ERS Board passes change in rate of return, pushing back possibility of retiree COLA

TSEU member and ERS Board member Ilesa Daniels votes ‘no’ to the measure.

[l-r] Jerry Wald- Houston ROC; Ilesa Daniels- TSEU member on ERS Board; Daphine Brown-Jack- Houston ROC

Yesterday, August 22, 2017, the Board of Trustees of the Employees Retirement System voted 4-2 to lower the pension fund’s 30-year “expected rate of return” from 8% to 7.5%. The measure passed, despite Board members each receiving more than 900 emails from state employees and retirees opposed to the change, a letter calling for a delay in the vote from State Rep. Gina Hinojosa and the testimony of union members from across the state who came to speak against the vote in person.

Initially, the Board had discussed lowering the expected rate of return to as low as 7%. The fact that it was lowered by half the proposed amount is because of the mobilized pressure that TSEU members brought to bear on the ERS Board. ERS Board member and TSEU activist Ilesa Daniels cast her vote against the proposed change, along with one other board member. If one additional ERS Board member had voted against the measure, it would have failed.

The expected rate of return is an estimate of how much money the pension fund’s investments will earn in the future. This is a critical figure which helps ERS figure out how much money it will have to pay current and future state retirees.

ERS is currently 75% funded and with an 8% expected rate of return, it’s projected to be 100% funded in 35 years. When the expected rate of return is lowered to 7.5%, the pension fund will be projected to run out of funds in just a few decades. That suddenly bleak outlook for ERS means the fund will need a lot more money from the Legislature to shore it up. On top of that, current retirees will be even further away from receiving a desperately needed cost-of-living increase. Many anti-pension lawmakers will certainly use the situation to call for doing away with state employee pensions and switching new state workers into risky 401(k)’s.

The ERS Board took up the issue of the assumed rate of return on the advice of their actuaries who said the 8% expected rate of return was unrealistic. However, over the last 30 years ERS averaged a rate of return on investments of 8.3%, exceeding their 8% assumed rate of return. And in the current year, ERS is on pace to be well above the 8% mark.

The fight is not over!

TSEU members led the fight against this vote and our mobilizing pressure won us a partial victory. Now, we have to continue building our union so we can push lawmakers for increased funding for our pensions and fight attempts to turn our pension plans into 401(k)’s. We also must work to make sure the Teacher Retirement System (TRS) doesn’t follow ERS’ example. And we must elect more TSEU members to the ERS and TRS Boards of Trustees. Their actions matter!