Last Thursday and Friday, the Teacher Retirement System of Texas (TRS) Board of Trustees met for its final quarterly meeting of 2023. At this meeting, the board discussed the financial health of the TRS pension fund and the pension cost-of-living adjustment (COLA) that will be applied to the checks of eligible retirees beginning in January.
COLA & One-Time Stipend Updates
TRS Executive Director Brian Guthrie provided the board with a brief update regarding both the COLA and the one-time stipends that were sent to retirees aged 70 and older in September. Guthrie stated that:
- roughly 177,000 checks of $7,500 each were sent to retirees aged 75 and older, and
- roughly 108,000 checks of $2,400 each were sent to retirees between the ages of 70 and 74.
Guthrie also reported that TRS is moving forward with applying the COLA increase to annuity checks for eligible retirees. As previously reported in the Hotline, baseless lawsuits contesting the results of this November’s constitutional amendment election, which included the passage of Proposition 9 that provides funding for the COLA, threatened to delay the implementation of the COLA. A clerical error by the election conspiracy theorists that are contesting the lawsuit, however, allowed the governor to certify the results of the election, as explained in our webinar this past week with Rep. John Bucy (D-Austin) and Common Cause Texas.
Guthrie confirmed that, since the election results have been certified, TRS can go forward with implementing the COLA as it had previously planned. The TRS Benefit Committee and then the full board of trustees approved a resolution directing TRS staff to prepare for and issue the COLA at the meeting. Beginning in January:
- those who retired on/before Aug. 31, 2001 (roughly 68,000 annuitants) will receive a 6% COLA,
- those who retired after Aug. 31, 2001 and on/before Aug. 31, 2013 (roughly 187,000 annuitants) will receive a 4% COLA, and
- those who retired after Aug. 31, 2013 and on/before Aug. 31, 2020 (roughly 145,000 annuitants) will receive a 2% COLA.
This COLA is a one-time increase that will be permanently applied to retirees’ checks in perpetuity. The average retiree eligible for a COLA will receive about a $76 increase, which adds up to about a $30 million increase in total dollars sent to TRS annuitants in January. The distribution of the COLA and the one-time stipend were determined by the Legislature in Senate Bill 10 earlier this year. Read more about Texas AFT’s fight for COLA at the Legislature this year.
TRS Pension Fund Actuarial Valuation
The TRS Board of Trustees also received a report from external actuaries of Gabriel, Roeder, Smith and Company (GRS) about the current health and valuation of the TRS pension fund.
In the previous fiscal year, which ended in August, the TRS pension fund saw a 3.8% return on investment. The investment performance this year far exceeded last year’s performance, which saw a -6.7% return on investment. However, this year’s return was still far below the pension fund’s target of 7%. TRS currently uses a 7% investment return assumption to make long-term projections about the pension fund’s future. Over the past five years, the average rate of return has been 6.4%.
Because the investment performance was worse than the assumed rate, several indicators of the pension fund’s health were negatively impacted. The pension fund’s unfunded actuarial accrued liabilities (UAAL) and the funding period increased. This indicates that the pension fund’s long-term liabilities (its obligations to Texas retirees) are outpacing its assets. According to these indicators, the TRS pension fund is still actuarially sound but is less sound than it was this time last year.
Because the COLA and one-time stipend were fully funded in a lump sum by the Texas Legislature, they will have no effect on the soundness of the pension and will not increase the fund’s UAAL.
GRS actuaries also compared the contributions and benefits of TRS retirees to retired educator pension systems around the country. The actuaries found that TRS employer contributions paid to the pension system are the lowest of any retired educator pension system in the country, as displayed by the graph below. Due to this low contribution rate, TRS annuitants’ benefits are much lower than the national average.
