How Do TRS Pension and Health-Care Changes Affect Your Retirement?
Key Changes
On September 1, 2005, a wide array of negative changes in TRS benefits for education employees will take effect as a result of SB 1691 by Senator Robert Duncan, Republican of Lubbock, which passed in May and was signed by the governor in June.
This legislation takes away important pension benefits and health-care benefits from many of those who retire on or after September 1, 2005. Whether you are directly affected by a particular change will depend on various "grandfather" clauses in the new law that exempt some employees.
Below you will find a description of major benefit cutbacks and an explanation of the grandfather clause that applies to each. (This outline does not cover all changes in TRS benefits enacted by the legislature this year. For information on changes not discussed here, see the July 2005 TRS Update, or visit www.trs.state.tx.us on the Web.)
PENSION CHANGES
"Final Average Salary" Formula for Calculating Your Retirement Benefit
Under current law, the amount of your pension is based on your "final average salary," which is defined as your average salary for your highest-paid three years.
Under the new law, TRS will base your pension on your highest-paid five years. The effect of this change will be to reduce your pension.
This negative change will NOT affect you, and the three-year formula will still apply when you retire, if by August 31, 2005:
- you are at least 50 years old; OR
- your age and years of service credit equal at least 70 ("Rule of 70"); OR
- you have at least 25 years of service credit.
TRS officials have estimated that roughly one-third of current education employees will qualify for this exemption, but two-thirds will not.
(Note: According to TRS publications, in order to use purchased service credit to meet the Rule of 70 or amass 25 years of service credit, you must complete all payments for the service credit by August 31, 2005.)
Percentage Limit on Annual Pay Increases Allowed for "Final Average Salary" Calculation
In calculating your "final average salary," whether you are covered by the old law or the new law, TRS is now required to impose a percentage limit on the amount of increases in annual compensation in your final years of employment that will be counted toward your pension. The TRS board of trustees has not yet established that percentage limit.
Reduced Benefits for Early Retirement
Under current law, if you retire at age 55 with 20 or more years of service credit but do not meet the Rule of 80 (age and years of service credit equaling at least 80), your standard pension benefit is reduced by 2 percent for each year you fall below the Rule of 80. Thus, someone who retires at age 55 with 20 years of service, falling five years below the Rule of 80, receives a 10-percent pension benefit reduction (2 percent times five years equals 10 percent).
Under the new law, the benefit reduction for employees in this situation will be much greater. For example, an employee who retires on or after September 1, 2005, at age 55 with 20 years of service credit will receive a 53-percent reduction (versus 10 percent under current law).
This deeper pension cut for early retirement will NOT affect you, and your benefit reduction for early retirement would still be 2 percent for each year you fall below the Rule of 80, if:
- you are at least 50 years old; OR
- your age and years of service credit equal at least 70 ("Rule of 70"); OR
- you have at least 25 years of service credit.
Again, TRS estimates that these grandfather provisions will protect roughly one-third of current employees from the negative change in calculating benefit reductions for early retirement.
Minimum Retirement Age of 60, Overriding the Rule of 80, for Future Hires
Under current law, you are entitled to retire without any reduction in benefits for early retirement if you meet the Rule of 80 (age and years of service credit equaling at least 80).
Under the new law, a minimum age of 60 will apply even if an employee meets the Rule of 80, and pension benefits will be reduced 5 percent for each year the employee falls short of age 60 at retirement.
Please Note Carefully: This minimum age of 60 does NOT apply to anyone who has established TRS membership before September 1, 2007, and who maintains that membership continuously until retirement. (We owe this grandfather clause protecting ALL current employees and near-future hires to an amendment to SB 1691 pushed through by Sen. Gonzalo Barrientos, Democrat of Austin.)
Therefore, the only current employees affected by the new minimum age of 60 for unreduced retirement benefits are those who leave their school employment, terminate their TRS membership by withdrawing their TRS contributions, and fail to resume their TRS membership before September 1, 2007.
Partial Lump-Sum Option at Retirement
Current law allows school employees to take part of their pension in the form of a lump-sum payment when they retire. Under the new law, this option will be available only for an individual who meets a Rule of 90 (age and years of service credit equaling at least 90).
The negative change affecting eligibility for this lump-sum option does NOT affect you if, as of August 31, 2005:
- you are 50 years old; OR
- your age and years of service credit add up to at least 70; OR
- you have 25 years of service credit.
(Note: According to TRS publications, in order to use purchased service credit to meet the Rule of 70 or amass 25 years of service credit, you must complete all payments for the service credit by August 31, 2005.)
Out-of-State Service
Under current law, an employee can purchase TRS service credit for out-of-state service at a fixed cost that is less than the full value of what you gain by purchasing the credit (actuarial present value).
Under the new law, effective on or after January 1, 2006, the employee will have to pay the full actuarial present value of the service credit.
A special grandfather clause applies to this change. This change does NOT affect a purchase of service credit on or after January 1, 2006, if the employee making the purchase for prior out-of-state service was a TRS member by December 31, 2005. Those who qualify for this grandfather clause can make their purchase of out-of-state service credit under the old law at any time before retirement.
Purchase of Service Credit (So-Called "Air Time")
Current law allows an employee to buy up to three years of TRS service credit that is not tied to any actual service. The purchase price for this "air time" is whatever TRS determines to be the full additional cost to the pension fund of your benefit increase resulting from the grant of extra service credit.
Under the new law, this option will no longer exist as of January 1, 2006. In order to beat the deadline, you must either purchase the service credit or enter into an installment agreement with TRS to purchase the service credit on or before December 31, 2005.
Retire-Rehire Surcharge on Employer
Employers choosing to employ TRS retirees will have to pay to the TRS pension fund an amount equal to 12.4 percent of salary. Employers of TRS retirees also will have to pay to TRS-Care the difference between the retiree's premium and the actual cost of TRS-Care coverage, as determined by TRS.
The employer will owe these surcharges for all TRS retirees employed, except those employed as substitutes or those who were reported to TRS as retirees working for the same employer in January 2005.
Active Employee Contribution to TRS-Care (Retiree Health Plan)
Effective September 1, 2005, the deduction from each active employee's paycheck to support retiree health care will increase to 0.65 percent of salary from 0.5 percent. (Your employer's contribution also will increase, to 0.55 percent from 0.4 percent.)
RETIREE ELIGIBILITY FOR TRS-CARE
Under the new law, in addition to eligibility restrictions in prior law, an employee who retires on or after September 1, 2005, is NOT eligible for TRS-Care unless:
- at the time of retirement the employee's age and years of service credit equal at least 80; OR
- at the time of retirement the employee has at least 30 years of service credit.
How your legislators voted on a key vote for the pension changes
The Senate
The key Senate vote on SB 1691 came on May 17, 2005, on an amendment by Sen. Barrientos to stick with current law basing pensions on your best-paid three years, while mandating that TRS crack down on superintendents who game the system by arranging a sharp upward spike in their own pay right before they retire.
Sen. Duncan opposed that amendment, arguing that it would undo the main "saving" achieved by his bill. Of course, that "saving" to the pension fund is another name for the take-away of future benefits from teachers and support personnel.
The vote on the Barrientos amendment to defend educators' pensions was 12 for, 18 against.
The 12 who voted for the Barrientos amendment were: Gonzalo Barrientos (D-Austin), Rodney Ellis (D-Houston), Kevin Eltife (R-Tyler), Mario Gallegos (D-Houston), Juan Hinojosa (D-Corpus Christi), Eddie Lucio (D-Brownsville), Frank Madla (D-San Antonio), Eliot Shapleigh (D-El Paso), Leticia Van de Putte (D-San Antonio), Royce West (D-Houston), John Whitmire (D-Houston), and Judith Zaffirini (D-Laredo).
The 18 who voted for the Duncan benefit cut were: Ken Armbrister (D-Victoria), Kip Averitt (R-Waco), Kim Brimer (R-Fort Worth), Robert Deuell (R-Greenville), Robert Duncan (R-Lubbock), Craig Estes (R-Wichita Falls), Troy Fraser (R-Horseshoe Bay), Chris Harris (R-Arlington), Mike Jackson (R-Pasadena), Kyle Janek (R-Houston), Jon Lindsay (R-Houston), Jane Nelson (R-Flower Mound), Steve Ogden (R-College Station), Kel Seliger (R-Amarillo), Florence Shapiro (R-Plano), Todd Staples (R-Palestine), Jeff Wentworth (R-San Antonio), and Tommy Williams (R-The Woodlands). Absent was Sen. John Carona (R-Dallas).
The House
On May 23, Rep. Jim McReynolds (D-Lufkin), offered the key House amendment on SB 1691. Like the Barrientos amendment in the Senate, the McReynolds amendment to SB 1691 would have maintained for all school employees the current formula for computing your pension based on your best-paid three years. Rep. Craig Eiland, Democrat of Galveston, moved to block the McReynolds amendment. The vote on the motion to block the amendment was 85 for, 55 against.
The 55 House members who stood up for you on this vote were:
Alma Allen, D-Houston; Roberto Alonzo, D-Dallas; Rafael Anchia, D-Dallas; Doc Anderson, R-Waco; Kevin Bailey, D-Houston; Lon Burnam, D-Fort Worth; Scott Campbell, R-San Angelo; Joaquin Castro, D-San Antonio; Norma Chavez, D-El Paso; Garnet Coleman, D-Houston; Robby Cook, D-Eagle Lake; Yvonne Davis, D-Dallas; Joe Deshotel, D-Port Arthur; Jim Dunnam, D-Waco; Harold Dutton, D-Houston; Al Edwards, D-Houston; Juan Escobar, D-Kingsville; David Farabee, D-Wichita Falls; Jessica Farrar, D-Houston; Helen Giddings, D-Dallas; Veronica Gonzales, D-McAllen; Yvonne Gonzalez Toureilles, D-Alice; Toby Goodman, R-Arlington; Ryan Guillen, D-Rio Grande City; Tuffy Hamilton, R-Mauriceville; Abel Herrero, D-Corpus Christi; Harvey Hilderbran, R-Kerrville; Scott Hochberg, D-Houston; Mark Homer, D-Paris; Chuck Hopson, D-Jacksonville; Charlie Howard, R-Sugar Land; Bryan Hughes, R-Mineola; Jesse Jones, D-Dallas; Terry Keel, R-Austin; Pete Laney, D-Hale Center; David Leibowitz, D-San Antonio; Vilma Luna, D-Corpus Christi; Armando Martinez, D-Weslaco; Trey Martinez Fischer, D-San Antonio; Jim McReynolds, D-Lufkin; Jose Menendez, D-San Antonio; Elliott Naishtat, D-Austin; Dora Olivo, D-Rosenberg; Aaron Peña, D-Edinburg; Robert Puente, D-San Antonio; Richard Raymond, D-Laredo; Eddie Rodriguez, D-San Antonio; Wayne Smith, R-Baytown; Jim Solis, D-Harlingen; Senfronia Thompson, D-Houston; Sylvester Turner, D-Houston; Carlos Uresti, D-San Antonio; Marc Veasey, D-Fort Worth; Mike Villarreal, D-San Antonio; Buddy West, R-Odessa.
The 85 House members on the wrong side of this vote were: Ray Allen, R-Grand Prairie; Todd Baxter, R-Austin; Leo Berman, R-Tyler; Roy Blake, R-Nacogdoches; Dwayne Bohac, R-Houston; Dennis Bonnen, R-Angleton; Dan Branch, R-Dallas; Betty Brown, R-Terrell; Fred Brown, R-College Station; Bill Callegari, R-Katy; Carter Casteel, R-New Braunfels; Warren Chisum, R-Pampa; Byron Cook, R-Corsicana; Frank Corte, R-San Antonio; Joe Crabb, R-Atascosita; Myra Crownover, R-Denton; John Davis, R-Houston; Glenda Dawson, R-Pearland; Dianne Delisi, R-Temple; Mary Denny, R-Aubrey; Joe Driver, R-Garland; Craig Eiland, D-Galveston; Rob Eissler, R-The Woodlands; Gary Elkins, R-Houston; Kino Flores, D-Palmview; Dan Flynn, R-Van; Stephen Frost, D-Atlanta; Dan Gattis, R-Georgetown; Charlie Geren, R-Fort Worth; Tony Goolsby, R-Dallas; Bob Griggs, R-Fort Worth; Kent Grusendorf, R-Arlington; Pat Haggerty, R-El Paso; Peggy Hamric, R-Houston; Rick Hardcastle, R-Vernon; Linda Harper-Brown, R-Irving; Will Hartnett, R-Dallas; Glenn Hegar, R-Katy; Fred Hill, R-richardson; Ruben Hope, R-Conroe; Bob Hunter, R-Abilene; Suzanna Hupp, R-Lampasas; Carl Isett, R-Lubbock; Jim Jackson, R-Dallas; Delwin Jones, R-Lubbock; Bill Keffer, R-Dallas; Phil King, R-Weatherford; Tracy King, D-Batesville; Lois Kolkhorst, R-Brenham; Mike Krusee, R-Round Rock; Ed Kuempel, R-Seguin; Jodie Laubenberg, R-Parker; Jerry Madden, R-Richardson; Brian McCall, R-Plano; Ruth Jones McClendon, D-San Antonio; Tommy Merritt, R-Longview; Sid Miller, R-Stephenville; Geanie Morrison, R-Victoria; Anna Mowery, R-Fort Worth; Joe Nixon, R-Houston; Rene Oliveira, D-Brownsville; Rob Orr, R-Burleson; John Otto, R-Dayton; Ken Paxton, R-McKinney; Larry Phillips, R-Sherman; Jim Pitts, R-Waxahachie; Chente Quintanilla, D-El Paso; Elvira Reyna, R-Mesquite; Debbie Riddle, R-Tomball; Allan Ritter, D-Nederland; Gene Seaman, R-Corpus Christi; Todd Smith, R-Euless; John Smithee, R-Amarillo; Burt Solomons, R-Carrollton; Mark Strama, D-Austin [see note 2 below]; Joe Straus, R-San Antonio; David Swinford, R-Dumas; Robert Talton, R-Pasadena; Larry Taylor, R-Friendswood; Vicki Truitt, R-Keller; Corbin Van Arsdale, R-Tomball; Hubert Vo, D-Houston; Martha Wong, R-Houston; Beverly Woolley, R-Houston; Bill Zedler, R-Arlington.
Present, not voting: Tom Craddick, R-Midland; Melissa Noriega, D-Houston.
Absent, excused: Terri Hodge, D-Dallas.
Absent: Dawnna Dukes, D-Austin; Pete Gallego, D-Alpine [see note 1 below]; Jim Keffer, R-Eastland; Paul Moreno, D-El Paso; Joe Pickett, D-El Paso; Patrick Rose, D-Dripping Springs [see note 1 below].
[Note 1: Rep. Pete Gallego, D-Alpine, and Rep. Mark Rose, D-Dripping Springs, stated in the House Journal that they would have voted to support the McReynolds amendment if they had been at their desks to vote.]
[Note 2: Rep. Mark Strama, D-Austin, stated in the House Journal that he was shown voting against the McReynolds amendment but had actually intended to vote for it.]
