The first of these challenges is the pension system’s debt. The plan currently has $14.7 billion in earned, yet unfunded, retirement benefits and is on track to become insolvent within the new few decades. To address this issue, Senate Bill 321 commits Texas to a pension contribution rate that guarantees benefits are fully funded. Our analysis shows that this funding change could mean upwards of $15 billion in savings over the next 30 years.
The hundreds of millions annually in additional funds allocated via Senate Bill 321 alone, however, does not address the second challenge facing the Employees Retirement System (ERS): The fact that fewer and fewer members are staying in public employment long enough to receive a retirement benefit.
According to the Employees Retirement System of Texas’ reports, 64 percent of new ERS members leave before five years of service. Another 19 percent of new members still working after five years will leave within the 25 years of service it takes to qualify for reduced ERS benefits—leaving the majority of those entering ERS without an optimal retirement plan.
The cash balance benefit offered in SB 321 modernizes the state’s retirement offering to public employees and meets the needs of today’s more mobile workforce. Future members would see less coming out of their paychecks and be able to retain their employer’s contributions to their cash balance accounts when they leave public service.
Our analysis shows that Senate Bill 321 would set the Employees Retirement System of Texas on a sustainable trajectory and meet the retirement needs of today’s public workforce.
Update 5/19/2021: This post previously stated that 66 percent of new ERS members leave before five years of service. Corrections to our employee attrition calculations now show that 64 percent of new ERS members will leave employment before five years of service.
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