Don't Mess With TRS Retirement Benefits!

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Pension Study:  A new official state study of options for changing Texas Teacher Retirement System pensions gives no comfort to private interests that want to get rid of guaranteed pensions for school employees.  

These private interests, personified by billionaire and former Enron trader John Arnold of Houston, aim to replace current defined-benefit pensions with an inferior defined-contribution option. Their pet idea, individually managed retirement accounts like a 401(k), would leave retirees at the mercy of the market's ups and downs.  It's a truly harmful idea, as the devastating losses suffered by individual 401(k) investors in the recent recession amply showed. These individual retirement accounts would also leave retirees at the mercy of private investment managers who could extract costly fees for their dubious services, further eroding the retirement accounts.

According to the study just published by the Texas Teacher Retirement System, “under a defined-contribution plan, 92% of retirees will ultimately receive less than the current defined benefit. Two-thirds would receive no more than 60% of the current benefit.” And that current benefit is already modest to begin with, because of the lack of a cost-of-living adjustment mechanism to protect the pension's purchasing power.

As the pension study further notes, some 95 percent of Texas public school retirees are not covered by Social Security. For most, the TRS pension benefit is their only assured retirement income.  It is what they depend upon in the absence of Social Security.

The pension study makes the telling point that switching to the new individual accounts for future retirees not only would lower benefits, but also would hugely increase state costs for many years to come. That's because the state would remain obligated to pay the guaranteed benefits promised to current retirees, but money flowing into the new individual accounts for future retirees no longer would be part of the pooled investments that help pay for current benefits. You can delve into more details of the TRS pension-design study here:…

TRS-Care:  Also at that same site you'll find the companion TRS study of the sustainability of the current TRS-Care health plan for retirees. This plan stands on a completely separate footing from the TRS pension system. The pension system is pre-funded, with the ability to pay currently projected benefits through 2075. In contrast, since the TRS-Care plan was created in the mid-1980s, it has been funded every two years on a pay-as-you-go basis.

This funding setup is forgotten from time to time, and then state officials profess to be startled that there's only enough money in TRS-Care to pay for the next couple of years of benefits. As the new study reveals, we are at that point once again. There now appears to be enough money to get through August 2015, but then the TRS-Care plan would require an infusion of new funding. This is legitimate cause for concern, but not for panic, and it is certainly no excuse for a stampede to shift the costs of health care from the state onto the backs of retirees.

For perspective, it is worth recalling that just a year ago we were told that the TRS-Care financial shortfall for the 2014-2015 biennium would be greater than $800 million. Since then, more favorable prescription-drug pricing and a move to exploit new cost savings within Medicare have altered the projections, so that without benefit reductions the TRS-Care fund “is now projected to be solvent through the next biennium.”

Source: Texas AFT


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