This report covers the responses House Pensions, Investments & Financial Services received for their RFI on Charges #2 and #4, relating to monitoring TRS’s implementation of high deductible regional plans and reviewing the actuarial soundness for the ERS and TRS. A complete list of responses for these charges can be found here.
The HillCo report below is a summary of information intended to give you an overview and highlight of the various topics included in the responses. This report does not cover the entirety of each response, but aims to provide an overview of the testimony submitted.
Interim Charge 2:
Justin Chapa and Dr. Marcelo Cavazos, Arlington Independent School District
- AISD commends TRS for actions taken to implement high deductible regional healthcare plans
- TRS meetings fall 2020; first time TRS has solicited broad stakeholder input on plan design
- Two new plans were added to provide members with greater choice
- Deductibles are lower and premiums are 7.5% less than the former plan
- This year AISD employees will save between $504 for employee coverage and $1,560 for family coverage
- Employee only coverage increased by 5%; family coverage decreased by 5.44%
- The decrease in family coverage will save AISD employees on that plan $924 this year
Monty Exter, Association of Texas Professional Educators
- Supports giving public school employees benefits equal to or greater than benefits provided to state employees
- Money provided by HB 3 with cost-saving measures from TRS only offers short-term relief
- Legislators need to index state contributions to keep up with inflation of healthcare costs
Beaman Floyd, Texas Association of School Administrators
- Supports ongoing policy concept of offering ActiveCare options if they do not threaten the existence, financial viability, and usefulness of the program
- Communications with stakeholders; the agency has made an effort to address the desire for options, including high deductible options, with various school districts
Brian Guthrie, Teacher Retirement System of Texas
- Effective September 1, 2020; Blue Cross Blue Shield of Texas (BCBSTX) will serve as the third-party administrator for TRS-ActiveCare
- Generated more than $90 million in savings per year for TRS-ActiveCare
- Polls consistently showed districts were looking to improve the affordability of premiums and deductibles for employees, particularly ones with children
- Providing improved pricing, more network choices, simplified coverage and a new plan with a lower premium and copays for doctor visits; will take effect on September 1, 2020
- Introducing a new plan TRS-ActiveCare, and redesigning TRS-ActiveCare Select to TRS-ActiveCare Primary+
- TRS-ActiveCare Primary: reduced premiums; copays allow participant to access care before meeting the deductible
- $250 reduction of individual deductible and $500 reduction for family deductible
- TRS-ActiveCare Primary +: lower premiums compared to 2019-20 plan year for every tier;
- $30 copay on therapy (went down from $70)
- Decreased out-of-pocket max by $1,000 for individuals and $2,000 for families
- There is no provision in state law to allow districts to opt-out
- Current statute prohibits a district participating in TRS-ActiveCare from making other group health coverage available to its employees
- Texas school districts outside of TRS-ActiveCare contribute more than districts inside of TRS-ActiveCare
- School districts outside TRS-ActiveCare contribute on average $407 per employee per month compared to $298 for districts inside of TRS-ActiveCare
- Experienced per-member cost growth well below the market with a cumulative increase since fiscal year 2013 of 7% compared to 24% for self-insured employers in Texas
Interim Charge 4:
Luther Elmore, AFSCME Texas State Retirees
- ERS is $12 billion short of meeting future obligations, 70% funded, and faces depletion by 2075
- Contribution rate has risen over the years with no cost of living adjustment for beneficiaries since 2001
- Asks legislature to address their commitment to state retirees from 2019 session in the 2021 session and financial support state retirees
Monty Exter, Association of Texas Professional Educators
- Supports allocating all available revenue to maintain actuarial soundness of the pension fund
- Supports an increased state contribution rate
- Supports an increase of the retirement formula multiplier
- Supports establishment of TRS benefits comparable to state employee retirement benefits, and continued control of TRS funds at state level
- Suggested next steps: improve transparency of agency investment strategies for TRS members, begin to create and fund a cost-of-living adjustment for TRS retirees
Richard Jankovsky, Department of Public Safety Officers Association
- Supports funding ERS and LECOS retirement system at actuarily sound levels
- Preserving defined benefit retirement plan for LECOS
- Suggests considering Comptroller Hegar’s Legacy Fund proposal to create a permanent endowment that would generate new revenue for state’s pension
- Supports achieving actuarial soundness of ERS fund
- Suggests allocation of tax funds to help remedy shortfalls
- An Actuarial Valuation found that ERS could remain solvent until 2075, but with market volatility may become insolvent within 30-40 years
- Contributions must increase in the 2021 legislative session to secure benefits for members
- Cost to the state when the fund is depleted is four times the cost of pre-funding the benefits
- Contributions and benefits are the tools we can use to rebalance ERS pension
- The Actuarially Sound Contribution request for the ERS plan is approximately $340m GR/GRD and $475 AF per year
- State should research possibility of using general obligation bonds to address underfunding of ERS pension
- Further cuts would likely lead to rushed retirement and inability to recruit/retain a workforce
- Current unfunded liabilities are benefits that have already been earned and cannot be changed by adopting a different type of retirement plan structure
- Provides detailed analysis of past investment opportunities that ERS could have made to improve returns
- ERS Trustees should direct their Investment and Advisory Committee to review the “alternative investment” strategy
- Suggests investing in the S&P 500 would benefit all stakeholders by improving returns
Steven Gassenberger and Leonard Gilroy, Reason Foundation
- Provides overview of current state of ERS and TRS, causes of pension debt, and probability analysis of various rates of return for ERS
- Concludes with five principles of pension resiliency to help guide redesign process for US state and local governments
- Provides an overview of characteristics of resilient retirement systems, including:
- Designed to manage risk through autocorrecting features such as variable contribution rates not fixed in statute, policy around assumption setting, amortization policy, etc.
- Avoid equity disparities, public service crowd-out, and runaway taxpayer costs
- Provides executive summary stating TRS pension trust fund was found to be actuarially sound with a 29-year amortization period (2019)
- Actuarial valuation found that the unfunded actuarial accrued liability will increase for about a decade before beginning to decline (2019)
- A reduction in state contribution rate will result in an equal reduction in the public education employer and active employee contribution rates
- Decreases in contribution rates negatively impact the fund’s amortization period and increase the unfunded actuarial accrued liability
- Gives background of Board of Trustees and their fiduciary practices including the Investment Policy Statement
- Independent evaluations of TRS have found that they are making sound investment decisions and “performing in a manner consistent with best-in-class peers”
Texas American Federation of Teachers
- Supports a cost of living adjustment for TRS members and continued funding outlined in SB12
- Contends that the state’s contribution must not be reduced as this will likely increase the unfunded actuarial accrued liability and lead to a longer amortization period
- Suggests that TRS’ investments are very important to a providing additional income, but market volatility makes these investments risky
- Recommends that legislature support the Sunset Staff report:
- TRS should use an independent or automated system to identify accounting inconsistencies
- Create a formal process for reviewing internal investments
- Should provide information about alternative investments in its annual financial report
- Transparency in investing may help to decrease fees that may cost TRS more in the long run
- If TRS reduced its fee structure by half, the fund could see $368 million in savings in the first year
Beaman Floyd, Texas Association of School Administrators
- Supports the continuation of the TRS defined benefits programs
- Need to “explicitly” review the projections of the direct payments from school districts in current law
- Opposed to further increases in the percentage of payroll amount of direct funding from school districts into the benefits system
- Views the current effort being made to fund the benefits program as more than adequate
- ERS now has a funding ratio below 70%
- The complete unfunded liability of ERS now stands at $13.6 billion
- Currently, the actuarial sound contribution rate is just over 25%.
- The contributions by the state, employing agencies, and workers, only total 19.5% ; gap prevents systems from performing optimally
- Majority of teachers in Texas do not receive Social Security, their pension must do everything
- The legislature funding ERS and TRS ensures the long-term economic health of the State
- A pension check puts out much more in economic value than its original cost
Ann Bishop, Public Employees Association
- The unfunded liability of the trust currently stands at $13.6 billion
- In 2019 the Legislature infused TRS with more than $1.1 billion and raised the state contribution rate; urging the State to take similar action now
- Legislature should make a substantial cash investment in the ERS Retirement Trust to stem the downward spiral and reduce the unfunded liability
- Legislature should consider adopting an actuarially determined contribution formula
- Would adjust contribution rates according to changes in investment performance or liabilities
- Claims this approach will save taxpayer dollars and reduce interest costs on an unfunded liability that is growing at $750 million per biennium
Texas Retired Teacher Association
- Number one priority next session is to preserve the funding plan passed through SB 12
- Deviation from said plan will re-score it and lower the projected value considerably
Texas State Employees Union (TSEU)
- Legislature must include an increase of 5.83% in the next budget to put the ERS pension back on track to full funding
- Actions that are needed this session: an increase to the state’s contribution, a direct cash infusion or a combination of both
Texas State Teachers Association
- Retirees need a periodic or one-time benefit enhancement and a true cost of living adjustment
- Strongly urges the Legislature to honor its commitment to increase its contribution to TRS according to the schedule determined in SB 12
- TSR beneficiaries serve as stimuli to the local Texas economy
- Any reduction in planned contribution rates will negatively impact the fund’s amortization period and only increase the unfunded actuarial accrued liability
Scott Christiansen, Texas Silver-Haired Legislature
- Need supplemental funding; like a long-term supplemental State appropriation plan, over several bienniums
- Will have to declare an ERS “emergency;” the groundwork for it should start now
- Between ERS and TRS, there are currently about 550,000 retirees/beneficiaries receiving monthly pension payments
- Estimate that this includes 10% (or more) of the Texas senior population that they represent