A version of the following public comment was submitted to members of the Texas House Committee on Pensions, Investment and Financial Services on August 18, 2026.
In 2008, the Teacher Retirement System of Texas (TRS) held about 90 cents in assets for every dollar of retirement benefits it had promised. In 2018, that figure dropped to 76 cents, prompting the legislature to raise taxpayers’ contributions to the current 8.25% rate. Today, TRS has about the same shortfall, with system actuaries warning that—without further contribution hikes—the system’s funding is projected to worsen. Nearly two decades of underfunding is not the result of one bad year in the markets. It is the accumulated result of failing policies that require systemic change going forward, not small tweaks that will have future legislators right back in the same place in the next few years.
One example of the many decisions that have led to today’s funding challenges came in 2025 from the 89th Legislature, which raised expected future salaries. Because pensions are calculated based on salary, the pay raises added $4.9 billion to the unfunded liability and extended the projected payoff schedule by eight years. No new funding accompanied that decision, and because TRS contribution rates are fixed in statute rather than recalculated each year, the cost of this legislation came in unfunded pension liabilities.
The longer trend is easy to miss because the fund itself has grown. Between 2006 and 2025, TRS assets more than doubled, from $94.2 billion to $223.6 billion. However, promised benefits grew faster, from $107.9 billion to $288.5 billion, and the gap between them widened nearly fivefold. Since 2001, pension debt has increased by a net $70.3 billion: $29.7 billion from investment returns falling short of targets, $16.8 billion from updated assumptions, $13.3 billion from benefit changes, and $11.4 billion from unpaid interest on the debt itself.
That last item explains why TRS debt has continued to rise despite the 2019 contribution increase. Annual payments have not been large enough to cover interest accruing at the plan’s 7% assumed return, so the debt grows even while payments are made—the same math as paying only the minimum on a credit card. On the plan’s own schedule, and only if every assumption is met exactly, the unfunded liability climbs to $74.1 billion by 2038 and is not eliminated until 2060.
The underlying problem is how contributions are set. For fiscal 2026, state and employer contributions total 9.37% of payroll, while the actuarially determined amount is 9.74% and TRS recommends a rate of 10.87% under professional standards. The current rate that the state and employers pay is fixed in law rather than adjusted to actuarial need, and the Texas Constitution caps the state’s share at 10%, so when the system faces unexpected costs, the rate does not rise to meet those needs. Lawmakers enacted a direct fix to the same design flaw in the Employees Retirement System in Senate Bill 321 (2021), and its funding has improved since then. A statutory rate offers budget predictability but transfers that risk to future taxpayers at a tremendous cost.
TRS system actuaries have suggested that increasing the state’s contribution rate by 1.5% would stem the tide. However, Reason Foundation modeling indicates that in a recession scenario, the fixed 1.5-point increase still leaves roughly $218 billion in unfunded liabilities.
To address the systemic challenges that continue to plague TRS, the Pension Integrity Project at Reason Foundation offers the following recommendations:
- Adopt the plan actuary’s recommendation to raise the contribution rate by 1.5% of payroll to a total of 10.87% beginning in fiscal 2028—the minimum needed to stop the debt from growing.
- Replace the statutory rate with actuarially determined contributions, paired with dedicated payments toward legacy debt, as Senate Bill 321 did for the Employees Retirement System.
- Offer future hires either an ERS-style cash balance tier, or a choice between the current benefit under the above funding conditions and a defined contribution benefit.