Last week, the Teachers Retirement System of Texas (TRS) Board of Trustees met for their quarterly meeting and voted to lower the pension fund’s yearly investment return assumption (IRA) from 7.25% to 7%.
The IRA is used by TRS to calculate its funding period (also referred to as the amortization period), which is the length of time it would take for TRS to pay off all its current fiscal obligations, which include monthly annuity payments.
The lowering of the IRA reflects a more conservative outlook for the pension fund’s future. This change makes TRS’ future more secure but leaves TRS with less budget maneuverability. TRS is now assuming it will receive less in investment returns each year, which would have significantly extended the funding period had the TRS board not voted to realize $7 billion in deferred gains from last year. That move kept the funding period at 26 years instead of increasing to 32 years.
Last year, TRS broke records with total investment assets passing $200 billion because of a 24.98% return on investment. Despite those returns last year, it is unlikely TRS will maintain this historically positive growth. TRS’ vote to adopt a more conservative IRA and to realize last year’s deferred gains is an indication that the agency anticipates economic insecurity. According to testimony from a consultant hired by TRS, more than 70% of the nation’s pension plans have an IRA at or below 7% as of June 2022.
Lowering the IRA has significant ramifications for the possibility of TRS retirees receiving a cost-of-living adjustment (COLA) to their TRS monthly annuity. Lowering the IRA does make TRS more secure in the long run, but it extends the funding period. This does not mean a significant COLA is impossible; it simply means the Texas Legislature likely would have to appropriate funds to TRS to make it happen.
The state, though, has ample funds they can draw from to fund this appropriation.
Last week, Texas Comptroller Glenn Hegar announced he would be raising the state’s revenue estimate for November by nearly $14 billion. This increase is due to a variety of factors including increasing fossil fuel prices, from which the state receives tax revenue, and general inflation. In response to this increase in state revenue, Lt. Governor Dan Patrick announced that he intended to use these excess funds to provide retirees with another 13th check in 2023, which would be the third such check retirees have received since 2019. Meanwhile, TRS retirees who have retired since 2004 have never seen a permanent cost-of-living adjustment to their monthly annuities.
Texas AFT and our members know another 13th check band-aid isn’t enough. Retired educators deserve respect, and that respect includes a secure, dignified retirement. Our union will continue to fight for a significant COLA, and we encourage our members statewide to request their elected representatives to sign on to our Respect Pledge in support of this effort.