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Senate State Affairs Committee Discusses TRS Issues

The Senate State Affairs Committee met today to discuss the following interim charge:

Monitor the actuarial and financial conditions of the pension and health care programs administered by the Teacher Retirement System (TRS) and the Employees Retirement System (ERS).

Brian Guthrie, executive director of TRS, provided the committee with an overview of the pension and health care systems.  The valuation of the pension fund is $132.2 billion and is actuarially sound with liabilities being able to be paid in full within a 30-year period. The pension trust fund earned a rate of 16.9 percent for FY 2014 with an assumed rate of 8 percent.

  • While the pension fund is improving, the state is facing major issues related to healthcare costs for active and retired education employees.  Guthrie provided the following key findings related to TRS–Care:
  • TRS–Care is facing a projected funding shortage of $727 million.  Without additional funding, the sustainability of the program is at risk.
  • There is no correlation between funding streams and health care claims costs.
  • Non-Medicare retirees are the largest cost driver to the program.
  • With provider and benefit level choice, comes additional cost.
  • There is a disparity between TRS–Care benefits and premiums in comparison to what state employee retirees receive under ERS.  For example, the premium for Retiree Only coverage under TRS is 100% funded by the state.
  • The plan costs for non-Medicare retirees are 4.5 times greater than the costs of retirees with Medicare Parts A&B.

During the interim, TRS conducted a study of options the legislature could consider during the upcoming legislative session to address the funding and sustainability of TRS–Care.  Seven options the legislature could consider were provided to the committee:

  1. Pre-fund the long-term liability
  2. Fund on a pay-as-you-go basis for the biennium
  3. Fund for a 10-year solvency
  4. Retiree pays the full cost for optional coverage
  5. Require the purchase of Medicare Advantage and Medicare Part D plans
  6. Fixed Contribution
  7. Consumer–directed plan for the non–Medicare population

The committee also heard testimony from TRS regarding TRS–ActiveCare. The state contribution rate has remained the same since the inception of the program in 2002 and is funded through the school finance formula. There have been 8 premium increases since 2003 at the same time that benefits have been reduced.  Other key finding presented to the committee included:

  • State and minimum district contributions have not changed since the beginning of the program in 2002. (Note: this finding by TRS does not take into account that many districts have provided pay increases over the years to staff to offset premium increases).
  • Employee share of premium costs have increased significantly and employees are opting for lower benefit plans.
  • There is a disparity between TRS–ActiveCare benefits and premiums in comparison to what is available to Texas state employees under ERS.

TRS also conducted a study during the interim related to the TRS–ActiveCare and have put forth the following options the legislature could consider:

  1. Return funding ratios and benefits to FY 2003 levels
  2. Health Savings Accounts (HAS)
  3. Self-funded Exclusive Provider Organization (EPO)
  4. Eliminate uniform statewide coverage
  5. Eliminate coverage for spouses

The committee took no action and made no recommendations but recognized the importance of these issues next session.

View a copy of the PowerPoint provided by TRS