.TSEU ORGANIZER CONTACT: MIKE GROSS

A snapshot of the ERS pension plan:

Who is included - Employees/retirees of state agencies
Employees - 137,293
Retirees - 83,430
Assets - $24 billion
Unfunded liability -
$5 billion
Funded ratio - 82.6%
Average pension -
$1531/month
Current contribution rates -
* state 6.0%
* employee 6.5%
* total 12.5%
Total contribution needed for stable fund (normal cost) -
12.3%
Total contribution needed to pay off unfunded liability (actuarially sound) - 17.5%

A snapshot of the ERS pension plan:

Who is included - Employees/retirees of school districts state universities, and community colleges
Active employees (approx) -
* universities/community
* colleges 140,900
* school districts 688,000
* total 828,919
Retirees - 301,603
Assets - $115 billion
Unfunded liability- $24 billion
Funded ratio - 82.7%
Average pension- $1779/month
Current contribution rates -
* state 6.0%
* employee 6.4%
* total 12.4%
Total contribution needed for stable fund (normal cost) -
- 10.6%
Total contribution needed to pay off unfunded liability (actuarially sound) - 14.5%

ERS, TRS are defined benefit plans

State agency employees get retirement through the Employees Retirement System of Texas (ers). University employees get retirement through the Teacher Retirement System (trs). Both plans work the same way.
In general, state employees can retire with full benefits when they reach age 60 AND meet the “Rule of 80.” The Rule of 80 says that age plus years of service must total 80. The requirement that employees be at least 60 years old was added recently.
The amount of an employees monthly pension when they retire is determined by three factors:
Years of service: the total number of years worked for the state.
Average salary: the monthly average of their best 36 (60 for TRS) months during their career.
A multiplier: currently 0.023, or 2.3%. This is determined by the Texas Legislature.

Example: Mary Smith worked for HHSC for 31 years. She worked her way up to unit supervisor, with a salary of $40,000, and stayed in that job for ten years.
Her years of service is 31, and her best 36 months of salary were when she was a supervisor, at an annual salary of $40,000 or $3333 per month.
Her monthly pension is $3333 X 31 X 0.023 = $2376.

Recent changes in our pension plans:
2005: the salary calculation for TRS was changed from the best 36 months to the best 60 months. This reduces the pension amount for many retirees.
2005: for TRS employees who start after September 2006: must be 60 years old AND meet the rule of 80 to retire with full benefits (increased from age 55).
2009: for ERS employees who start after September 2009: must be 60 years old AND meet the rule of 80 to retire with full benefits. Previously employees could retire with full benefits at any age if they met the Rule of 80.

Defined Benefit (db) vs
Defined Contribution (dc)
HOW THEY WORK

(db) Retirees are guaranteed a lifetime pension that is determined by a formula. The benefit – the pension amount – is defined by the plan. The pension is usually determined by a formula that takes into account years of service and salary, and retirees always get the pension amount that is determined by the formula. Contributions and investment income go into one large fund, which is managed by the plan administrator. The retiree gets the pension amount determined by the formula regardless of economic conditions. The plan itself and its administrator are responsible for making sure that the fund can pay for retirees’ pensions, by adjusting investment strategy and/or contribution rates. ERS/TRS are defined benefit plans.

 (dc) Retirees’ pensions, if any, depend on the stock market and the condition of their personal retirement account. The contribution – who puts in money and how much – is determined by the plan.. Each employee/ retiree has a separate, individual retirement account; and the employee/retiree is responsible for investing the money in the account. The retiree’s benefits depend on how much is in their individual account. Employees always pay into the plan while they are working, the employer also makes a contribution in some plans. Like nearly all retirement systems, DC plans depend on investment income for most of the benefits that are paid out. 401-(k)’s and Roth accounts are defined contribution plans.
WHERE THE MONEY COMES FROM
(db)Usually the employer along with the employee will contribute some percentage of payroll each month. The money goes into a single overall account. The fund manager (ERS or TRS for us) is responsible for investing these funds. In ERS and TRS, about 75% of the income is from investment returns. The fund is large enough to “ride out” poor stock market years, and is managed by professionals who are able to maximize investment income. (dc) The employee makes regular contributions, and in many plans the employer makes contributions. The employee contributions can be some fixed percent of payroll, or some amount chosen by the employee. The employer contribution, if any, can be a flat amount, a percent of salary, or as a full or partial match of the employees’ contributions. The employee/retiree is responsible for making investment decisions, and the value of the account depends on the results of the investments.
HOW THE PENSION AMOUNT IS DETERMINED
(db) Pension amount is defined by the plan, usually as a formula that takes into account years of service and salary. The retiree gets the pension amount determined by the formula regardless of stock market or other economic conditions. (dc) The retiree can withdraw funds from their individual account. If the account runs out, they have no further benefits.