Teacher pension fund good deal for taxpayers
District 6 Texas Retired Teachers Association Legislative Chairman, President, Milam County Shapter
M ichigan, Kansas, Penns ylvania, California,
Wisconsin and Texas? When there is a conversation about public employee pensions, do these states have anything in common?
If you take out Texas, then the answer is yes. The other states have had a Defined Benefit Pension plan for their public employees (police, firefighters and teachers) that was not managed well.
There have been times when these states under funded their pension fund, let teachers have a furlough in paying into their fund and/or the states borrowed money from their pension funds.
This is why we are hearing that these states are abandoning their pension plans for their public workers and placing them on 401(k) pensions. These states do have a funding crisis.
The Texas Retirement System (TRS) fund was established for teachers in 1937. The Texas Legislature set up statutory rules about how this fund would be funded and managed.
For nearly 75 years, the Defined Benefit pension for our teachers has always been funded by the state with teachers paying into the fund every year. The state has never borrowed funds from the pension fund and today is the third strongest pension fund in the world.
One out of every 20 Texans is a member of TRS with over 1.3 million participants.
In 2011, TRS paid almost $7.2 billion in retirement benefits. 95% of the benefit payments went to retirees who live and spend these dollars in Texas. 61.4% of the money that was paid out came directly from investments.
$10.1 million was added to the Milam County economy.
TRS creates 98,900 permanent jobs in Texas. TRS has investment holdings in 73% of the 51 Texas companies included on the May, 2011, Fortune 500 list.
For most of the last 10 years, TRS members contributed 6.4%, and the state contributed 6% to TRS, a combined 12.4% of payroll.
Social Security requires a 6.2% contribution by both the employee and the employer (also 12.4%).
Most TRS members, approximately 80% do not contribute to Social Security. If they did, an estimated additional $3 billion of combined employer and employee contributions would have been required in 2011.
Only 2% of the State Budget is used for state TRS contributions.
A defined benefit plan provides a better bang for the retirement buck. A study by the National Institute on Retirement Security found that a defined benefit plan provides the same retirement income at nearly half (46% lower) the cost of an individual 401(k) type defined contribution account.
Markets have been volatile with several downturns over the last 20 years. In spite of this, TRS has experienced an average return of 8.7% over this time. For the Fiscal year ending August 31, 2011, TRS had an annual return on investments of 15.5%.
When you consider the economic benefits of TRS, the security the Defined Benefit pension provides to teachers, the economic growth it gives to Texas and the strength of the TRS fund, we are not the same as these other states.
Texas is not in a crisis that would have us bailing out on teacher pension funds.
The pension fund in Texas helps attract good teachers and provides an opportunity for a lifetime retirement for the servants of our children and our communities at the most economic cost to taxpayers.