Georgia lawmakers are moving forward with legislation they hope will put the state’s $78 billion pension system for teachers on more stable footing for the future.
But to do so, the legislation the state House Retirement Committee moved on Monday could temporarily mean a much bigger taxpayer subsidy to the system, which provided pensions to 127,000 Georgians last year and promises benefits to more than 200,000 teachers and University System of Georgia staffers in the future.
The measures come after a two-year period in which the state hiked taxpayer payments into the system by about $600 million, eating up much of the new tax revenue that came in during 2017 and 2018.
The committee voted Monday to get cost estimates on House Bill 662 and House Bill 667. Once the committee finds out how much each would cost later this year, it can decide whether to alter them and/or move ahead with them for consideration by the General Assembly in 2020.
Each may increase state and local spending on the pensions.
“If you do all these things, you are going to show a tremendous cost,” said Buster Evans, the executive director of the Teachers Retirement System.
Teachers, retirees and education groups say the system is key to recruiting and retaining teachers. The average pension is about $37,000 a year.
However, some members of the retirement committee, such as House Higher Education Chairman Chuck Martin, R-Alpharetta, fear the system is unsustainable if it remains unchanged.
The Great Recession greatly set back the system, which counts on a certain rate of return on its investments. The number of teachers and employees contributing to the fund dropped because jobs were cut or positions went unfilled, and pay raises, which boost employee payments to the system, were scarce until this year. Retirees are living longer, which means more is being paid out.
An audit earlier this year said the state and local school district contributions into the system would rise to $2.4 billion by 2025 and $4.4 billion by 2045 without any changes. That would make contributions into the plan one of the state’s biggest expenses.
The system is funded through a combination of employee and employer contributions, plus investment earnings.
The TRS has assumed a 7.5 percent annual rate of return on the fund’s investments. While Evans said the average return since 2000 has been 7.4 percent, Martin said that does not account for stock fluctuations that dramatically dropped the value of the fund during the Great Recession.
Evans said the TRS board will consider dropping the rate to 7.25 percent. A bill by House Retirement Chairman Tommy Benton, R-Jefferson, a retired teacher, would drop it to 6.75 percent. Lower investment income might force state and local taxpayers to put more into the system to make up the difference.
A bill Martin is pushing would speed up the state’s funding of billions of dollars in unfunded liability — what the system owes in benefits to those who are part of the system.
Martin said, if approved, his bill would be the equivalent of switching from a 30-year to a 15-year mortgage. As in the case of a shorter-term mortgage, it would require state and local districts to increase their funding until the liability is paid off.
“I’m not going to lie, it’s going to be a big number,” Martin said. “I think it’s important for what we need to catch up.”
Benton said much the same. “I think when the bill comes back,” he said, “you are going to see the number is astronomical.”
Evans put the added costs at “hundreds of millions more” per year.
After spending much of the state’s new revenue to stabilize the system in 2017 and 2018, adding hundreds of millions more in cost per year may be unpalatable to lawmakers if it eats into other budget priorities.
Still, Martin said it’s important to see how much it would take to fully fund the retirement system.
“I am talking about us being realistic about the promises we have made to teachers,” Martin said.