FAQs
Will I Receive the Full Value of My Pension When I Retire?
Current retirees and soon-to-be retirees: Rest assured that you will not have your pension benefit cut. The value of your pensions will likely erode over time with inflation, but there is no immediate risk that TRS will run out of money.
Young teachers and educators joining the workforce now: There is some risk to your future benefits. The ability for TRS to pay out benefits depends on earning an aggressive investment return that they think has a 50-50 chance of happening. Plus the state legislature has historically not always contributed everything that finance professionals say that they should.
Why is My Contribution Rate Going Up?
Over the past decade, Texas TRS has developed a shortfall in the money needed to pay all current and future promised pension benefits. So every few years the Texas legislature has raised contribution rates from teachers, school districts, and the state’s education fund to try and cover the funding shortfall. This shortfall — sometimes called pension debt, or unfunded liabilities — is money that the state legislature owes to TRS. Part of the reason for the funding shortfall is that the state has only paid its pension bill to TRS in 2 of the last 17 years. TRS has also assumed it would make better investment returns than has actually happened.
What is the $50 Billion TRS Pension Debt?
Pensions are not managed like Social Security, where today’s workers pay the benefits of today’s retirees. Pensions are supposed to be funded in advance of retirement, through a combination of contributions into the pension fund, plus investment returns on that money. Whenever the contributions are too low, or investment returns underperform, the pension fund develops a shortfall in the money it will need in the future. Back in 2001 there was no shortfall in Texas TRS, but at the end of 2020 TRS reported it had a $50 billion shortfall. This is pension debt owed to TRS from the state.
Are Pensions the Best Kind of Retirement Plan?
Simply stated, there is no one-size-fits-all retirement plan.
If you plan to work a full, 30+ year career in Texas public schools, then the current “Defined Benefit” pension plan that TRS offers could work out great for you. It promises guaranteed monthly income that is based on an average of your salary when teaching. But because pensions are designed for long-term workers, they don’t always create adequate retirement income savings for everyone.
If you work for less than 10 years in Texas public schools, you won’t qualify for a retirement benefit that is any larger than the contributions you paid into the pension fund yourself.
If you work for less than 27 years in Texas public schools, the value of your benefit will probably be less than if you were enrolled in a “Guaranteed Return” plan.
If you move away from Texas you can’t transfer your years of service credits to another state, even if you stay in public schools. If you move between public and private schools you may not get credit for every year you teach. If you take time off in the middle of your career you may not accumulate a large enough pension to retire on.