Why Do Plans like the Teacher Retirement System work? And Who Wants It Gone?

Bill to Undermine Guaranteed TRS Pension Benefits on Committee Agenda Tuesday

Texas AFT will testify in vehement opposition tomorrow to a bill in the House Pension Committee that would put an end to the defined-benefit TRS pension system for all those hired after August 2012. The bill, HB 2506 by Rep. Warren Chisum, Republican of Pampa, would mandate that newly hired school employees enter a defined-contribution plan instead. Chisum’s bill is the latest version of a bad idea pushed by zealots of the far right without success for more than a decade.

Why Do Plans like the Teacher Retirement System work?



–A national study has found that defined-benefit plans like the TRS system get more bang for the buck, costing only 46 percent as much as defined-contribution plans for each dollar of benefits delivered. (That’s partly because large, pooled, professionally managed funds like TRS get better average returns than individual accounts that are partly eaten up by fees.)
–Defined-benefit plans like TRS thus are more efficient and cost-effective than defined-contribution plans. Two states that switched to defined contributions—West Virginia and Nebraska—found this out the hard way and have switched back in recent years.
–The TRS pension system has a funding ratio that exceeds the 80-percent level usually cited as the mark of a healthy fund.
–The TRS rate of return has exceeded the 8-percent rate targeted by TRS actuaries for decades.
–As a result, state taxpayers’ share of benefits paid is only about 20 percent. Earnings on investments cover some 60 percent of benefit payouts; the other 20 percent comes from employee pension contributions.
–Benefits in Texas are hardly extravagant, with 68 percent of TRS pensioners receiving less than $2,000 per month.
–The pension fund gained 14.8 percent last year, and over the years since the 8-percent target was set the average return has been 9.2 percent.
–Taxpayers put $2.3 billion into TRS last year, but the system was able to pay out $6.6 billion in benefits. The spending of those benefits generated $900 million in state and local taxes, so the net cost to the taxpayer for $6.6 billion in benefits paid was only $1.4 billion.