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Senate briefing: TRS funded ratio down to about 60.5%; 1% retiree COLA would cost roughly $236 million
Summary
State Senate members heard that the Teachers Retirement Systemfunded ratio has declined to about 60.5% and that a fully prefunded 1% retiree cost-of-living adjustment would cost approximately $236 million, with long-term liabilities tied to past unfunded COLAs and recent payroll increases.
Ms. Scott, a presenter for the retirement system, told the Senate on Oct. 27 that the Teachers Retirement System's funded ratio has declined and that recent actuarial and policy changes are the main drivers.
The most immediately newsworthy detail, Ms. Scott said, is the cost of prefunding a retiree cost-of-living adjustment (COLA): "The cost for to prefund so a funded cola would be, $236,000,000 for a 1% TRS cola." She and other speakers traced the funded-ratio decline to four main factors: the board's lowering of the assumed annual investment return, recognition of longer member lifespans, pay raises and matrix changes that raised payroll, and several past ad hoc unfunded COLAs that were added to liabilities.
Why it matters: a funded ratio near 60.5% means the system holds about 60.5 cents for every dollar of promised benefits, increasing employer contributions or other funding needs. Ms. Scott said the TRS board reduced the assumed annual rate of return from 8.0% to 7.45%. Lowering the assumed return raises required employer contributions because the actuarial model assumes less future investment growth.
Ms. Scott and senators noted recent pay decisions increased liabilities: two pay raises in 2022-23 plus a salary matrix change added roughly $1 billion to the systemunfunded liability, she said. The presentation also cited negative investment returns in 2023 as a contributor. Ms. Scott described prior practice in the 2000s of granting retiree COLAs without prefunding them, which she said contributed to a multi-billion-dollar unfunded obligation; she displayed a slide indicating $7 billion paid on unfunded COLAs that remain on the system's books.
Senators on the panel emphasized the tradeoffs. One senator told colleagues that prefunding COLAs requires large up-front state cash and warned against creating an employer rate employers could not sustain. The presenter said the board has taken "fiscally prudent" steps intended to improve long-term funding, including closing the amortization schedule and updating actuarial assumptions, but that those steps also increase short-term reported liabilities.
No formal vote or binding decision was recorded at the meeting. Senators and staff discussed constituent advocacy and asked colleagues to file letters when they want priorities reflected in the legislature"it carries so much more weight with me when I have a senator saying, I would like to see that happen," one senator said about submitting requests for the senator's files.
The presentation closed with a reminder that meaningful, ongoing retiree relief would require substantial funding. Ms. Scott reiterated the single-year prefunding figure for a 1% TRS COLA and said larger, meaningful COLAs would cost far more. Senators asked for follow-up information and indicated they expect this topic to appear in budget deliberations.
