The Texas Retired Teachers Association represents the 450,000-plus current Teacher Retirement System of Texas retirees, as well as the nearly 1.2 million active school personnel who rely on the pension system as their sole form of retirement security.
Some critics believe that Texas teachers would be better off without a pension system, promoting alternative retirement plans such as a hybrid defined-contribution approach. These naysayers are wrong, and the association respectfully disagrees with replacing the current defined-benefit plan with an alternative plan for our dedicated public educators.
TRTA believes the current plan, which provides a guaranteed lifetime annuity, is what’s best for retirees and pre-retirees. Given the facts about the Texas Retirement System, most Texans will agree our plan is a great value and represents good public policy.
About 95% of public-school employees in Texas don’t participate in the federal Social Security program while teaching. It’s a startling statistic that should wake up Texans to the reality of retired educators. Retired educators’ annuity from TRS is often their sole form of retirement security. Most also do not qualify for any Social Security benefits due to two federal provisions that take away most or all of their earned Social Security income: the Government Pension Offset and the Windfall Elimination Provision.
Although about 94% of Fortune 500 companies have abandoned their defined-benefit plans for less efficient and often more costly hybrid plans, it’s important to understand that Texas educators are not private sector employees. Private sector employees have Social Security benefits in addition to any private retirement accounts and savings they may have.
Those who support the current plan estimate that the average annual investment returns for most defined-contribution plans is around 6%, but this rate is not conservative at all for money that is not professionally managed. Using a rate of 5% or less after fees is more realistic. When educators receive this lower return, it increases their chances of outliving their 401(k) and being unable to survive on their retirement income alone.
Our education workforce is already overburdened and understaffed. The proposal for educators to manage a retirement investment portfolio with no safety net like Social Security would truly disadvantage any current or future teacher from choosing education as their career path.
Furthermore, women make up 75% of the TRS population and tend to have a longer life expectancy. A lifetime benefit mitigates the risk of a retiree who, due to longevity, market volatility or failure to invest adequately, outlives their savings.
Public school employees are focused on educating their students and working with their community. They should not have to worry about their retirement security as they focus on their daily work. The majority of TRS members will do significantly worse investing on their own in a plan with a defined-contribution component than the professionals who work on their behalf with TRS.
TRS studies have shown that under a defined-contribution plan, 94.7% of retirees will ultimately receive less than with the current plan.
Those who promote the alternative plan often suggest that Texas and taxpayers are shouldering a large portion of burden for funding TRS, which is simply and grossly inaccurate. Approximately 62.3% of the revenue for the TRS pension fund comes from investments, all managed by TRS-employed investment professionals. The state and active school employees each contribute slightly less than 20% of the funding for the system.
Using this approach to managing educators’ retirement fund is also more affordable for taxpayers. TRS is also more cost effective for employers because, as a qualified replacement plan to Social Security, this saves an estimated $1.65 billion annually.
On the issue of defined benefits vs. defined contributions for our Texas education retirees and employees, I am proud to say the body of evidence in favor of the traditional defined-benefit plan is clear. Alternatively, working to move toward the alternative plan for Texas TRS is bad for retirees, bad for active school employees, bad for the TRS pension trust fund and bad for Texas.
Both active and retired educators shouldn’t have to worry about their retirement future being taken from them and made worse simply to meet a misguided policy agenda that may sound good, but is based largely on misinformation and wishful thinking.
As TRS and the Texas Legislature like to say, “We are in the forever business.” Together, they work to make prudent decisions now to benefit all current and future retirees for the long term, and to honor these unsung heroes’ dedication to Texas schoolchildren by keeping their promise.
Tim Lee is the executive director of the Texas Retired Teachers Association
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