The House Pensions, Investments & Financial Services committee met on May 23 to hear invited and public testimony on the following interim charges:

 

  • Conduct active oversight of all associated rulemaking and other governmental actions taken to ensure the intended legislative outcome of all legislation, including the following:
    • HB 1585, relating to the operations and functions of the Teacher Retirement System of Texas; and
    • SB 1444, relating to participation in the uniform group coverage program for active school employees and to a study concerning health coverage for school district employees.
  • Review and evaluate the actuarial soundness of the Teacher Retirement System (TRS) pension fund.
  • Study benefit enhancements, including a cost-of-living adjustment (COLA) for Teacher Retirement System (TRS) retirees.

 

An archive of this hearing can be found here.

 

This report is intended to give you an overview and highlight of the discussions on the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening Comments

  • Chair Anchia – Every member of committee voted for last session’s bill addressing cost of living adjustment; want to pursue similar legislation this session
  • Speaker of house asked for vigorous oversight of bills passed last session HB 1585 and SB 1444

 

HB 1585 & SB 1444

Brian Guthrie, Executive Director TRS

  • HB 1585 was our Sunset bill; Sunset review process has been very successful
    • Bill was not bogged down by amendments or stalled in the process
  • Are not subject to abolishment but get reviewed every 12 years; next cycle will be the 2032-2033 session
  • Legislation dealt with number of issues; one of most important employment after retirement
  • Were required to create an office of the ombudsman and a number of administerial changes
    • All have already been implemented
  • Were issues concerning understanding employment after retirement; many retirees thought they were following rules but were penalized
  • Simplified the process under HB 1585; any retiree retired before last calendar year started can return to work full time with no penalty
  • New rules only effect those that have retired since January 1, 2021; is a three-strike system
  • Chair Anchia – What are most common fact patterns for strikes?
    • Return to district they worked in as a substitute, then get hired as part time with more hours
    • Now have standard for work time per month; can now work 11 days total a month
    • Common for someone to accidentally work 12 days
  • Parker – Feel like we really need to revisit this to help retirees not get in trouble
  • New rules and requirements aren’t the barrier for them returning to employment, it’s the surcharges their required to pay
  • Ombudsman office was created immediately after session; headed by Lori LaBrie
  • Significant focus in the bill was on improving service levels within TRS
  • Resource restraints are main problem, now have authority to hire additional counselors to help this problem; not there yet, constrained with new economic realities
  • Successful in retaining employees during pandemic; a lot of people have left recently and hiring to fill these places
  • Chair Anchia – Your benchmark for client satisfaction? Has a third party told you what to do?
    • Use a third-party vendor to give us suggestions
    • Benchmarks appear in appropriations bill; want satisfaction in the 90s now in the 70s
    • Want to answer calls with whole time of two minutes, were only able to answer 10% of calls past year
  • In the process of selling physical headquarters; have a new space in Miller business district
  • Last decade investment team has been in leased space and new plan puts them in owned space
  • Parker – Is working from home helping with recruitment?
    • It is helping, but sometimes hurts; many basing decisions on ability to work from home
    • Some people asking if they can work outside of the state; employment laws in other states can hinder us
    • G. New Mexico is fine, but California isn’t possible because of restraints
  • Parker – Economics of building move?
    • Estimated $80-100m sale for old building; hoping to use this to offset costs
  • Rogers – Trend of people who want to be in the office?
    • Split between people happy and unhappy about coming into office; varies a lot by job
    • People seeing benefits of hybrid work model
  • El Paso regional office was authorized as part of Sunset process
    • Hoping office opens late Summer or early Fall; staff already hired being trained
  • Anticipate discussion next session about opening more regional offices to address unmet needs
  • Rogers – Are these additional offices contrary to trend of working from home?
    • Employees in these buildings are in person counselors; clients want face-to-face advice

 

Brock Gregg, Texas Retired Teachers Association

  • Sunset bill was a “smashing success”
  • Have not had to take any calls regarding someone losing entire pension check; was former penalty for someone who went back to work and worked over limit
  • Surcharge change is preventing school districts from hiring retirees; end up having to pay double for a retiree
  • Ombudsman position was filled immediately
  • Customer service is the issue and the agency is clearly working very hard to solve the problem
  • We have a quickly growing system and customer service needs to be the emphasis; they are working on it

 

Brian Guthrie, TRS

  • Speaking on SB 1444 which deals with active employee insurance program
  • Half of membership is in that program because many cities have own system
  • Bill closed problematic loophole
  • Districts now allowed to opt in or out of care; creates regional dynamic of rate setting
  • Used to be one set rate statewide

 

Katrina Daniel, Chief Health Care Officer at Teacher Retirement System of Texas

  • Districts allowed for first time to determine whether they want to leave or stay in active care
  • Retained 97% of districts; active care pricing is reflective of local coverage
  • Based pricing on internal and external actuarial team, used risk and cost of healthcare in areas to set rates
  • New plan year starts in September; try to set rates in spring so districts can set budgets
  • Alerted Governor’s office, looked at CARES Act funds and pair it with legislative appropriations
    • Hoping that funding could help prevent raise in premiums
  • TRS experienced that premiums in active care are directly affected by healthcare costs and some premiums are even lower
  • Areas with higher costs see no premium increase, lower cost areas see lower premiums
  • Chair Anchia – For those experiencing increases, that money was used to hold those increases flat for two years?
    • Is a direct reimbursement of COVID expenses and holds increases for one year
  • Chair Anchia – We can evaluate similar subsidiary in 2023? What would we need to provide a similar subsidy?
    • Are analyzing that now; took $451M to get us to this point this year; lowered premium
  • Chair Anchia – What factors go into calculations lowering premiums in one area while another area has increased?
    • Took statewide average cost of care, differences in cost of care regionally, differences in regional demographics, own historical cost varying by region, contract with vendors and access their discounts

 

Pamela McPeters, Texas Classroom Teachers Association

  • Appreciate the interest in keeping premiums level in 2024
  • Are seeking ongoing permanent solution for an affordable health insurance
  • Has been a crucial issue related to the teacher shortage
  • Premiums continue to rise while minimum contributions have stayed stable
  • Least expensive coverage is now $417 per month and for a family it’s over $1k a month
  • Ask committee consider a permanent solution by increasing that $75 state contribution and indexing that to healthcare costs or indexing to inflation in future years
  • Chair Anchia – Have had a material number of DISD teachers who have to go to public hospitals for routine procedures because of the unaffordability; recognize it is an “acute problem”

 

Monty Exter, Association of Texas Professional Educators

  • Emphasizing what Ms. McPeters said
  • Many teachers seeing annual pay decrease because despite small raises, insurance rates are surpassing raises
  • Concern about fiscal cliff being set up due to way this is being funded
  • Will take adhoc funding, but would prefer formal funding
  • Stevenson – Agree with you, the way we’re doing this does not provide revenue to the system
    • When rates were initially set they were set because of where the private market was
    • The private market has moved with healthcare inflation but we haven’t moved at all
    • Asking to be made analogous to the private sector
  • Chair Anchia – What would the number be if you had been analogous?
    • Probably 8-10% increases in that number each year

 

Review and evaluate the actuarial soundness of the Teacher Retirement System (TRS) pension fund.

Study benefit enhancements, including a cost-of-living adjustment (COLA) for Teacher Retirement System (TRS) retirees.

Brian Guthrie, TRS

  • Last FY ended with highest trust fund level at $201b and held steady for the first part of the year
  • Market taken a tumble since the conflict in Ukraine started and the actions by the Fed
  • Fund currently sitting at $190m; volatility is natural and we will not overreact due to the fund being down
  • Not changing long-term investment strategy due to these short term set backs
  • Are due for an actuarial update which will happen this Fall
  • Reason we are actuarily sound and ahead of schedule in paying off unfunded liability is due to SB 12 in the 86(R)
  • SB 12 created a stair step increase in contribution rates that would occur over a 5-year period
  • State contributions sit at 8% currently and next session will stop increasing at 8.25%
  • Member rate increased to 8% and will increase to 8.25% next session
  • Public and employers will be up to 2% FY 2025
  • TRS’s actuary recommended lowering return assumption from current 7.25% to 7%
  • Projected returns over the next ten years is at 6.9% and the next thirty years are at 7%
    • Are other projections which are lower
  • Overall peer average is at 6.99%
  • Benefit enhancement to retirees is overdue, but need to meet the threshold of being actuarily sound to have that discussion
    • Do not intend to “move the goalpost” by reducing to 7%
  • Parker – What are your thoughts on doing a COLA?
    • Cannot lobby for a position; how we do an enhancement is up to you as legislators
    • Could allow fund itself to finance enhancement by adding additional liability into system and system will pay it out overtime to pay for it
    • Or pay it up front, cost is less because of compounding effect; could also increase contribution rates
  • Parker – Do you do any ongoing assessment of retirees regarding the impact of their benefits?
    • We have started to; looking at purchasing power and impact of inflation
    • Purchasing power of retirees has decreased over time and has taken a major hit over the past two years
  • Will provide additional information about supplemental payments
  • SB 7 87(R) provided a supplemental payment as the same amount of their retirement check or the maximum $2400; in total cost $701m
    • Had issues with tax withholding; need to have a thoughtful discussion on whether to withhold taxes or not
  • Two bills for benefit enhancements filed did not make it through the process; 30% COLA capped at 100m before 8/31/2020
    • Would cost $2.8b, increase contributions over a period of time, or financing through the fund at a cost of $17.2b
    • Other bill 6% COLA and cost to finance was higher
  • Could provide variable COLA based upon how long they have been retired
  • Last COLA in 2014 did not apply to all retirees, only those prior to 2004

 

Brock Gregg, Texas Retired Teachers Association

  • Need a meaningful cost of living adjustment especially due to inflation; over half of the retirees have not had a COLA
  • CPI from 2004 to now is 53%; need is more than we can afford
  • Was a promise once we got to actuarial soundness, we would do a COLA; we are there
  • Does not have to be done through the system and can pay for it upfront
  • Inflation from the past two years has been 13%
  • If using a cap, needs to be at least $250 or more per month
  • Should include a study that looks at the buying power that ensures the system remains sound; could be a part of the experience study

 

Felicia Owens, Texas State Teachers Association

  • Retirees need a COLA; appreciate the 13th check from last session, but need a permanent solution

 

Monty Exter, Association of Texas Professional Educators

  • Are supportive of TRS’s proposal on rate of return with caveats concerning order of returns
  • Continuously going down over time is not a positive; past returns are not a guarantee of future returns
  • Will have competing bills next session on what the path forward is, but need a COLA
  • If are lowering return rate, need to prioritize funds there; the state has additional funds to use
  • Pre-funding is the way to go; if it is done within the pension’s system, could jeopardize the soundness of the fund
  • Next session need to focus on taking care of those who are already retired

 

Pamela McPeters, Texas Classroom Teachers Association

  • Need a COLA; current national average for cost of living annually is $60k and average annuity is $25.4K
  • Are other states that do an ongoing COLA and many Texas retirees have not seen a single COLA
  • Benefit increases; need to direct greatest increases to those who retired earliest, but recent retirees need to be helped as well
  • Previously, the legislature has enacted CPI catch-up plan
    • Approach we recommend for the 88th session
  • Suggest setting aside funding each session to begin pre-funding benefit increases

 

Eli Melendrez, Texas AFT

  • Is a 13% difference between annuity and purchasing power with inflation
  • Calling the legislature to have a 12% COLA to TRS monthly annuity payments
  • $1 now is worth 2/3 what it cost in 2004

 

Susie Hegar, Self

  • Is a retired teacher; need the legislature’s help to provide retirees with a COLA
  • COLA bills last session got lost in calendar committee
  • Due to recent events are living in a time of hyper-inflation

 

Nancy Byler, Texas Retired Teachers Association

  • Is a retired teacher; retired teachers are appreciative of the 13th check
  • Is time to consider a substantial COLA for all public-school retirees
  • Active teachers are not looking forward to retirement due to the current annuity levels

 

Dora Farias Kackley, Texas Retired Teachers Association

  • Retired educator from the RGV; retired school personnel have been forced to look for supplemental income because there has not been a COLA
  • Teachers, bus drivers, other staff are in need of a COLA; retirees are struggling based on income from 20 years ago
  • Teachers ask for COLA every session, have consistently been told no
  • Would like a 10-15% increase

 

Geanie Paul-Turner, Self

  • Highlights experiences of retired teachers severely limiting expenses & having difficulties paying for goods & services
  • Not right to not have a COLA for 20 years, disrespectful to retirees
  • Parker – Embarrassed you and your colleagues have to come up here; this is past due

 

Lidiya Valdez, AFT Retirees Plus

  • Retired teacher; appalled by what I and other retirees have to go through
  • Pension is not keeping up with inflation and the current cost of living
  • Retirees have lost their homes, cars, medication, etc. because they cannot afford it
  • Other states have COLAs and Texas needs a meaningful COLA now

 

Bobby Duncan, Self

  • Retired teacher from Odessa; retirees need the legislature’s help
  • Need to make a meaningful and continual COLA especially for those at the lower end of annuity payments

 

Evelina Loya, National Education Association

  • Retired teacher from El Paso
  • Notes herself and other teachers have to make tough choices on their limited income
  • Low pension amounts hurts recruitment into the teaching profession
  • Need a mechanism that allows for a COLA every few years

 

Steven Gassenberger, Reason Foundation

  • Have been researching the state’s public-run pension systems
  • Major pension systems around the country are moving their assumed rate of investment assumption down
  • Texas TRS is on the higher end of the assumption; recommend they go below 7 since there is investment risk ahead
  • Should move to actuarial determined contributions rather than those set in statute
  • Sunset recommendation spotlighted changing trend of asset allocation; moving from mostly bonds to alternative assets
  • Reason Foundation is a libertarian leaning entity; are agnostic towards public pensions systems
  • Anchia – Want more visibility for the alternative investments; not offering a value-judgement on whether they should be there?
    • Correct; is a necessary adjustment based on the global marketplace
    • Is an opaqueness in publicly disclosing those alternative investments
    • Florida FRS provides limited partner report on where the capitol is every year
  • Anchia – Stephenson has talked about a revenue-side solution; have you seen anything like that in other states?
    • Have talked to Stephenson on his insurance plans; have not seen schemes like that in other states
  • Stephenson – You need to see it, it is not a scam; it would work because it is based off of revenue that is sitting in a fund
  • Stephenson – Would be at no cost to the state
    • Would be happy to have further conversations with you; have not fit that forecasting in our model yet

 

Closing Remarks

  • Anchia – Committee last session was in “lock step” with the proposals today
  • Parker – Appreciate all the testimony today; look forward to work on these issues and be successful in moving this across the goal line in 2023
  • Stephenson – Will not be here next year as an elected official, but can help with this in other capacities