Texas Senate Bill 321 has passed. What does that mean for you, your families, and Texas taxpayers? Here's everything you need to know:
Senate Bill 321 aims to create a cash balance retirement plan for incoming state employees effective September 1, 2022. The new plan would not impact current state employees. This chart compares existing ERS pension groups 1-3 and the new group 4 for new state employees starting September 1, 2022:
WHY?
The ERS pension fund is not actuarially sound, has approximately $15 Billion in debt and accrues $1.5 Billion additional debt each biennium. SB 321's passage ensures that ERS receives $510 million additional funds each year to address the pension debt and also institutes a new plan that would help achieve solvency. The Senate would not provide the funding necessary to pay off the debt without pension reform. A cash balance pension plan was chosen as the alternative best suited for future state employees.
Why is this important to current state employees?
The Legislature views salary, pension, and insurance funding as related issues. They budget for pension and insurance benefit payments before considering across-the-board pay raises for state employees. TPEA worked to address the ERS funding issues so that the Legislature can direct their attention to state employee pay raises and other issues significant to the state workforce.
Why is this important to current retirees?
The current ERS-defined benefit plan does not include a benefit increase (13th check or otherwise) during retirement. However, in the 1980s and 90s, when investment returns were in the double digits and the retirement fund was not in debt, the Legislature granted several benefit increases. Retirees have not had an increase since 2002. Since the ERS retirement trust fund is projected to run out of money, there is no chance retirees will ever see a 13th check or retirement increase (regardless of age or years in retirement). However, with the passage of SB 321, the fund will become sound sooner and pension increases for current retirees could be considered.
2061 is a long way away- it will not affect my staff or me.
That may be true, but there are approximately 56,000 state employees in ERS' pension group 3. Without SB 321's path to solvency, the pension fund would run out of money in their lifetime while in retirement.
ERS' unfunded liability is a debt that grows about $1.5 Billion a biennium - that's $2 million a day. The debt stands to affect Texas' high credit rating, according to Comptroller Glenn Hegar and bond rating houses. If you, your children, or grandchildren live in Texas – they might have had to pay more in taxes. If the state continued only contributing less than 1% of state budget to pay off this debt, Texas would have had no choice but to fund employee benefits with money from general revenue. By then, it would cost at least four times as much. Every taxpayer would pay more.
Jennifer Chambers from ERS recently spoke with TPEA about SB 321 and how ERS, the state, and the Legislature plan to tackle it. Watch and/or listen here: