TRS Briefing Confirms Pension Fund Doing Better Than Expected

San Antonio AllianceUncategorized

Your Texas Teacher Retirement System pension fund appears healthy and sustainable into the far future, in good part as a result of the increased pension contributions passed in SB 1458 and SB 1 earlier this year. That is a key lesson to be drawn from today’s TRS briefing on the actuarial condition of the pension fund.

The pension plan’s “funded ratio”—one key measure of pension health comparing assets against liabilities—remains above 80 percent. That is a level widely recognized to indicate a strong fund. Unless the fund has phenomenal investment returns, it seems likely that the funded ratio will dip slightly below 80 percent next year, because there remain deferred losses of $2 billion to be recognized in each of the next two years and because the increased contributions ramp up over time. Starting in 2016, however, the funded ratio is expected to begin a slow and steady upward climb.

The most dramatic sign of the pension plan’s long-term sustainability is the “funding period”—a key measure indicating the number of years over which it is expected that the plan’s liabilities could be paid off. Today the funding period stands at 28 years, even after taking into account the cost of the new 3-percent cost-of-living increase provided to those who retired by September 2004. Under current state statutes, a further benefit increase becomes feasible as long as it would not cause the funding period to exceed 31 years.

As of August 31, 2013, the market value of the TRS pension trust fund was $117.4 billion—$6 billion more than at the end of fiscal year 2012. Investment return for the fund over that year was 8.9 percent, net of all fees.

The condition of TRS health-care plans for retired and active school employees is, as always, a different story, because those plans are funded entirely separately from the TRS pension trust.