Pension Fund for Educators

The Teacher Retirement System of Texas manages pension funds for Texas public education and some higher education employees, and oversees the TRS-Care health insurance program for retirees and the TRS-ActiveCare health insurance plan for public school employees. TRS is governed by a nine-member Director's council, appointed by the governor and confirmed by the Texas Senate.

During the 2005 legislative session, the Legislature passed Senate Bill 1691, an omnibus TRS bill that made several changes to retirement benefits. Employees nearing retirement were exempted from certain changes via “grandfather” clauses. This document reflects the new, revised law; former law that applies to the employees meeting the grandfather provisions is noted in italics.

TRS active members contribute 6.4 percent of their monthly salary to the pension fund, and the state also contributes 6.4 percent. Each active member also contributes .65 percent of his/her salary toward TRS-Care, the health insurance plan for retired school employees. TRS members receive an annual statement each fall reporting the status of their individual contributions, service credit, account balance and other information.

A TRS member may retire and receive the standard annuity at:

(1) Age 65 with five or more years of service credit, or

(2) With at least five years of service, any combination of age and years of service credit totaling at least 80 (the Rule of 80).

Employees entering the system or re-entering (having withdrawn service credit) after Aug. 31, 2007, will be subject to a minimum age requirement of 60. An employee under age 60 who meets the Rule of 80 could retire, but would be subject to a 5 percent reduction in benefits for each year below 60. Example: an employee meeting the Rule of 80 who retires at age 58 would receive a 10 percent reduction in the normal benefit. Employees who began employment prior to Aug. 31, 2007, are exempt from this provision and will not be subject to a minimum age requirement (unless they withdraw contributions and re-enter the system after Aug. 31, 2007).

Early retirement

Other options are available for retirement under a reduced formula for members not meeting the above criteria. The amount of the reduction will depend on whether the employee falls under the provisions of SB 1691.

An employee can opt for early retirement if the employee is at least 55 with five or more years of service, or has at least 30 years of experience but does not meet the Rule of 80.

The penalty for early retirement can be severe for an employee who has fewer than 20 years of experience, but varies according to age; for example, an employee who is age 55 with between 5-19 years of experience would receive only 47 percent of the standard annuity, while a 64-year-old employee with 5-19 years of experience would receive 93 percent of the standard annuity.

An employee who on Aug. 31, 2005, was at least 50 years old, or met the Rule of 70 (age and years of service credit total at least 70), or had at least 25 years of service credit, is subject to a milder penalty if the employee has at least 20 years of service credit at retirement, with a reduction of 2 percent for each year by which the employee is short of the Rule of 80. A grandfathered employee with 5-19 years of service credit is subject to the larger reduction as noted above, ranging from 47 percent to 93 percent.

An employee with at least 30 years of experience who does not meet the Rule of 80 is penalized 2 percent for each year shy of the Rule of 80. For example, an employee who is 45 years old with 30 years of experience (totaling 75) would be penalized 10 percent, and would receive 90 percent of the standard annuity.

If a member leaves the school system before meeting the criteria for retirement with either full or reduced benefits, the member may withdraw the money contributed to date, plus interest earned, but will not receive an annuity.

Important note: Any employee retiring after Aug. 31, 2005, who does not meet the Rule of 80 or have at least 30 years of service credit will not be eligible for TRS-Care, the retiree health insurance.

Calculating benefits

To calculate your TRS retirement benefits, use the following formula:
(1)Multiply your years of service credit by 2.3 percent. (Example: if you have 30 years of service credit in TRS, 30 x 2.3 = 69 percent.)
(2) Figure the average of your five highest years of salary. *
(3) Multiply your average salary (from step 2) by the number from step 1. This is your annual TRS standard annuity.
(Example: $40,000 x 69 percent. This person’s standard annuity would be $27,600 per year.)

* An individual who on Aug. 31, 2005, was at least 50 years old, or met the Rule of 70, or had at least 25 years of service credit will have benefits based on the three highest years of salary.

A member entering the system after Aug. 31, 2007, would be subject to a 5 percent reduction in benefits for each year under age 60 upon retirement, even if the employee meets the Rule of 80.

Active employee and retiree health insurance

TRS is responsible for the separate state health insurance plans that serve active employees (TRS-ActiveCare) and retirees (TRS-Care). Details of these plans are on pages 32-33.

Deferred Retirement Option Plan (DROP)

Prior to Jan. 1, 2006, the Deferred Retirement Option Plan (DROP) was available to active TRS members with at least 25 years of service credit in the system who met the requirement for retirement with an unreduced annuity.

DROP allowed eligible school employees to continue to work while building a nest egg by accumulating funds through the retirement system that could be withdrawn at retirement as a lump sum or in installment payouts. DROP was closed to new enrollees after Dec. 31, 2005.

Partial lump-sum option (PLSO)

As an alternative to the DROP, retirees can select a partial lump-sum distribution of cash in exchange for a lower future monthly retirement benefit. This program is available only to members who are eligible for unreduced retirement benefits and who have not entered the DROP. The member must meet a Rule of 90 upon retirement in order to be eligible for the PLSO. The maximum lump sum that may be taken is an amount equal to 36 months of a member’s monthly retirement benefit. For more information and to calculate the reduced standard monthly benefit under the partial lump-sum option, visit the TRS website.

An employee who on Aug. 31, 2005, was at least age 50, or met the Rule of 70 (age and years of service credit total at least 70), or had at least 25 years of service credit does not have to meet the Rule of 90 upon retirement in order to be eligible for the PLSO, but must meet the requirement for normal (unreduced) retirement.

Retire/rehire

There are several options available to retired school employees who wish to return to active employment.

Persons who retired prior to Jan. 1, 2001, may return to employment in any position with a public school or charter school without restriction and with no loss of retirement benefits.

Teachers retiring on or after Jan. 1, 2001, may return to employment with no loss of benefits under these conditions:

• The teacher must not have retired with a penalty for early retirement.
• The teacher must have a 12-month break in service from any employment with the public schools.
• The teacher must be certified in the area in which he/she is assigned, and must be teaching in a shortage area as defined by the school district. The commissioner of education has developed guidelines to help districts with the determination of those shortage areas.
• Districts must give hiring preference to certified applicants who are not retirees.

Retirees (other than early retirees) can return as bus drivers without the 12-month break in service. An employee retiring after Aug. 31, 2005, under the bus driver exemption must qualify as “primarily” a bus driver (i.e., an administrator with one bus route would no longer be able to take this exemption).

Retirees (other than early retirees) certified as principals can return to work as principals or assistant principals, but must have a 12-month break in service from employment with the public schools.

There are other longtime provisions that allow employees to return to work after retirement with only a one-month break in service. For example, the retiree can return to work on a full-time basis for up to six months or on a part-time basis without experiencing a loss of benefits. If the full-time employee continues working beyond six months, TRS will discontinue retirement benefits until the employee ceases working (during the summer months, for example) or until the following September, when the six-month cycle can begin again.

Districts are required to make contributions to TRS (12.8 percent of salary) and TRS-Care (the difference between the member premium and the actual cost of the insurance coverage) on behalf of a rehired retiree. Pursuant to legislation initiated by TCTA, this surcharge is not required for employees who retired prior to Sept. 1, 2005.

State law does not prohibit districts from reducing a retiree’s salary to help offset the cost of the surcharge, though local policies may differ in this regard. However, districts cannot pay less than the amount to which the employee would be entitled under the state minimum salary schedule.

A successful TCTA-initiated bill ensures that a retiree returning to work under the six-month exemption can work as late as June 15 without losing the June TRS check, and provides that professional development activities are not counted as “work” that would jeopardize a TRS check for those who have returned to work under the six-month exemption.

Purchase of service credit

Teachers can purchase different types of service credit in the retirement system, including:

1) Previously withdrawn credit from prior service in Texas
2) Out-of-state service (up to 15 years)
3) Military service (up to five years)
4) Credit for accumulated sick leave (one year of credit for 50 unused leave days)

5) Developmental leave (up to two years)
6) Work experience (for career/technology teachers only; up to two years)

There are limits on the aggregate amount of time purchased, and the cost of different types of service credit varies among individuals (TRS can provide assistance in calculating the cost). Purchased special service credit counts toward the requirement to meet the Rule of 80 for TRS-Care eligibility.

Out-of-state credit will become much more expensive under the 2005 law for those who do not meet the following “grandfather” exemption. An employee who was a TRS member as of Dec. 31, 2005, with previous out-of-state service credit will be allowed to purchase that credit at the current reduced rate. Employees entering the system after Dec. 31, 2005, or whose out-of-state service is rendered after Dec. 31, 2005, will pay the actuarial cost of the out-of-state service, making it considerably more expensive to purchase.

TCTA offers four FREE online continuing professional education seminars relating to TRS. Members can earn 1.25 CPE credit hours by taking "Contemplating Retirement in a Struggling Economy," 1.75 CPE credit hours by taking “TRS Answers,” 1.25 CPE credit hours by taking “TRS update 2008,” and 1.25 CPE credit hours by taking “Retirement and Social Security Update.”

Updated: 09/28/09