Understanding the TRS employer contribution rate |
On Board Online • April 2, 2018
By David P. Keefe
Board President NYS Teachers' Retirement System
The ability of the New York State Teachers' Retirement System (TRS) to provide teachers in your district with a secure pension is a shared responsibility. Your school district and your employees provide required contributions, and TRS provides disciplined investment management to achieve optimal long-term returns.
At TRS, we take great pride in being one of the best-funded public pension plans in the nation. As of June 30, 2017, the plan was nearly 98 percent funded using an actuarial value of assets and virtually 100 percent-funded based on a market value of assets. That's after nearly 100 years of providing pension benefits to the state's public school teachers and administrators.
Member and employer contributions are invested in diverse portfolios within the public equities, fixed income, real estate and private equity asset classes. Over the past 30 years, returns on these investments have accounted for 84 percent of TRS' income. Across all public pension plans over the same period, investment returns accounted for 61 percent of income, according to the National Association of State Retirement Administrators.
In annual budget deliberations, some school board members have wondered about the variations in the amount of TRS contributions required of school districts from year to year.
Employer contributions are based on the salaries of all employees who are members of TRS and the calculated employer contribution rate (ECR) set by the TRS board each year.
As reported in the Feb. 19 issue of On Board, TRS issued an administrative bulletin in January recommending that school districts and BOCES use an estimated ECR of 10.63 percent of payroll when planning their 2018-19 budgets. That's up from an ECR of 9.80 percent for the 2017-18 school year.
In 23 of the past 29 years, the ECR has been in single digits. There are many factors that go into calculating the ECR, including the assumed rate of return on investments, shifting life expectancies, salary changes and trends in age of retirement. TRS periodically revises the assumptions used to calculate the ECR to ensure they are aligned with expectations for the future.
One of these assumptions, the assumed rate of return on investments, was recently lowered. This was based on long-term forecasts provided by TRS' investment advisors, who anticipate lower future returns. This, along with other gains and losses, caused a slight rate increase - less than 1.0 percent of member payroll - to the projected 2018-19 ECR.
TRS members and employers have been diligent about paying their required contributions. That, coupled with the fact the system has exceeded earnings projections over the long term, means the funds exist to fully pay all currently accrued pension benefits. It also means TRS is able to keep pension costs for schools manageable.
Collecting and investing contributions throughout a member's career (which often spans 30 years or more) is the most efficient and cost-effective way to fund public pensions. By prudently investing funds to achieve optimal long-term returns, TRS honors its commitment to keep costs to schools as low as possible while adequately funding member benefits well into the future.