Teacher Retirement System of Texas: Why 80 Percent Funded Is Not Enough
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Commentary

Teacher Retirement System of Texas: Why 80 Percent Funded Is Not Enough

TRS has at least $35.4 billion in pension debt, and billions more if the pension plan’s assumptions are wrong.

As of August 2017, the Teacher Retirement System (TRS) of Texas reported having 80.5 cents for every dollar of pension benefits promised to teachers and other members of the pension plan. One year later, the TRS board lowered the assumed rate of return, dropping the pension’s funded ratio to 76.1 percent.

Is Being 80 Percent Funded a Real Problem?

Some argue no, since Texas has several decades to catch up on payments, while the state expects to have enough money to pay today’s retirees. However, these views fail to account for the added costs and risks associated with holding an unfunded liability and a funded ratio of less than 100 percent.

Financing TRS Pension Debt Is Expensive

  • TRS has at least $35.4 billion in pension debt, and billions more if the pension plan’s assumptions are wrong. The TRS board’s recent lowering of the assumed rate of return signals a pension debt closer to $45.9 billion.
  • Billions in required annual pension debt payments could instead be used to pay teachers more, support the classroom, or provide tax relief.
  • Over $16 billion in TRS pension debt payments have been made since 2000.

Maintaining An 80 percent Funded Ratio Jeopardizes Intergenerational Equity

  • Any pension plan less than 100 percent funded holds pension debt that requires “unfunded liability amortization payments.”
  • Carrying pension debt means future taxpayers must eventually pay for today’s teacher retirement benefits.

The Actuarial Community Agrees: 80 Percent Funded Is Not Healthy

  • The idea that pension actuaries think 80 percent funded ratios are healthy is a myth.
  • Here are quotations from the actuarial community on why pension plans with less than 100 cents on the dollar to pay promised benefits need to improve their long-term solvency.

Conclusion

Pension plans must be 100 percent funded to prevent expensive, intergenerational inequality. Anything less won’t do for Texas teachers or taxpayers.

Teacher Retirement System of Texas: Why 80 Percent Funded Is Not Enough

For more information, please visit — Pension Solvency Overview: Teacher Retirement System (TRS) Of Texas

Zachary Christensen is a policy analyst for Reason Foundation's Pension Integrity Project.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.

Steven Gassenberger is a policy analyst with Reason Foundation's Pension Integrity Project.

Vance Ginn, Ph.D., is the director of the Center for Economic Prosperity and a senior economist at the Texas Public Policy Foundation.