Traditional "defined benefits" pension programs such as the Texas Teacher Retirement System (TRS) will likely face organized efforts to convert them to "defined contribution" plans in the next Regular Session of the Texas Legislature. (Unlike TRS, the Optional Retirement Program, chosen by many college and university educators, is a defined contribution plan—similar to 401(k) plans that private companies typically provide for employees. Some lawmakers prefer such plans because they entail less long-term liability by the state.)
The Texas Public Policy Foundation, an influential small-government think tank, recently sponsored a forum during which commentators argued that programs such as TRS are unsustainable. The forum was covered in a recent article by Kate Alexander in the Austin American-Statesman. The move to alter the state's approach will likely include municipal employees—at least the ones with traditional pensions.
Last Session, a bill was introduced by Rep. Warren Chisum (R-Pampa) that would have gradually eliminated TRS, by "grandfathering" current members, but requiring new employees to enroll in a defined contribution plan. TCCTA lobbyist Beaman Floyd testified in opposition to the bill, which failed to garner support and died in the House.
Defenders of TRS argue that the fund is managed well and presently robust compared to many state programs around the country. True, it has not achieved "actuarial soundness," allowing policy makers to consider enhancing benefits for retirees, who have not had a cost-of-living increase in many years. But its investments have performed well in the wake of the recent financial crisis, and the portfolio is headed in a positive direction.
Current and prospective TRS retirees worry that, if new employees are taken out the system, it will affect the health of the fund—one of the largest in the country—in its ability to provide income security for the future. To make matters more perilous, many community college educators are not eligible to receive Social Security benefits.
Here are a couple of choice passages from the article in the AAS:
With a pension, the employee and employer both contribute to a professionally managed pooled investment fund, and the retiree is guaranteed a monthly benefit until death.
An alternative would be a plan similar to a 401(k), in which there is no guaranteed benefit and the employee bears the responsibility of ensuring he or she has adequate income to last throughout retirement.
Bill Hammond, executive director of the Texas Association of Business, said he expects public pensions to be a big issue in the next legislative session.
It's too early to tell whether the upcoming debate will focus only on legislative changes that will permit cities to alter their plans or include a broader overhaul of statewide funds, such as those that serve teachers and state workers.
And:
Critics say the discussion at Tuesday's forum was heavy on talk of daunting unfunded liabilities yet light on context and ideas.
"They're not offering real solutions," said Tim Lee , executive director of the Texas Retired Teachers Association. "It is rhetoric that is dangerous because it may jeopardize what is already working in the State of Texas."
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