Lawmakers hold hearing on possible changes to teachers’ pensions

Rob D’Amico

Resounding response from educators: 
Changes wouldn’t make sense economically or for our retirement security!

Recent studies show that changing the current pension system for public employees from defined-benefit to defined-contribution plans—an idea being floated by some business interests—would significantly lower the benefits provided to public employees while adding astronomical costs to the state. The studies and further testimony from Texas AFT at today’s House Pensions Committee hearing provide a strong case for protecting and strengthening the current pension system for public employees.

“Since 95% of public school employees in Texas aren’t covered by Social Security, the goal for our Texas Teacher Retirement System fund should be simple: provide a secure, reliable pension supported by both employees and the state that makes a career in public education more attractive to high-quality educators,” said Linda Bridges, Texas  AFT president. “Unfortunately, when you’ve got a pool of money as large as the TRS pension fund, it becomes a target for all kinds of greed-influenced ideas that threaten the ability to provide for a modest but honorable retirement for our public servants.”

Currently, TRS and the state Employees Retirement System provide a defined-benefit pension, which pays a specified monthly benefit at retirement.  In contrast, some business interests and their representatives—such as former Enron trader John Arnold ofHouston—are pushing for a defined-contribution plan, which does not guarantee a specific amount of benefits at retirement. In this system, the employee or the employer (or both) contribute to an employee’s individual retirement account–like a 401(k)–typically at a set rate. The retirement benefits then depend on the amount of contributions and an individual’s investment gains or losses.

These individual retirement accounts would also leave retirees at the mercy of private investment managers who could extract costly fees for their dubious services, further eroding the retirement accounts. According to a study just published by TRS, “under a defined-contribution plan, 92% of retirees will ultimately receive less than the current defined benefit. Two-thirds would receive no more than 60% of the current benefit.” And that current benefit is already modest to begin with, because of the lack of a cost-of-living adjustment mechanism to protect the pension’s purchasing power.

“In addition to lower benefits and a lot of risk for retirees, the state would shoulder enormous costs—to the tune of $1.5 billion a year—in switching to this type of defined-contribution plan,” Bridges said. She cited 2011 figures from the Legislative Budget Board that totaled the costs, which would result from  remaining obligations to pay the guaranteed benefits promised to current retirees without money from new individual accounts for future retirees as part of the pooled investments that help pay for current benefits.

“When you look at the continuing health and high earnings of the teacher retirement fund, and when you consider that the average school employee pension is just $1,800 a month, it’s obvious that the problem here isn’t exorbitant pensions or an ailing fund,” Bridges said. “The glaring problem is that school employees continue to pay their fair share into the fund, while the legislature has been unwilling to keep state contributions at promised levels. The end result is that retirees have suffered while their benefits have eroded over the past decade.”

Bridges noted that because of lower state contributions to the fund, TRS retirees have not had a benefit increase since 2001. “Imagine working tirelessly, for little pay, as a teacher for decades and trying to retire with the prospect of living frugally, but comfortably, on a small pension,” she said. “Now think about living on that pension for more than 11 years while inflation eats away at it.  The cost of gas in 2001 was about $1.40, and now it’s $3.60. But you’re still getting the same monthly pension. A regular carton of eggs in 2011 cost 90 cents, and now it’s $1.80. But you’re still getting the same monthly pension.”

“Our message to the House committee today is that any study of public pensions should be concentrated on how to provide a decent living for our retirees that served our state and its children, not on ideas that make low-paid public service an even riskier proposition,” Bridges added.

Bridges said Texas AFT has rallied thousands of educators across the state to urge lawmakers to “Protect Our Pensions,” based on the following points in a letter to legislators:

• The recently completed TRS study makes clear that changes from a defined-benefit to a defined-contribution structure will cost taxpayers and employees much more to deliver comparable benefits. In 2011, the Legislative Budget Board estimated the state’s cost to change TRS and ERS from DB to DC at more than $1.5 billion per year.
• We earn TRS retirement benefits. We make contributions directly from our paychecks. The state and local employers make their contributions as part of our earnings for the work we do. Our pension is not a “gift.”
• Secure TRS retirement benefits are vital to attract and retain well-qualified teachers and all the other necessary employees in public school and colleges.
• Secure TRS retirement benefits are vital to providing economic security for active and retired education employees. This is especially so in light of the fact that 80 percent of TRS members—and 95 percent of public school employees—are not covered by Social Security.
• The TRS defined-benefit pension is strong and reasonably well funded, in contrast to some plans around the nation that appear in the headlines.
• TRS provides a modest benefit for retirees, generally superior member service, and strong investment returns at a remarkably low cost.
• TRS retirement benefits are already modest. The average monthly annuity is only about $1,800 per month—less than $22,000 per year. In addition, retired public school employees pay health-insurance premiums of about $100 to $300 per month to cover only the retiree herself or himself.
• The legislature already made major TRS benefit reductions valued at about $1 billion in 2005. Retirement benefits were cut even for already-vested TRS members.
• Benefit cuts would make it harder to attract and retain well-qualified education employees.
• Current TRS retirement benefits are limited. For example, there is no automatic cost-of-living adjustment to protect the purchasing power of the annuity. Retirees have not received even an ad-hoc cost-of-living increase since 2001.
• The real need for the TRS pension fund is not a benefit reduction but an increase in state pension contributions, which would help make up for many years in which the state contributed the constitutional minimum while employees contributed a higher share. The lower state contribution has reduced the pension fund’s potential value by billions.

Texas AFT represents more than 65,000 teachers, paraprofessionals, support personnel, and higher-education employees across the state. Texas AFT is affiliated with the 1.5-million-member American Federation of Teachers.