TRS pension study underway; TCTA defends defined benefit plan

The Teacher Retirement System of Texas soon will complete a pension plan design study required by the Texas Legislature. The study, due by Sept. 1, 2026, is expected to compare the current TRS defined benefit pension with alternative retirement plan designs, including a cash balance plan.

The good news is that nothing is changing right now. The study itself does not change anyone's retirement benefits, and no legislation has been filed to alter the TRS pension. However, the report is expected to help shape retirement discussions ahead of the 2027 legislative session, with bill filing beginning in November.

The issue is also expected to receive attention this summer. The House Committee on Pensions, Investments and Financial Services has been directed to study the financial condition and long-term sustainability of TRS and is expected to hold an interim hearing in August. TCTA will be monitoring both the committee's work and the TRS study closely.

What is a cash balance plan?

Unlike the current TRS pension, which provides a guaranteed monthly benefit based on years of service and salary, a cash balance plan works more like an individual retirement account. Contributions are credited to a personal account that earns a guaranteed rate of interest, and the amount in that account determines the retirement benefit. In general, the more years a teacher spends in the classroom, the more valuable the current defined benefit pension becomes compared to a cash balance plan.

One example of a cash balance plan is the model adopted by the Employees Retirement System for most state employees hired on or after Sept. 1, 2022. When ERS made that change, current employees and retirees remained in the traditional defined benefit pension, while only new hires entered the cash balance plan. If lawmakers were to consider a similar approach for TRS, current teachers and retirees would likely be grandfathered into the existing pension, with any new plan applying only to future hires.

Why TCTA supports the current pension

TCTA strongly opposes replacing the TRS defined benefit pension with a cash balance plan.

The current defined benefit pension rewards educators who dedicate their careers to Texas students by providing a predictable monthly retirement benefit for life based on years of service and salary, not the balance of an individual retirement account. Investment risk is pooled across the pension system rather than shifted to individual educators, giving teachers greater retirement security and a guaranteed source of retirement income they cannot outlive.

A cash balance plan works differently. Benefits are tied to an individual account that earns guaranteed interest credits and is converted to an annuity at retirement. While that structure may be more attractive to employees who leave public education after only a few years, it generally provides a less valuable retirement benefit for career educators. For teachers who spend 25 to 30 years in the classroom, a cash balance plan could provide 25% or more less retirement income than the current defined benefit pension.

Just as importantly, a strong defined benefit pension is one of Texas' most valuable tools for recruiting and retaining high-quality educators. Teachers are far more likely than many other professionals to spend their careers in public education. They deserve a retirement system that recognizes and rewards that long-term commitment. Weakening retirement benefits for future educators would make it even more difficult to recruit and retain the next generation of teachers.