The House Pensions, Investments and Financial Services Committee heard from the state and local pension systems under its purview, including the Teacher Retirement System. During the meeting, TRS Executive Director Brian Guthrie informed members that due to improvements in the pension fund’s financial condition, a small cost-of-living adjustment for retirees could be possible.
Guthrie provided the committee with a briefing of agency operations, including the financial condition of the pension fund and health insurance programs. Unlike recent hearings, in which Guthrie was skewered by other committees for decisions including the controversial lease of expensive office space in downtown Austin, the members of the House PIFS Committee kept their comments and questions neutral and limited to requests for information.
Some highlights of Guthrie’s testimony:
- The pension fund has a market value of around $177 billion, up from $165 billion in August 2020.
- This healthy investment performance over the last several months, along with the increases in state, member and district contributions to the fund approved in last session’s SB 12, have improved its financial condition.
- Prior to the SB 12 contribution increases, the funding period for the pension fund was 89 years – this is the amount of time it would take to pay off the fund’s liabilities (member benefits) given the amount of revenue coming in (contributions plus investment returns). Texas law sets a benchmark of no more than 31 years, so the fund was considered actuarially unsound. After the improvements of SB 12 and recent growth due to investments, the current funding period is estimated at about 25 or 26 years.
- Upon questioning by the committee, Guthrie said that given the lower funding period, the system could likely afford a small cost-of-living adjustment for retirees of 3%, capped at $100 per month, but noted that this would increase the fund’s liabilities almost to the point of becoming actuarially unsound again. It remains to be seen whether lawmakers will move to authorize such an expenditure this session.
- TRS will not need to ask for additional funding to keep TRS-Care (retiree health insurance) solvent, as had become routine in previous sessions. There is currently a surplus in that fund and TRS anticipates that member premiums will be stable for at least the current biennium and possibly for at least another couple of years.
- ActiveCare continues to become less affordable for active members in the absence of additional state funding. A new problem has arisen because well over 100 districts have begun using their District of Innovation status to offer competing, local insurance plans in addition to ActiveCare. Competing coverage is not allowed under current statute. This siphoning off of participants, who tend to be healthier employees (more expensive employees who need better insurance benefits tend to remain in ActiveCare) is projected to cost the plan more than $40 million, and it could get worse. These increased costs, unless the state increases contributions, will eventually have to be passed on to members.