Texas Makes Huge Changes to Teacher Pension System

On Sunday, lawmaker in Texas passed extensive changes to the $116 billion teacher pension system of the state. Major changes included the first cost-of-living increase in more than a decade, a new requirement upon school districts to pay part of the expense, and making the system less reliant on the vagaries of private market returns.

Proponents and supporters of the legislation hold that without the changes being made, the teacher pension system would have incurred a $1 billion shortfall within the next four years.

Senator Robert Duncan (R), who authored the changes said, “We were upside-down earlier, because we were relying too much on investment returns.” Referring to the new legislation he said, “This puts us in a situation where we are actually having long-term fixed contributions rates that should support this system for a long time.”

Over the next four years, teacher contributions to the pension system would increase from 6.4 percent to 7.7 percent of their pay, while at the same time school districts would need to contribute 1.5 percent of total salary costs. Previously, school districts were not required to pay any part of pension contributions. The state contribution would also increase from 6.4 percent to 6.8 percent beginning from September.

Under the new plan, teachers retired since early 2004 will receive a three percent increase in benefits. The increase in benefits would affect almost 60 percent of current pensioners.

However, many teachers groups criticized the changes for decreasing the pension and health benefits of hundreds of thousands of current employees, though those employees had already earned the benefits under the existing system.

The new changes also include a stipulation that in order to be eligible for full retirement benefits current employees who have less than five years of service by August 2014 will have to put in another two years of service.

New changes also raised the minimum retirement age of employees from 60 to 62. The same age is now applicable for retirees for eligibility with regard to TRS-Care health benefits beyond catastrophic coverage. According to teachers’ groups, this change deprived hundreds of thousands of current employees from benefits to which they already had earned a claim.

However, the new requirement of age for health benefits will not be applicable to employees who by August 2014 have at least 25 years of service credit or whose age plus years of service equal to 70 or more.