TRS & ERS
- Tom Wolfe
- 3 days ago
- 2 min read
Updated: 2 days ago
Unlike TRS, ERS is actuarially sound and its retirees haven't gotten a raise in decades. It should receive priority for a 13th check over TRS.
House Committee on Pensions, Investments & Financial Services
Both the Teacher Retirement System (TRS) and the Employees Retirement System (ERS) are defined benefit (DB) plans, although recent and future hires in ERS will receive pension benefits under a new cash-balance plan rather than a true DB plan. A DB plan pays out a set amount to annuitants; it differs from a defined contribution (DC) plan such as a 401(k), because the ultimate payout from a DC plan depends on investment performance.
Although being fully funded is always a pension plan’s goal, many pension plans fall short of this goal and have UAAL. This failure may be due insufficient contributions, poor investment performance, and/or the inherent difficulty in accurately projecting how various demographic, economic, and retirement factors will unfold over the course of decades.
Given the above definitions, as a general rule DB pension plans ideally would have very low or zero UAAL, a very low amortization period or none at all, and a funded ratio of 100 percent. Indeed, legislation passed enacted in 2019 (Senate Bill 2224, 86R) requires the governing body of a public retirement system to adopt a written plan for achieving a funded ratio of 100 percent (or more). Nevertheless, the funded ratio by itself is not dispositive on whether a pension plan is adequately funded or not. The Texas Pension Review Board (PRB) has noted that “A retirement system’s funded ratio is only a onetime snapshot of the system’s asset to liability measurement and does not provide any trend-related information. Therefore, funded ratio should be evaluated in conjunction with a system’s amortization period.”
The PRB has previously stated that “the most appropriate measure” of a pension plan’s financial health is the current amortization period. Echoing these thoughts, the American Academy of Actuaries has stated that, although the funded ratio at a given moment is not necessarily an accurate indicator of a pension plan’s health, “Pension plans should have a strategy in place to attain or maintain a funded status of 100% or greater over a reasonable period of time [i.e., should have a plan to bring the amortization period to zero].”
Read the full testimony in the link above.
