Alterations to the Teacher Retirement System Would Constrain Cost Growth and Future Educator Benefits
House Bill 109, which would make changes to the Teacher Retirement System TRS), is being heard by the House Retirement Committee tomorrow. Please read the following bill analysis and contact members of the committee as encouraged in the Action Alert.
Bill Analysis: House Bill 109 LC 43 1437S
TRS is a vita
benefit for Georgia educators. It ensures educators have a financially secure retirement after a career serving children and young people. This retirement benefit is a critical tool to attract and keep great educators in the classroom, which is an urgent need. The state loses more than 40 percent of new teachers within their first five years in the classroom, and every year there are unfilled teaching positions in schools across Georgia. There were 2,549 teacher vacancies in the 2017-2018 school year.
TRS is a defined benefit program that makes specific financial commitments to its members for their retirement years. It is funded through employer and employee contributions as well as investment returns. When the system’s liabilities outpace its assets, it has an unfunded accrued liability. Increases in life expectancy, lower-than -expected investment returns, the Great Recession and other factors created an unfunded liability for TRS in recent years. Legislators addressed this gap by increasing the state’s investment. The employer’s contribution rate, a major portion of which is covered by the state, climbed from 10.28 percent in fiscal year 2010 to 21.14 percent in 2020. Strong investment returns have resulted in a lower rate of 19.04 percent for fiscal year 2021. While there remains an unfunded liability, it is decreasing, and the TRS leadership team has implemented a plan to cover the liability in 25 years, ahead of its 30-year amortization schedule.
During the 2019 legislative session, lawmakers introduced
House Bill 109,
which
, if approved,
would make multiple changes to
the structure of
TRS. (The link to HB 109 is the most current written version but changes are expected. PAGE will post the updated version when it becomes available.) The changes would constrain cost growth as well as reduce benefits to future members. A proposed alteration to the cost of living allowance (COLA) would also affect current members who have not yet retired. TRS retirees who are already drawing benefits would not be affected.
Discussions about HB 109 are ongoing and, under the direction of Rep. Tommy Benton (R-Jefferson), chair of the House Retirement Committee, the bill continues to be refined. Chairman Benton, who is also the bill’s author, indicates that HB 109 will be discussed by the retirement committee at its Tuesday meeting but he will not hold a vote to ensure there is time for feedback from educators and other stakeholders.
Communication with Benton indicates that the version of the bill summarized below is undergoing revisions.
HB 109 Expected to Reduce State Contributions to TRS
A 2019 study by the Georgia Department of Audits laid out a series of changes to components of TRS to reduce the growth of future costs. The cost reductions varied based on the specific component and the type of change proposed. HB 109 incorporates many of the recommended changes. A fiscal note for the specific changes outlined in HB 109 has not been completed, so possible savings to the state and lowered benefits to teachers and other TRS members has not been calculated.
Proposed Changes to TRS for New Members
HB 109 lays out an array of structural changes to TRS.
If approved by legislators, these changes apply to individuals who are hired and become TRS members on or after July 1, 2020;
the following proposed changes would not impact current TRS members:
- Lengthen final average earnings calculation period. Under HB 109, the final average salary will be determined based on the five consecutive years of a highest salary. Currently it is based on two consecutive years of highest salary. Final average salary is a component of the benefit formula used to determine the amount each TRS retiree will receive. Increasing the number of years used in the calculation will result in a lower final average salary than many future TRS members would otherwise receive.
- Increase allowable employee contribution rate. The cap on employee contributions would rise to 8.5 percent from the current 6 percent. The TRS board would set the specific rate. If set at 8.5 percent, the higher contribution level would reduce incoming teachers’ “take-home” pay and undercut the impact of the pay raise the General Assembly approved in 2019. The effect on teachers early in their careers is shown in the chart below.
