Pension Solvency Overview: Teacher Retirement System (TRS) Of Texas
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Policy Brief

Pension Solvency Overview: Teacher Retirement System (TRS) Of Texas

The Teacher Retirement System of Texas reported an unfunded pension liability of $35.4 billion in 2017.

Executive Summary

At nearly six times the size of the next largest public pension plan in the Lone Star State, the Teacher Retirement System (TRS) of Texas holds substantial influence on the fiscal health of not only the state budget but the pocketbooks of over 1.5 million Texans. Despite the central role TRS plays in the lives of Texas educators, over the last 25 years the plan has seen a steady decline in its financial health that, until recently, had gone largely unaddressed.

Going into 1992, TRS enjoyed a funding surplus of over $2 billion; however, after a quarter century of underperforming investments, insufficient contributions, unfunded benefit increases, and a systemic undervaluing of debt, TRS finds itself going into 2019 with $46.7 billion in debt. As earthquakes alter the physical landscape, this tectonic shift in the solvency of TRS has changed the state’s fiscal landscape by creating a mountain of debt for the state and local governments that is crowding out resources from the classroom and other vital public education priorities across Texas.

The issues facing TRS have not gone completely unnoticed by those looking to secure the retirement of Texas teachers while also managing the budget challenges that come with a growing pension debt. In the fall of 2018, the TRS board voted to lower the system’s assumed investment rate of return in an effort to align plan assumptions with market realities. The shift, which is widely recognized as consistent with sound actuarial practices deployed in many other states, exposed unfunded liabilities previously unrecognized and sent a message to policymakers that if unaddressed, the Texas budget landscape would be substantially affected.

The Pension Integrity Project at Reason Foundation, in conjunction with the Texas Public Policy Foundation, has produced this report as the first part of an ongoing information series spotlighting the driving factors leading to the pension debt and education crowd-out caused by underlying structural problems within TRS. Bringing interested parties together around a central, non-partisan understanding of the challenges TRS faces—complete with independent third-party actuarial analysis and expert technical assistance—our organizations stand ready to guide policymakers and stakeholders in addressing the shifting fiscal landscape.

Full Brief: Pension Solvency Overview: Teacher Retirement System (TRS) of Texas

Parts 1 and 2
Overview: Important Pension Terms and Definitions, and How Defined-Benefit Plans Are Funded

Part 3
How the Texas TRS Unfunded Liability Grew to $35.4 Billion

Part 4
Teacher Retirement System of Texas: Why 80 Percent Funded Is Not Enough

Part 5
Texas TRS: Examining the 7.25 Percent Assumed Rate of Return

Part 6
Unfunded Liabilities Are Forcing Texas TRS Pension Contributions Ever Higher

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.