A Georgia House committee chairman is warning that the state could wind up nearly doubling its subsidy to teacher pensions next year, and he is hoping for changes in the system.
House Budget and Fiscal Affairs Oversight Chairman Chuck Martin, R-Alpharetta, recently held a hearing on the state retirement systems, which have more than $80 billion in assets. The Teachers Retirement System is scheduled to receive a $223 million subsidy from taxpayers in the upcoming fiscal year to ensure its financial security.
Martin said the subsidy could increase to $400 million next year for the TRS, which covers more than 400,000 teachers, University System of Georgia staffers, other education employees and retirees. The system makes monthly retirement payments to nearly 120,000 retirees.
Martin’s hearing came a few weeks after The Atlanta Journal-Constitution reported that this year’s subsidy may be the largest in state history, and that it would be enough money to more than double Gov. Nathan Deal’s proposed teacher pay raise or to eliminate “austerity cuts” to schools that date more than a decade.
Martin joins a few other lawmakers who say the state should at least consider making changes to the system. One, state Sen. Hunter Hill, R-Atlanta, has proposed keeping the pension system in place for current employees but offering a hybrid retirement plan for newly hired teachers — part traditional pension and part 401(k). That, he says, would make teaching more attractive to new educators or those who may not plan to teach for 25 or 30 years in Georgia.
Hill said he’d rather see the state pay higher teacher salaries and spend less on long-term pensions for new employees.
Martin also wants the system to have more flexibility in how it invests its money. He said many years, the TRS has not been able to meet its goal of a 7.5 percent rate of return, forcing the state to subsidize the system.
“The only people hurt by low rates of return are the taxpayers,” Martin said. “The taxpayers are on the hook.
“Options are good.”
Unlike Martin, House Appropriations Chairman Terry England, R-Auburn, hasn’t voiced concern over TRS subsidies. He noted that the $223 million subsidy in fiscal 2018 will come after a couple of years of the state not having to add extra money to the fund.
Buster Evans, the system’s executive director, said the TRS will be fine if it gets a few good years of returns in the stock market.
Any talk of altering the current pension system for teachers causes a political stir at the state Capitol. Teachers and retirees say that changing the system so that new teachers get a 401(k) rather than a pension, or letting the system put money into riskier investments, are terrible ideas. They say the pension plan is a key tool in recruiting and retaining educators.
Teachers, retirees and education groups rallied to quash Hill’s proposal a few years ago, and Martin knows he’d face stiff opposition.
Teacher groups — with the help of about $5 million from the National Education Association — routed Deal’s proposed constitutional amendment last year that would have enabled an appointee of the governor to seize “chronically failing” schools and the local tax dollars that support them. That historic defeat, plus and organizing in recent years to fight changes in health insurance benefits for teachers and state employees, have shown the political muscle of educators and retirees.
John Palmer, a Cobb County educator and spokesman for the activist group TRAGIC, has made it clear that teachers and retirees would fight any changes to the pension system. He said lawmakers approved measures similar to those promoted by Hill and Martin a decade ago for the state employees retirement system.
“The argument back then was that the state would offer higher wages to offset the loss of a defined retirement benefit,” Palmer said. “Those higher wages have never materialized, and state agencies are finding it nearly impossible to recruit and retain state employees.
“Teachers are used to broken state promises, and we will not be able to recruit and retain quality teachers by trading one of the most stable retirement systems in the country for the empty promise of a higher salary.”
The Georgia systems are funded through a combination of contributions from employees and employers (school districts, public colleges, state agencies, etc.), as well as investment income. The pensions teachers and employees receive are based on the highest income they receive over a period of time and the years they work. Statewide, the average TRS payout last year to 117,918 retirees was about $36,000. TRS reports show the number of people receiving pension benefits is rising.
The TRS had $65.7 billion in total assets at the end of fiscal 2016, on June 30, 2016. The value of the fund went down during the Great Recession, had good years in 2013 and 2014 when investments paid off big, was relatively flat in fiscal 2015 and declined in value by more than $1 billion in fiscal 2016. The market has since picked up.
If lawmakers approve the governor’s budget proposal for the upcoming fiscal year, the total that state taxpayers will have paid over the past nine years in additional funds to shore up the TRS and state employee pension system will have reached nearly $900 million.