House Committee on Pensions, Investment, and Financial Services members met on March 1 to discuss the Employee Retirement System and the Teacher Retirement System, among other topics.

The full agenda is available here. For a video archive of the hearing, visit here.

The following is intended to provide an overview of the discussion and is not a verbatim transcript. This report only focuses on the Employee Retirement and Teacher Retirement systems.

Opening Comments

• Committee Chair, Rep. Giovanni Capriglione, and Vice Chair, Rep. Stan Lambert – Thank the House Speaker for their appointments.

Employees Retirement System

Porter Wilson, Executive Director of ERS

• Presented an overview of the agency
• The agency manages four pension plans with ERS; three are prefunded
• State employees contribute 9.5% of their salary to the plan; new employees contribute 6%
• The state contributes 9.5%, agencies contribute .5%
• There are about 130,000 state employees that contribute to the pension plan
• The number of people that are not contributing to the plan has grown over the last five years
• 70% of the state's workforce comes from five state agencies
• Last session, all three pre-funded pension funds were set to run out of money
• Coming out of the last session, SB 321 helped ERS fund and is now in good shape
• The two other funds were not addressed and are not where they need to be
• Starting last September, the state created a cash balance plan
• With the introduced version of the GR Bill, the combined projected savings are $7B
• All higher education agencies have access to health benefits except for the UT and A&M systems
• Have not had to ask for an increase to health benefits since 2017

Teacher Retirement System

Brian Guthrie, Executive Director of TRS

• Gave an overview of the TRS
• Agency manages three separate trust funds
• The biggest is the teacher retirement trust fund, which has 1.5M retirees
• Provide two healthcare programs, one for retirees, and one for active members
• The fund serves 675,000 members, and it is not co-mingled
• The board decides everything that goes into the pension fund; it has nine trustees
• Five must-have investment experience; three are direct appointments by the board; two are from SBOE
• The remaining four are active members of the system
• The legislature is responsible for designing a plan for the fund
• Half of the plan's assets are global equities, and it's the 5th largest plan in the nation
• The agency uses a long-term return assumption of 7%
• The fund pays about $13B in benefits a year; October was the first time paying $1B in a month
• There is no COLA associated with the funds
• The legislature addressed the COLA some last session with supplemental payments
• There is a new contingency rider introduced in the GR bill that addresses COLA for retirees
• TRS had a negative return of 6%; the prior year, it had an increase of 24%
• If the legislature has a plan structure in mind to address benefit enhancement, TRS can model it
• Given the size of the plan, a 1% increase would cost $1.1B to finance; the number is scalable
• The last COLA provided was in 2013; it was not prefinanced and was done through the fund; the state is still paying for the benefit enhancements and will be for the next 10 years
• Recommend upfront payments since they are prefinanced and do not have a large effect on the fund
• Explained the function of the Employment After Retirement program (EAR)
• Last session, there was legislation passed that created a 3-strike system for EAR; since then, no one has gotten three strikes
• The agency is aware of the issues with the program; e.g., surcharge it's a new charge for districts
• There are two health care funds; the first is active care, second is TRS care
• State only has half of the healthcare membership in active care
• Districts can elect to have their own, e.g., Austin, San Antonio, and Houston provide their own plans
• During the last session, the federal covid relief package provided $250 million, and the Gov. provided $350 million; the money was used to offset premium increases in active care
• This one-time funding caused premiums to be artificially depressed
• The state is now in the position to have to increase premiums by 20-30% to finance the program
• TRS has a plan that would increase premiums annually by 7-9% over six years; this would put premiums back where they need to be
• SB 1444 last session allowed districts to have the option to opt out of the program
• No longer have one statewide premium; it's now regionally based (regional ratings)
• Changes in 2017 made by the legislature made it so supplemental funding for TRS is not needed
• It could be three more sessions before TRS care needs more funding
• Leo Wilson - I left TRS care and am now in ERS. Do I have a year to opt-in?
• Yes, there is a window for people that opted out because of the changes made
• Leo Wilson- If you didn't leave for that reason, would I be able to opt back in?
• Yes

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