The Teacher Retirement System Board voted to drop their investment return assumption from 8.5% to 8.0%. In addition, the Board updated their Mortality Tables adding an average of 1.5 years to the current lifetime. Lastly, the Board reduced salary increase assumptions for the next 30 years from 7.0% to 6.0% (average teacher salary increase has been 5.5% over the last five years). With all the changes made in the system, it is projected to increase the State’s payment to TRS next year by almost $500 million.
The 8.5% assumption that had been used by the TRS had been considered the highest in the country; other major government systems average 7.8%. TRS, while meeting that assumption number in the past, has averaged under 6% for the past 10 years.
With this change the state’s total pension unfunded liability now stands at approximately $115 billion.
The total State payment to TRS in this year’s budget (FY13) was $2.7 billion; next year (FY14) it will be $3.4 billion. A $700 million increase.
Other State-funded pension systems’ payments are expected to increase by at least another $100 million.
In addition, the payment increase on the $16 billion pension bonds (money borrowed to make pension payments in the past) will be at least another $100 billion.
Total of increased payments associated with pensions in next year’s budget $900 million.
GOMB (Governor’s office of management and budget) projects $1.0 billion in new general State revenues next year.
90% of all new State revenues next year will go to pensions – the remaining 10% will go to education, healthcare, economic development and the other state programs.
Why do I sound like a broken record bringing up these pension numbers over and over again like I have for the last 20 years? Because doing nothing is not an option. The fact that the State has waited this long to address the problem has only made the solution more painful for those in the system, as well as taxpayers.
This is not a debate about the worthiness or the amount of pensions; that is a decision ultimately worked out by the legislature, collective-bargaining and the courts. This is only about the honesty of the numbers.
The State owes it to those who will be beneficiaries of the pensions and to the taxpayers to be honest about what the real pension costs will be the next 30 years and how those costs will be paid by the State. Retirees should not have to worry if they will have the pension or what that pension should be. Likewise, taxpayers should not have the uncertainty hanging over them that they could be hit with large tax increases to cover irresponsible underfunding of past promises.