The Facts
* The state’s two major retirement systems, TRS and ERS, have funding ratios near 80%—the threshold considered to be actuarially sound.
* Texas’ retirement systems are legally liable to pay defined benefits totaling 10 to 20 times what state employees paid into the system—if investing returns drop or benefits are increased, taxpayers would be on the hook for the added exposure.
* Defined contribution systems are more sustainable than defined benefit plans because they are, by definition, fully-funded, which is why the private sector is moving in this direction.
Recommendations
* Freeze enrollment in the current defined benefit system and enroll newly hired or unvested employees in a 401(k)-style defined contribution pension plan.
* Implement either a hard or soft freeze of the system for vested employees.
* Replace current employee health care plans with Health Savings Accounts.