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There were 14 legislative hearings March 29 & 30 and, out of the hearings HillCo monitored, four of them discussed TRS. Please see below for the committee and a spotlight on the discussion regarding TRS. Note the entire spotlight, rather than just the key portion, of the hearing regarding the Joint House and Senate Committee on TRS Health Benefit plans will be included below since the entire hearing covered TRS.
 

House Committee on Insurance – March 30, 2016

Katrina Daniel, Teacher Retirement System

  • TRS Covered acquired brain injury prior to HB 2929; as a result, the bill did not increase TRS’ costs
  • Rep. Kenneth Sheets asked if TRS sees the same trend as ERS
    • Yes, maybe just an increase in utilization

 
Debra Diaz-Lara, Department of Insurance

  • TDI does not make determinations of medical necessity
    • Only review determinations made by health plans
  • Rep. Greg Bonnen asked which insurance products this statute applies to
    • The statute applies to fully funded insurance programs and ERS and TRS; does not apply to self-insured plans; applies to about 70% of policies
  • Bonnen asked about plans that state law does not apply to
    • There are a large amount of policies the law does not apply to; don’t believe the state has the authority to require those plans to comply
  • Bonnen asked what current enforcement procedures are
    • Starts with a management conference; after exhausting that TDI has the option of doing a market conduct exam

 

Senate Committee on Finance – March 30, 2016

Ken Welch, Teacher Retirement System

  • Gave background on system – serves over 1.4 billion Texans
  • Avg benefit just slightly over $2k a month
  • $8.9 billion put back into economy through pensions paid out by the system
  • Funding ratio – slightly above 80% , unfunded accrued liability is $33 billion
  • 60% of revenues come from investment earning over the life of the fund 
  • Schwertner – asked about rate of return – 8.84% and assuming going forward is 8% how does this compare to other products that assume a rate of return?
    • Most he thinks would assume a lower rate of return
    • Schwertner – thinks the rate is a bit generous and a bit concerning
  • Uresti – mention payoff in 2047, have looked at increasing payments
    • Will look at scenario and will get those numbers back to the committee
  • Bettencourt – hopes board reconsiders the rate of return, does not see 8% as a reasonable goal
  • Bettencourt – not a fan of defined benefit plans because of things like setting 8% goal
  • Kolkhorst – cost drivers were addressed a few sessions ago and thinks it is time to look more tweaks (retire/rehire), maybe defined contribution is the big gorilla – can TRS come to legislature with suggestions for tweaks to address fund
  • Schwertner – going back to concern on rate of return, does board have to use certain guidelines when assuming rate of return – as legislative body need to ensure board assumptions are in light of what legislature thinks
  • West – when did 8% of rate of return come into play?, but it has held pretty much held true to rate of return since it was put into place
    • Close to two decades  
  • Huffman – What happens if board moves rate of return to 6%?
    • Fairly dramatic shift, unfunded liability will be discounted back
    • Would have a much larger unfunded liability and would not have a funding period

 

House Committee on Pensions – March 30, 2016 

Brian Gutherie, Executive Director of the Teacher Retirement System

  • Trust fund of $128 billion
  • Provide pension benefits to 1.4 million active and retired teachers (1 million active, 400,000 retired)
  • Average annuity is $2,000 per month
  • Paid $9 billion in benefits in the last fiscal year
  • Assumed rate of return is 8%
  • Pension trust fund earned a return of negative 0.3% for fiscal year 2015 compared to 16.9% for fiscal year 2014.
  • TRS is 80.2% funded in ratio of liabilities to assets
  • Unfunded actuarial liability is $33 billion, with an amortization period of 33 years
  • Will conduct experience study; assessing mortality of members
  • On track to pay off unfunded liabilities by 2048
  • Biggest issues is funding TRS Care and TRS Active Care
    • Health programs were a product of joint select committee, chaired by Senator Huffman and Representative Flynn
  • Funding TRS Care programs is facing deficient of $1.6 billion in the next biennium
    • Facing shortfall last session of $768 million (only enough funding for 2 years given by the legislature)
    • Ending balance, the trust fund is so close to 0 by the end of the year
    • Will know by the end of next year in January if they need additional funding
    • Discussing it with the joint subcommittee, appropriations committee, etc. about problem
  • Active care is an affordability issue
    • Created 13 years ago
    • Designed to be contributed by the state, district, and the rest was paid for by premiums (30%),
    • Now members are contributing to 70% and it’s becoming unaffordable
    • Now some districts are opting out for a local program to lower rates. Concerned that if districts were allowed to leave it would create adverse selection. Will also see if members who opt out can return to the system after 10 years
  • Operationally, things are successful.
  • Office is London opened in November. Looking for direct co-investment opportunities and closed on 3 deals since the opening
  • Hernandez brought up the point that school districts aren’t able to return until 10 years
    • Gutherie: Depending on the size of the district and high cost events could lead them to come back into Active Care. Would need to develop a limitation to prevent adverse events and actuary came up with 10 years
  • Flynn asked for an update on London office
    • Opened in November
    • 4 employees from Austin and 2 contractors
    • Goal of the office is to provide a hub in European sector  and increase opportunity to source co investments and direct investments (lowered fees)
    • Surge of interests from funds of that marketplace
    • Leased real estate transactions and private equity deals
      • Pleased with early reaction
  • Trying to compete for elite dollars to lower risk and produce a better return for members

Joint Interim Committee on TRS Health Benefit Plans – March 31, 2016

 
The joint interim committee on TRS Health Benefit Plans met on March 31, 2016 to study and review the health benefit plans administered by the Teacher Retirement System of Texas.
 
Tim Lee, Texas Retired Teachers Association

  • We are funding TRS care with a pay-as-you-go strategy
  • Texas TRS benefits are about 30% less than other states
  • TRS plan participants are receiving about $126 towards healthcare each month while other state employees are receiving about $600 each month
  • Retired teachers pay $370 million each year in premiums
  • Bottom line is that we need more revenues to keep TRS sustainable
  • We can find additional cost savings, but there is no combination of plan design changes that comes close to fixing this issue without at least $1 billion or more

 
Beaman Floyd, Texas Association of School Administrators

  • In 2003, legislation was passed to create a direct stream from active school districts to TRS on a sliding scale from .25% of payroll to .75% of payroll depending on appropriations bill
    • About $180 million
  • Active employee contribution is also an issue
    • The system requiring active employees creates a competitive issue for hiring
  • We should look into ways to retain teachers and have them teach longer, they will be paying into the system longer

 
Josh Sanderson, Association of Texas Professional Educators

  • First priority is to preserve benefits for retirees, second is to maintain affordability, and third is to reduce the burden placed on those who contribute (active employees, school districts, and state)
  • We need to prefund TRS – it is costly but necessary
  • The stability of this program affects competitive advantage in hiring teachers

 
Ted Raab, Texas AFT

  • Retiree healthcare needs to provide good benefits and be sustainable
  • Prefunding makes the most sense and will be the most cost efficient plan long term
  • Willing to discuss plan changes, but expanded budget is necessary
    • Difficult to reduce benefits without being injurious to health
  • Need to be careful with pre-Medicare retirees; we need to focus also on janitorial services
  • Active membership in TRS is growing
  • Ratio of actives to retirees is much higher than in other systems

 
Lonnie Hollingsworth, Texas Classroom Teachers Association

  • Most effective option would be pre-funding; finically difficult, but effective long-term
  • There are a lot of dual educator families who wholly rely on TRS for healthcare after retirement
  • Cost reductions are possible, but there needs to be more funding and an expanded network

 
 
John Grey, Texas State Teachers Association

  • Healthcare costs have gone up for active teachers and retirees while benefits have been reduced
  • State’s contribution for active payroll has not kept pace with healthcare cost increases
  • Retired teachers live on fixed income of about $2,000 and disproportionately utilizes and needs the healthcare
  • Retired teachers are one of the most vulnerable groups

 
Brian Guthrie, TRS Executive Director

  • 260,000 current participants
  • Average net increase of 30,000 employees each year and increase of 14,000 retirees each year
  • Membership is 1.4 million members currently
  • Rep. Flynn asks what the tenure is for teachers
    • Average years of service for a retiree is 24 years
  • TRS was originally planned to be temporary, but it is entering its 31st year
  • State contributes 1%, district contributes .55% and employees contribute .65%
    • State picks up about 25% of cost
    • Percent of active member payroll
  • Costs of program are being driven by increases in healthcare prices
  • Goes over the plan – three levels of medical care coverage; TRS Care 1 is provided at no cost and TRS Care 1 and 2 have a range of premiums based on years served
  • When member reaches 85, Medicare becomes primary and TRS becomes supplemental
    • Pre-Medicare retirees are brunt of TRS costs
  • Expenses can be broken down into pharmacy claims and medical claims
    • Over time, the share of pharmacy claims has been increasing
    • Specialty drugs play a large role in pharmacy claims increase
  • At end of FY 16, there will be a balance of $500 million, which is a good sum, but is only worth about 4 months of funding
    • May need supplemental funding at end of biennium because we could be negative by August of 2017
  • In 18-19 biennium under same structure, we are facing a shortfall of $1.6 billion
  • We have increased contribution levels since 2000 and received supplemental funding
    • We have also made plan changes and restructured premiums
  • We required that all compound drugs go through additional approval process to prove drug is medically necessary
    • Look to close loopholes that abuse system
  • Options
    • Best option is to prefund the long-term liability
    • Could fund on pay-as-you-go basis through FY2021
    • Could fund on pay-as-you-go basis through FY2027
    • Retiree could pay full cost for optional coverage
    • Could require purchase of Medicare Part B; mandatory participation in Medicare Advantage and Medicare part D plans; otherwise, TRS Care 1
    • Fixed contributions for Care 1 for Non-Medicare retirees
    • Create a single consumer directed plan design for non-Medicare enrollees
  • There are no silver bullet options unless you commit to prefunding or fund on pay-as-you go basis for a 10 year period
  • State would have to contribute additional $1.9 billion dollars of $4.4 billion needed in 18-19 biennium to prefund and that would be expected increase overtime time with rising healthcare costs over the next 30 years
  • If state were to take on cost of pay-as-you-go basis through 2021, it would cost $1.9 billion over the 18-19 biennium and then they would come back each session and fund as you go
  • State share would go down if districts and actives were to take on the cost
  • If the cost was spread out across everybody including retirees, premiums would go up about 7%
  • To pay for 10 year solvency, state would pay $3 billion up front and about $3-3.5 billion over next 5 biennia
  • There are federal penalties that would mitigate some cost saving plans in the benefit under ACA; they would still yield cost savings, but not as large of savings because of penalties
  • Requiring retiree to pay full cost of optional coverage would have “catastrophic effects” on premiums; some would go from $200 range to $700 range monthly
    • Would also not be a lasting solution
  • Rep. Ashby says his constituents do not want to have mandatory Medicare participation because a lot of doctors in rural Texas do not accept it
  • Fixed contributions for Care 1 for non-Medicare enrollees would require education because it would be vast change to the way we do healthcare
    • Saves money, but saves less significant amount than some of the other options brought up
  • Sen. Estes asks if there is a computer model that allows combining of options
    • Working on “share the pain” model
  • Sen. Nelson urges permanent solution over kicking the can down the road
  • Rep. Stephenson says retired teachers should not have to shoulder cost increases

Public Testimony
 
Glenna Santo, Retired Teacher

  • Cannot receive TRS care in Lufkin and drives to Lewisville for healthcare
  • Taking out more than we are putting in

 
Carol Buchanan, Retired Teacher

  • Retired teachers are scared because of the drastic effects this can have on their lives
  • Retirees cannot shoulder cost

 
Dianne Hastings, Retired Teacher

  • State of TRS is bad for competition of Texas in hiring teachers
  • This will in turn affect businesses who will not bring their business to Texas

 
Bill Carpenter, Retired Teacher

  • Healthcare is a critical issue for retirees because as we age we use more healthcare services
  • It has been a long time since there has been a sustained increase in cost of living
  • Very pleased that the committee is looking at a long term solution
  • Want to urge the committee to get non-stakeholder experts as well as consumer input during the process

 
Bruce Gering, Texas Rural Educators Association; Superintendent

  • It is important to look at the entire system when studying TRS Care
  • Without a comprehensive look changing one plan could damage others
  • The solution cannot fall solely on the backs of any single group
  • There should not be any difference in the way ERS and TRS benefits are distributed

 
Jim Schiele, CFO, Eagle Mountain-Saginaw ISD

  • When outflow exceeds the inflow there is a broken system that cannot sustain
  • If ISDs bear the burden of the cost of this they cannot increase price to customers; it means teachers won’t get raises

 
Lynn Allen, Retired Teacher

  • Access to quality healthcare allowed the witness to survive congestive heart failure

 
Louise Watkins, Retired Teacher

  • Please try to keep premiums down so that they are affordable to members

 
Carol Smith, Blanco County Association of Retired Educators

  • Having quality, dependable, affordable healthcare coverage fosters less stress and better emotional, physical and financial health
  • Retired teachers already live on a fixed income and don’t have a lot of extra money

 
Tom Rogers, TRTA

  • Discussed the history of the statute relating to the TRS
  • During the 18 years between 1989 and 2006 an average of 1.6% per year shortfall between what was required by law and what the legislature appropriated caused a shortfall of $6 billion
  • With the additional $6 billion

 
Phil Mullins, Former TRS Trustee

  • Recommends the prefunding option