Defined Benefits

  1.  

Texas Retired Teachers Association

313 E. 12th Street, Suite 200 I Austin, TX 78701-1957
800.880.1650 I 512.476.1622 I fax 512.476.1003

 

 

DO YOU KNOW THE DIFFERENCE?

Defined Benefit vs. Defined Contribution

Do you know the difference between a defined benefit retirement program and a defined contribution program? Educators
and other school personnel in the public schools of Texas are currently participating in a defined benefit program. This
is very important for members of the Teacher Retirement System of Texas (TRS), and we must keep this program in
operation.

The problem is that governments and private companies across the nation are looking at these programs and are considering ways to change them to defined contribution plans. Defined contribution programs require considerably less management, and therefore, are much less expensive. The employee is more responsible for making investment decisions and riding the waves of the market's ups and downs. This would shift the responsibility onto the backs of the
retirees.

In contrast, the defined benefit plan assures a lifetime annuity,because the State is responsible for filling in when the pension fund is down due to unfavorable market conditions. It is especially important for TRS to remain a defined benefit program as most Texas public school districts are not currently part of the Social Security system.

 Features of a Defined Benefit Program:

  1. You cannot outlive your benefit; it guarantees a lifetime pension.
  2. Funds are managed byTRS investment professionals.
  3. Its benefit is based on your age at retirement, years of service, and highest salaries; not based on the balance in the individual's account.
  4. It is a selling point for employers in recruiting and retaining teachers.
  5. It generates a predictable, steady retirement income.
  6. It is the sole guaranteed retirement income for most TRS members because most Texas public school districts are not part of the Social Security system.

 Features of a Defined Contribution Program:

  1. You can outlive your benefits because it is based on the amount in your account.
  2. Its success depends on each employee's ability to make good investment decisions.
  3. It provides disability and survivor benefits based on the individual's account balance only.
  4. It can generate an unpredictable retirement income.
  5. It often requires that workers stay in the workforce longer.
  6. It is portable from job to job.

The Texas House released its budget proposal for the coming biennium. This proposal cuts billions from areas such as health and human services, education and other government services. The TRS of Texas did not escape the early budget cutting. The House proposal reduced funding to the TRS pension fund from 6.644 to the Texas Constitutional minimum of 6. Compounding these cuts and potentially causing immediate financial harm to TRTA members, the TRS-Care health insurance program funding is being cut in half.

In addition, The Legislative Budget Board places Defined Benefits at RISK with a 3 point Plan:

  1. Have the legislature fully fund the pension trust funds;
  2. Maintain the TRS and ERS defined benefit plan, but implement plan design changes for future retirees to make the
    current funding levels sufficient to pay for benefits;
  3. Introduce a HYBRID plan for new employees (this effectively kills the traditional defined benefit plan for all future
    TRS retirees).

February 2011

Note:  SB 1458 protected the Defined Benefit program for educators but we must continue to be vigilante in our defense of this program.