Texas has made changes to retirement plan provisions for its Employees Retirement System (TXERS), as presented in Senate Bill 321, signed into law on June 18, 2021. The stated intent of the legislation is to address the pension plan’s solvency, which was projected by the retirement system’s actuaries to run out of money within 20 to 30 years.
Equable Institute has analyzed the proposed changes using Retirement Security Report methodology, and we report here how these changes to retirement benefits would influence current and/or future TXERS plan members.
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EQUABLE INSTITUTE’S ANALYSIS
The funding policy changes in SB321 are very important for ensuring the legacy TXERS pension plan remains solvent. If future legislatures appropriate the intended “legacy payments” on top of the 10% of payroll constitutional maximum employer contribution, then this legislation will meet its stated goal to ensure solvency.
The new retirement benefit design adopted via SB321 will also improve TXERS by offering a benefit that will be better for all members.
- Short-Term Workers will benefit the most from the new changes, with the guaranteed return plan scoring nearly triple the amount of available Retirement Benefits Score points (57.1%) compared to the legacy pension plan (22%) that wasn’t serving members well at all.
- Medium-Term Workers also will benefit substantially from the new plan design with nearly double the available points scored.
- Those who work a full career covered by TXERS will also be better off under the new plan, though only served moderately well.
Guaranteed return plans like the new “Group 4 cash balance” plan balance the trade-offs of promising certain benefit levels and offering mobility. As such, the core plan design works much better for Short-Term and Medium-Term Workers, particularly compared to a pension plan with 10-year vesting rules (like the legacy TXERS plan design).
There is room to improve the guaranteed return plan design that would allow it to serve all members well, such as increasing contribution rates or the rules on investment gain-sharing above the 4% minimum return. However, the fact that the new plan automatically supports the annuitization of account balances into guaranteed payment streams at retirement is a very strong plan provision supporting a path to retirement income security.