The 2009 Regular Session enacted changes in the rates paid by the state for the two retirement programs serving higher education employees, reflecting a tight budget driven by the recent financial crisis.
The Texas Teacher Retirement System, a "defined benefits" plan, and the Optional Retirement Program, a "defined contribution" plan, are very different conceptually. Newly hired faculty members and administrators must choose one or the other, and the decision is permanent under the law. Neither plan is immune from a declining portfolio of investments, but ORP participants have much more immediate personal exposure to market fluctuations.
Let's take them up separately, in terms of what the 2009 Regular Session passed into law.
TRS
The state's contribution is set to decrease from 6.58 percent to 6.4 percent for active employees in TRS. However, it's possible the System board will adjust it upward, based on an expected ruling by the Attorney General regarding a "13th check" of $500 for retirees. In the 2007 Session the Legislature had raised the rate from the constitutional minimum of six percent to 6.58 percent. TRS members are urged to pay attention to official communications from the System in the weeks ahead. A forthcoming newsletter should explain the results of the Regular Session in updated terms, since much depends upon actions still to come.
Any downward movement of the rate is troublesome since the TRS fund, as reported here earlier, suffered historic losses of almost a third during the recent financial downturn. The goal of the TRS fund is to consistently achieve the statistical objective of "actuarial soundness," a calculation extrapolating forward for decades on the long term health of the fund. Some authorities have testified that, in order to reach such a goal right now, the Legislature would have to raise the state contribution to over 11 percent. The fund is so massive that, if the market returns to "normal" behavior over the next several years, the health of the fund should be restored, according to TRS witnesses this Session. However, it will be a while before benefits enhancements (such as increasing the multiplier or lowering the early retirement age) can be discussed seriously.
ORP
The Optional Retirement Program has always resisted generalization because state and local supplements affect the actual rate of contribution. Depending upon decisions made at the local institutional level, the rate of employer contribution will remain at the current maximum of 8.5 percent, even though the state minimum will be reduced to 6.4 percent.
To illustrate the complexity, please examine the following statement from a Coordinating Board official, sent to TCCTA on June 3, two days after the Legislature adjourned. (The Coordinating Board has legal jurisdiction over ORP.)
The state base rate for ORP is changing from 6.58% to 6.4% (same as TRS). The colleges are still authorized to supplement that up to 8.5%, so the maximum supplemental rate will be 2.1% rather than the current 1.92%.
ORP participants who do not receive a supplement will see their match go down by 0.18% (e.g., $90 less annually for a $50,000 salary). Colleges that have been providing a full supplement during the current biennium may continue to do so in the new biennium by bumping their local amount from 1.92% to 2.1%. However, the ORP statute and the GAA allow colleges to provide any supplemental rate up to a total employer rate of 8.5% (i.e., any supplemental rate from 0% to 2.1%), so it's possible that some colleges will choose to continue to provide a 1.92% supplement, which would also be a reduction of 0.18% for those participants.
The Coordinating Board's Ch. 25 rules provide that institutions can change their supplemental rate once per year.
Each September, TCCTA publishes an extensive analysis of TRS and ORP, with useful resources online for new hires and experienced educators alike.
The Coordinating Board's Ch. 25 rules provide that institutions can change their supplemental rate once per year.
Posted by: aion kinah | June 25, 2009 at 01:42 AM