This sort of thing always makes me nervous.
Legislative proposals to shore up Texas’ two largest public pension funds could require teachers and state employees to work years longer than they must today to get full retirement benefits.
For example, a teacher who started in the classroom at age 23 may now take full retirement at age 52; that would increase to age 62 under House and Senate bills that are set for committee votes Monday.
Workers nearing retirement, such as those 50 or older, would not be subject to the new rules. But the changes would apply to about half of the active school employees, including everyone from cafeteria workers to superintendents, and about 64 percent of state employees.
Such major changes are necessary to protect the pension funds for the long term, given rumblings that taxpayers can no longer afford them, said Senate State Affairs Committee Chairman Robert Duncan, R-Lubbock.
Under Texas’ pension plans, the state and active members contribute a portion of pay to the funds, the Teacher Retirement System of Texas and the Employees Retirement System of Texas. That money is invested over time and guarantees a monthly check to a retiree until death.
“There is real hostility toward pensions. Even though we’ve done a better job in Texas, other states haven’t,” Duncan said, and that is fueling a national effort to convert public pensions to 401(k)-type retirement plans in which the employee bears all the risk of saving enough money for retirement.
New accounting rules could soon make the pensions’ funding gaps look a lot bigger, which, in turn, would expose the pensions to the political attacks that so far haven’t gotten traction in Texas.
“We can survive this if we make fundamental changes,” said Duncan, who has been an ally of public employees and carries a lot of weight on pension issues in the Capitol. “You just can’t throw money at it. You’ve got to make fundamental changes.”
But people who would be affected by those changes say the state is reneging on its promise to public servants.
“There is no excuse for defaulting on the framework of expectations that we have been working under for all these years,” said Hart Murphy, a high school social studies teacher in Austin.
The TRS bills imposing a minimum age of 62 for full retirement on about half of current school employees passed out of committee Monday. SB 1458 passed the Senate State Affairs Committee on a vote of 6-3, and HB 1884 passed out of House Pensions on a 5-2 vote.
Both bills continue to include these major provisions:
- a new minimum age of 62 for full retirement benefits for those not meeting the grandfather provision
- a grandfather provision that exempts employees who, as of Aug. 31, 2014, are at least age 50, or meet a Rule of 70, or have at least 25 years of experience
- a requirement that the employee meet the Rule of 80/age 62 criteria in order to be eligible for levels 2 or 3 of TRS-Care health insurance (A retiree under age 62 would be eligible only for the catastrophic coverage of level 1.)
- an increase in active member contributions to TRS to match an increased state contribution
- a benefit increase of 3 percent for retirees who retired prior to Sept. 1, 1994, capped at $100 per month
The bills were both amended to reduce the penalty for retiring under age 62 from 5 percent per year to 2 percent. This change would apply to employees who have at least five years in the system as of Aug. 31, 2014; anyone with fewer years, and future hires, would still be subject to the 5 percent reduction.
So, for example, a person not included in the grandfather provision, but who has at least five years of service credit by Aug. 31, 2014, who met the Rule of 80 but was only age 57 at retirement, would have had their benefit reduced by 25 percent (five years times 5 percent) under the previous version; under the new version, the penalty would be 10 percent (five years times 2 percent).
The minimum age of 62 is favored by some because of the large positive actuarial impact it has on the TRS pension fund. TCTA and other groups have met extensively with the bill authors (committee chairs Robert Duncan and Bill Callegari) and other legislators, and we can report that these lawmakers are working with members of the budget conference committee to try to get a higher state TRS contribution, which would help further improve the bill (such as extending the grandfather and/or providing an increase to more retirees).
At the very least, the state can kick in more to TRS. If the employees are being asked to sacrifice, the state can give up something as well, to minimize the impact. It’s only fair. The state made a promise and it needs to do everything it can to keep that promise.