Texas legislature continues bipartisan push to modernize public retirement benefits

Despite the typical partisan political clashes and subsequent special sessions, the 2023 regular legislative session proved Texas policymakers can still find common ground. For proof, look no further than the continued success of the bipartisan efforts to improve the solvency of the state’s public retirement systems. Texas legislators came together to ensure future public employees receive competitive retirement benefits without adding to the state’s significant public pension debt, primarily borne by taxpayers.

Under the leadership of Sen. Joan Huffman (R-Houston) and Rep. Greg Bonnen (R-League City), Senate Bill 1245 (SB 1245) passed unanimously in the Senate and 144-1 in the House. The bipartisan bill signed by Texas Gov. Greg Abbott pays off $95 million of unfunded pension liabilities and opens a new cash balance retirement plan for all future judges. The plan is designed to offer strong retirement guarantees for the judges while avoiding additional unfunded pension liabilities moving forward.

During the 2021 legislative session, the Texas legislature took similar actions, passing Sen. Huffman’s Senate Bill 321 (SB 321) to align the retirement benefits offered to new Employees Retirement System of Texas (ERS) members with the retirement benefits long offered to most local government employees across the state. At the heart of SB 321 was addressing the ongoing runaway costs involved in the legacy pension plan, growing public pension debt, and a concern about the retirement security of today’s public employees, who more frequently move jobs and need mobile retirement options. ERS had $14.7 billion in public pension debt before the law was passed. SB 321’s pension reform opened a new cash balance retirement plan that future employees will use. This helps put the ERS’ existing unfunded liabilities on a path to be fully paid off over the next several decades.

The holistic approach outlined in SB 321, and carried over to the recent Senate Bill 1245, will save Texas taxpayers billions in the long run, primarily by reducing costly interest payments on public pension debt. Although only a couple of years have passed since SB 321 was implemented, the financial position of ERS has improved, and the feedback from ERS administrators has been very positive.

This latest move in SB 1245 to align the retirement plan for newly hired judges with that for state and local public employees demonstrates the bipartisan effort to improve the sustainability of the state’s retirement systems. Lawmakers must still address the largest major statewide pension system—the Teacher Retirement System of Texas (TRS), with its seemingly shrinking benefits and ever-growing unfunded liabilities. TRS currently has over $51 billion in public pension debt.

The restructuring of Texas’ statewide public pension systems began as an effort to address unexpected cost increases that were applying significant pressure on state and local government budgets. Also on policymakers’ minds were the needs of active and retired members who saw their take-home pay become stagnant or effectively reduced due to required pension contribution increases and inflation. Members and employers of the other cash balance retirement plans, like the Texas County and District Retirement System, TCDRS, and Texas Municipal Retirement System, TMRS, had long benefited from the guaranteed return on contributions provided by their public employers* and the increased portability of their retirement benefits. Future Judicial Retirement System of Texas Plan (JRS II) members will now enjoy those same benefits.

Texas legislators and public employers are responding to the evolving demographics of society and the changing landscape of how we work and retire. With increased life expectancies and a diverse and mobile workforce, it is essential to adapt public retirement systems to meet the needs of workers and taxpayers. Texas’ shift to a cash balance approach to retirement savings acknowledges these changes and helps ensure retirement benefits are sustainable for taxpayers and current and future generations of judges and public employees. By embracing the need for flexibility and adaptability in retirement planning, Texas is setting a forward-thinking example on public pension policy.

The Texas legislature deserves praise for passing multiple pension reforms that take meaningful steps to ensure the state’s largest debts are being reduced. But the state’s most intractable public pension challenge—addressing the Teacher Retirement System’s $51 billion of debt and unsustainable fiscal path—remains.  

Calls from TRS members for increased benefits may have never been louder. In April, members of the Texas chapter of the American Federation of Teachers described the $5 billion earmarked for cost-of-living increases to deal with inflation and TRS pension bonuses as “crumbs” and called on legislators to find a long-term solution to the unique challenges facing TRS and its members.

Hopefully, Texas lawmakers pursue another bipartisan approach that provides retirement solutions and mobility that benefit teachers, protects taxpayers from future public pension debt, and pays down the system’s massive existing debt.

*Correction: This piece originally referred to state contributions but has been changed to contributions provided by public employers to clarify local governments also make contributions to cash balance plans.