The Facts
- The state’s two major retirement systems, the Employees Retirement System (ERS) and the Teacher Retirement System (TRS), are considered to be adequately-funded-though just barely. Both funds were above the 80% threshold in fiscal 2011, with ERS’ funding ratio at 82.8% and TRS’ funding ratio at 82.7%.
- The Texas retirement system, while fairly well-funded compared to other states, is still legally liable to pay defined benefits totaling 10 to 20 times what state employees paid into the system-if investment returns drop or benefits are increased (as was done in California in 1999), taxpayers would be on the hook for the added exposure.
- The tendency in the private sector, unlike government, has been to move away from the defined benefit system and transition into defined contribution plans.
- Defined contribution systems are more sustainable than defined benefit plans since they are, by definition, fully-funded.
- Private sector taxpayers receive about 30.6% of their compensation in benefits, including deferred compensation, whereas Texas state employees receive about 40% of their compensation in benefits.
Recommendations
- Freeze enrollment in the current defined benefit system and enroll newly hired or unvested employees in a 401(k)-style defined contribution pension plan.
- Implement either a hard or soft freeze of the system for vested employees.
- Replace current employee health care plans with HSAs.
“