even faster.
  • The inadequate TRS contribution rates are also out of line with peer retirement systems. The contribution rate paid by the state of Texas to support teacher retirement is lower than that of any other state and is significantly lower than any other state that requires its school districts to participate in Social Security.

For TRS to be actuarially sound, our organizations believe it is important to increase contributions into TRS, starting this legislative session. Best practice and fiscal prudence suggest that the legislature should authorize contributions that will eventually match what TRS actuaries recommend based on reasonable assumptions.

How a Long-term Solution Should Start

The legislature may not get to the goal of full funding for TRS this session, but a necessary first step should include putting in place a plan that raises contribution rates to a level that at least brings TRS back into actuarial soundness under the state’s current definition of that term.

While putting in place a plan to raise current contribution rates is the first step, it should not be the last one. There are several other policies influencing TRS solvency that could be improved.

  1. TRS should move toward a system of actuarially determined contribution rates. At a minimum, the rates should follow the funding guidelines set forth by the Texas Pension Review Board, which include the following:
    • Require that actuaries take into account a reasonable assumed investment return when calculating how much should be contributed into the retirement system each year.
    • Eliminate the TRS shortfall over a period no longer than 25-30 years. In other words, any unfunded pension liabilities that exist today should be paid off no later than 2049.
  1. The definition of actuarial soundness should be examined and potentially updated.
    • The state currently defines actuarial soundness as a pension system being within 31 years of full, appropriate funding levels.
    • There has been movement in the actuarial community to shorten that window to 25 or even 20 years. State policymakers should consider the pros and cons of tightening our state’s definition.
  1. The policy for providing COLAs should be reviewed.
    • The Texas Pension Review Board’s Best Practices Guide suggests that all pensions should include a built in COLA to protect annuitants against loss of purchasing power over time. The PRB specifies that the COLA should not exceed the rate of inflation and that it should be pre-funded, not paid for on an ad-hoc basis.

Given these complexities, the legislature should create an interim study committee to ensure that any contribution rate increases adopted this session are a component of a more comprehensive plan to address all the reasons TRS has built up such a large pension debt.


[i] There is no analogous 1.5% contribution for employees of districts paying into Social Security, which includes approximately 4% of school district employees statewide; nor is there an analogous 1.5% contribution being made for higher education employees who are covered under the TRS system.

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The @TRSofTexas pension fund has a $46.2B funding shortfall. This threatens retirement security for thousands of educators. It’s time for the #txlege to keep its promises to teachers and fund TRS pensions. #PayTheBillTX #Equable #ATPE

The #txlege has only paid contributions to @TRSofTexas recommended by financial experts in 2 of the last 15 years, creating billions in debt. It’s time for TX to fully fund teacher retirement. #PayTheBillTX #Equable #ATPE

Using current contribution rates, it will take @TRSofTexas until the year 2105 to pay off its funding shortfall. And that’s only if the economy is good for the next 8 decades! The #txlege must act now. #PayTheBillTX #Equable #ATPE #PayTheBillTX #Equable #ATPE

Because @TRSofTexas wasn’t properly funded in the past, the #txlege spent $16B on debt payments since 2000. That’s $$$ not spent on retiree benefits, teacher salaries or school improvements. Waiting to fund TRS just grows future costs. #PayTheBillTX #Equable #ATPE

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Suggested Post Copy

The Teacher Retirement System of TX pension fund has a $46.2B funding shortfall. This threatens retirement security for thousands of educators. It’s time for the #txlege to keep its promises to teachers and fund TRS pensions. #PayTheBillTX #Equable #ATPE

Suggested Post Copy

The #txlege has only paid contributions to the Teacher Retirement System of TX recommended by financial experts in 2 of the last 15 years, creating billions in debt. It’s time for TX to fully fund teacher retirement. #PayTheBillTX #Equable #ATPE

Suggested Post Copy

Using current contribution rates, it will take the Teacher Retirement System of TX until the year 2105 to pay off its funding shortfall. And that’s only if the economy is good for the next 8 decades! The #txlege must act now. #PayTheBillTX #Equable #ATPE

Suggested Post Copy

Because the Teacher Retirement System of TX wasn’t properly funded in the past, the #txlege spent $16B on debt payments since 2000. That’s $$$ not spent on retiree benefits, teacher salaries or school improvements. Waiting to fund TRS just grows future costs. #PayTheBillTX #Equable #ATPE

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Who’s This From?

Equable and The Association of Texas Professional Educators (ATPE) are teaming up to ensure the long-term sustainability of Texas’ teacher pension fund. Through this alliance between local stakeholders and national retirement policy experts, we believe we can work together to encourage the right actions necessary to eliminate pension system shortfalls and enhance the availability of retirement security for all educators.

Equable is a nonprofit organization that works to facilitate retirement plan sustainability and income security throughout the country. Through rigorous research and analysis, Equable unlocks creative solutions to tough retirement plan problems.

The Association of Texas Professional Educators (ATPE) has been a strong voice for Texas educators since 1980. It is the leading educators’ association in Texas with approximately 100,000 members statewide. With its strong collaborative philosophy, ATPE speaks for classroom teachers, administrators, future, retired and para-educators and works to create better opportunities for 5 million public schoolchildren. ATPE is the voice of Texas public education. Learn more at atpe.org.