Governor Perry: Veto SB 1691!

Urge Gov. Rick Perry to veto SB 1691, which will cut more than $1.5 billion in future retirement benefits for some 500,000 public school employees.

Sample Letter for Campaign

Subject: Governor Perry: Veto SB 1691!

Dear [ Decision Maker ] ,

I urge you to veto SB 1691. This unfair and unbalanced bill cuts future retirement benefits for nearly 500,000 current teachers and others employed in elementary, secondary, and higher education. Though already-retired educators have been told they are the intended beneficiaries of this legislation, in fact this bill fails to provide a much-needed cost-of-living increase for current retirees either now or in the foreseeable future.

"The present value of future benefits for all current members [of the Teacher Retirement System] would be reduced by $1.5 billion" under SB 1691, according to the official fiscal note on this bill provided by the Legislative Budget Board on May 19, 2005. Though SB 1691 would exempt about one-third of current employees from some of the sharpest cuts, the other two-thirds would be hit hard by provisions like one that lowers pensions by lowering the salary base on which a retired educator's annuity is calculated.

These adverse changes, coming at the expense especially of mid-career employees, would be sure to hasten the exodus of experienced, effective educators from our schools at a time of rapidly rising expectations for student achievement. Cutting prospective retirement benefits also will hurt efforts to recruit the next generation of highly qualified teachers our schoolchildren need and deserve.

By vetoing this bill, you can tell the legislature to come back with a fair and balanced approach that gets to the root the problem: namely, the legislature's chronic failure to fund the pension system at a level that would support regular cost-of-living increases and further benefit improvements.

Under the state constitution (Article 16, Section 67, Subsection (b)(3)), the state is obligated to contribute from 6 percent to 10 percent of aggregate payroll for participants in the TRS pension system. The state contribution rate has been specified in statute as 8 percent since the early 1980s (Government Code Section 825.404(a)), but for two decades the legislature has reduced the actual, budgeted contribution rate, first to 7.65 percent in 1989, then to 7.31 percent in 1991, and finally to the rock-bottom, constitutionally required minimum of 6 percent under the "temporary" cut enacted in 1995, which has remained in force for ten years. That last, deep cut in 1995 (an 18-percent reduction from the previous rate) over the past decade has deprived the pension fund of billions of dollars that could have been invested to help improve benefits for current and future retirees.

A fair and balanced approach to restoring the pension fund's capacity for benefit improvements will now require a major increase in the state contribution rate. It will take courage for the legislature to admit that the policy of minimizing state contributions to the pension fund has been a huge mistake and to rectify that mistake. Help them find the courage by vetoing SB 1691.

Sincerely,

Campaign Launched:
May 28, 2005

Background Information

Faced with an ongoing wave of outrage from the grass roots, on May 27 Sen. Robert Duncan, Republican of Lubbock, passed up a chance to resurrect the uglier version of his TRS benefit cuts (HB 1579), which 12 senators killed on May 25. (That honor roll again: Barrientos of Austin, Ellis of Houston, Eltife of Tyler, Hinojosa of McAllen, Lucio of Brownsville, Madla of San Antonio, Shapleigh of El Paso, Van de Putte of San Antonio, West of Dallas, Whitmire of Houston, Zaffirini of Laredo.) With our Senate allies on high alert to prevent any mischief, Duncan did not even try on May 27 to attach this "second installment" of his benefit cuts to the first installment already included in SB 1691.

Unless Duncan somehow manages to slip his uglier bill into one of a dwindling number of other bills still in House-Senate conference committees, we estimate that our success in stopping HB 1579 will save about $1.3 billion in present value of future benefits for current school employees. That's the difference we made by fighting back and blocking Sen. Duncan's bid to impose a minimum age of 60 for retirement on nearly 500,000 current school and college employees. However, we still have to reckon with the damage done by the first installment of Duncan's one-two punch, SB 1691, which will soon be on its way to the governor's desk for signature.

Under SB 1691, the minimum retirement age of 60 will not override the rule of 80 for anyone currently employed or anyone hired by September 1, 2007. However, SB 1691 makes several other changes in benefit formulas that will be costly for future retirees who, as of August 31, 2005, have not attained age 50, earned 25 years of service credit, or satisfied a rule of 70 (age and years of service adding up to at least 70). Though this grandfather clause exempts 245,000 current employees, roughly 475,000 current school and college employees, many of them in mid-career, stand to lose more than a billion dollars in present value of future retirement benefits under SB 1691.

Nearly all the damage in SB 1691 is done by one provision, changing the "final average salary" calculation on which TRS pensions are based. This change lowers pensions for future retirees who are not grandfathered, by lowering the base on which their pensions will be calculated. If that "final average salary" provision could have been removed, as we tried to do in both the House (via an amendment by Rep. Jim McReynolds, Democrat of Lufkin, that was defeated 85 to 55) and Senate (through an amendment by Sen. Gonzalo Barrientos, Democrat of Austin, which was defeated 18 to 12), the vast bulk of the harm in this bill would have been averted.

The second most costly change under SB 1691 imposes steep benefit reductions on someone who retires with 20 years of service but without meeting the rule of 80. Unless grandfathered by the same provision described above (50 or older, 25 years of service, or rule of 70 by August 31 of this year), a future retiree who takes a pension at 55 with 20 years of service would receive only 47 percent of a full benefit, instead of 90 percent per current law.

The bill imposes a new rule of 90 for the use of the partial lump-sum option at retirement, unless the grandfather provision described above applies. It also imposes well-nigh prohibitive costs on school districts for rehiring a retired employee, requiring districts to contribute to the TRS pension fund and to cover the state share of the cost of TRS-Care health coverage for the rehired retiree. The grandfather clause for this provision exempts only a retiree who was already on the payroll as of January 2005.

In addition, SB 1691 repeals "air time" purchase of up to three years of service credit, even though a retiree already must pay the full actuarial cost of the credit. Any purchase of service credit under this option must be completed or arranged for under an installment contract before January 1, 2006.

That is also the deadline for purchase of out-of-state service credit at the current reduced cost. On or after January 1, 2006, out-of-state service credit can still be purchased but it will be at a much higher price--full actuarial present value.

Perhaps the only unalloyed plus in the bill is the opening of a new window for disgruntled participants to get out of the DROP program (which allows an employee, while still employed, to give up in advance the last several years of service credit in exchange for a lump-sum payment at retirement). Many participants have figured out that DROP is not a good deal for them, and SB 1691 gives them from September 1 of this year through December 31 to drop out of DROP. This option applies to an employee participating in the plan as of September 1 or whose participation expired before that date but who has not retired by then. The bill also prohibits any new participants from entering the DROP program after this coming December 31.

The next stop for this bill is the governor's desk. Gov. Perry has up to 20 days after the legislative session ends on May 30 to decide whether to veto the bill or let it become law.