Texas Teachers’ Gets its First Contribution Rate Increase in 25 Years

New legislation has led to the first contribution rate increase for the Teachers’ Retirement System of Texas in nearly a quarter of a century.

The plan calls for a gradual increase in contributions, beginning with a 7.50% to 7.75% change in 2022, 8% in 2023, and 8.25% in 2024. A previously approved version of the bill sought contribution rates of up to 8.8%.

Tim Lee, executive director of the Texas Retired Teachers Association, said it’s “the most positive legislative action for all TRS members in 25 years.” Through the bill, the pension fund becomes actuarially sound immediately, rather than the previously forecasted 87 years. The retirement system’s funding ratio was 76.9% as of Aug. 31, 2018, according to its most recent comprehensive financial annual report.

Since the global financial crisis, pension plans including Texas Teachers’ faced stronger pressure to take a closer look at their portfolios and their assumed rates of return. Lee explained that the retirement system ended a relatively higher retirement benefits program in 2005, since there wasn’t anything that would reduce the cost of the benefit. Advocates agreed the newly installed benefits plan was “fair and reasonable.”

Senate Bill 12 also calls for a supplemental stipend to system beneficiaries with a value of up to $2,000. Its thesis runs counter to a previous version of the bill, which only sought a state contribution increase, Lee explained to CIO. After negotiations, what was agreed to was a shared paying approach between employees as well. There’ll be no increases to their future benefits, with no changes to the multiplier or annuity calculation.

“The most important part about this situation, is if the legislature can remain committed to the contribution increases,” Lee said, adding that it’s important contribution increases occur not only in bad budget years but in good ones as well.

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