The study found that switching to a defined-contribution model would be more expensive, result in reduced benefits to retirees and is unnecessary. But that won't change the minds of some.
Bookmark this report; it will come in handy during the legislative session.
You may recall that there is a campaign afoot to “reform” (i.e. radically change) Texas’ public pensions for teachers and other public employees. Basically, the reformers want to abandon the defined-benefit model, which guarantees certain retirement benefits, and replace it with a defined-contribution system built potentially on self-managed accounts such as 401(k)s. There’s also talk of raising the retirement age and other cuts to benefits.
The problem, though, is that Texas’ public pension systems are in pretty good shape, popular with workers and the alternative is risky. Still, the interests pushing for change are powerful and persistent. So, the Legislature ordered the Teacher Retirement System and the Employees Retirement System to take a closer look at their funds. The TRS report was released this week.
The study found that switching to a defined-contribution model would be more expensive, result in reduced benefits to retirees and is unnecessary.
As it is, the pension fund is solvent through 2075—a good sight better than, say, Social Security—and could be solvent indefinitely if the state would modestly increase its share from the current 6.4 percent to 8 percent, comparable to other states. Teachers could pay a slightly larger share too to help solve the problem.
If teachers were to invest their retirement benefits,TRS estimates that 92 percent would do worse than the current system. A typical 62-year-old retiree who made his or her own investments could expect to have income of just 28 percent of their teacher salary, about $12,500 a year. The federal poverty level for a household of one is $11,700.
The reason is simple: Professionally-managed investment pools perform significantly better than individual investors—8.6 percent vs. 5.3 percent, according to the TRS report.
So, the upshot is that the current system is performing well but needs some moderate changes to maintain health in the long run. Nonetheless, it will probably do little to dent the ambitions of the wrecking crew, including the corporate-funded Texas Public Policy Foundation. Statesman:
Even so, the critics say, they will continue to press for changes to the pension system during next year’s legislative session.
“It will get a good look. There is a high likelihood that changes will be made,” said Talmadge Heflin of the Texas Public Policy Foundation, a conservative think tank.
Lawmakers must ensure that the state’s retirement offering “is a combination of the best buy for the employee and for the taxpayer,” Heflin added.
If it ain’t broke don’t fix it, right? Well, it seems that breaking it is the point.