HB 516 — Have We Created A Possible Ticking Time Bomb?

February 19, 2014 7:30 am

by Nathan · 11 comments

On Monday, the House passed House Bill 516 to allow employees of the University System of Georgia to make revocable a decision that was once irrevocable on whether to participate in the Regents Retirement Plan or the Teachers Retirement System of Georgia (TRS). The rationale, explained by House Retirement Committee Vice Chairman Christian Coomer (R-Cartersville), is to allow our university system to compete with other states that have a similar plan.

Representative Chuck Martin (R-Alpharetta) approached the well to voice his concern. His concern is that, although there would be no additional cost to TRS today, the potential liability for taxpayers would be $28 million per year (based on the roughly 14,000 employees at an average salary of $50,000 per year and if everyone decides to convert). That number goes upwards of close to $40 million per year if you change the average salary to $70,000 (a lot of those professors certainly make a good salary) and based on the current TRS contribution rate of 13.15%.

The bill passed with a vote of 92-70 with 10 not voting, but what seems to be interesting is who was absent from the voting:

  • Rep. Braddock
  • Rep. Coleman (chairman of Education)
  • Rep. Dempsey (member of Higher Ed.)
  • Rep. Jones (Speaker Pro Tem)
  • Rep. Meadows (chairman of Rules)
  • Rep. O’Neal (Majority Leader)
  • Rep. Peake (vice-chairman of Ways and Means)
  • Rep. Riley (floor leader for Governor Deal)
  • Rep. Waites

(Speaker Ralston also didn’t vote, but he is the House Speaker)

Reps. Coleman, Meadows, and Riley are also members of the Retirement committee. Seeing three members of the Retirement committee, as well as the Speaker Pro Tempore and majority leader and other powerful names in the House, absent, it makes one ponder why they would be out of the chamber…especially with such a close vote.

It should be mentioned that Representative Coomer, who sponsored the legislation, is also a floor leader for Governor Deal.

Michael Silver February 19, 2014 at 8:06 am

I was at the Retirement committee hearing (it was just before the HB875 hearing). The claims by the University System to the committee was that the bill was a cost neutral transaction. At the time, the story didn’t make sense since the Chancellor and crew were there pushing the bill. Why would someone want to switch plans if there wasn’t a financial benefit?

I’m glad Representative Martin did some digging and found out the true story. The impact numbers are even worse when you look at what we pay some of the professors (there are 1,700 employees at Tech that make over $100K/yr) and the Chancellor (nearly $600K/yr). This is much much bigger than a $70M/year give away to the Chancellor and his cronies. It could be as high as $200 Million per year. Potentially, this giveaway could jeopardize the financial solvency of the Teacher’s Retirement plan.

Bravo to Rep. Martin! Shame on the University System and Governor Deal for putting high-paid academics ahead of teachers.

MattMD February 19, 2014 at 2:53 pm

So what if GT has 1,700 employees making more than 100K/year? What is your point?

Tech is a science/technological focused university and the people teaching there tend to have marketable degrees.

Tell me you are not seriously suggesting that paying someone with a terminal degree in a STEM field more money is putting them ahead of “teachers”. It would be nice if our teachers could put our students ahead of only just a few states.

Michael Silver February 19, 2014 at 4:55 pm

I’m pointing out that the assumed average salary of the people who would take this option is much greater than $70K/yr that Rep. Martin used, thus the loss to the Teacher’s Retirement System will be larger than $40M.

I’m also pointing out that the people benefiting from this financial gamemanship aren’t exactly hurting financially and in fact are making 3 and greater times what the normal teacher makes.

I just pulled Tech’s number because I had them handy. You will find the same level of salaries at ALL of the Universities, including in the Women’s Studies and Race Ax Grinding departments.

xdog February 19, 2014 at 3:21 pm

Why are there multiple retirement plans in the state? Admins take in contributions, invest them conservatively, and keep track of future exposure. One plan should be enough.

Will Durant February 19, 2014 at 6:04 pm

Can someone please ‘splain this one. Why is it advantageous for the college profs, admins, etc. to split out of the K-12 fund? If they had an irrevocable choice on this previously and did not choose to do so then why are they making it revocable again? Is this because the teacher’s fund is the only one I’ve ever heard of that allows you to “retire”, start drawing, and then perform the exact same job in another county while still drawing? This is all coming from a guy who last worked with a company paid pension plan sometime around 1979 and saw them go the way of the dodo thereafter, even with IBM.

peach14 February 20, 2014 at 2:13 pm

The University System of Georgia (USG) offers two types of pension plans for its employees: the TRS and the ORP. TRS (Teachers Retirement System) is the older of the two, and offers a traditional defined benefit. ORP, the Optional Retirement Plan, started in 1991, is a defined contribution plan and works much like a 401(K) plan. Both plans require employees and the universities to make contributions to fund the plan of their choice.

HB-516 is a two-year “fiscal bill.” In the 2013 legislative session, the Bill was referred for a fiscal impact study. The fiscal note concluded that allowing employees now participating in the ORP to switch to the TRS would be cost-neutral to TRS. Here is why:

Should an ORP member elect to join the TRS, he or she is required to pay TRS the full actuarial cost of buying their pension credit in TRS. They may do so by transferring their ORP account values made up of both employer and employee contributions made to-date plus accumulated interest. TRS will only give them credit for as many years as they have funds available to pay.

After they switch to TRS, both employee and employer required contributions will be sent to the TRS until the employee retires and starts receiving a pension. TRS will manage their transferred contributions plus all future contributions–as if they had been members of the TRS all along. Not everyone in the ORP may choose to convert, especially younger employees who may wish to remain mobile.

The $28 million figure quoted above appears to be based on the current difference in the required employer contributions to the two types of plans. That figure has fluctuated over the years as TRS adjusts its required rates based on its investment performance. The ORP rates have historically been set well below the TRS rates. If both plans had set the same required employer share, a fair practice to consider, the concern expressed about any liability to the State would be moot.

TRS also benefits from ORP members switching. TRS picks up more new members to fund its asset growth in the future. TRS only gives a lifetime pension with no payments to an estate. When a retiree dies earlier than expected, TRS gets to keep all their accrued funds—the principle of insurance.

Providing attractive pension choices in Georgia is critical, among other factors, to our ability to recruit the most talented faculty and staff to help build our University System to be second to none.

peach14 February 21, 2014 at 12:12 pm

More on HB-516 and the $28 million “liability” issue…

In 2008, the State Legislature passed HB-815. Rep. Chuck Martin (R-Alpharetta) voted “YEA” to approve this Bill. This bill transferred the rate setting authority for the Optional Retirement Plan (ORP) from the TRS Board of Trustees to the Board of Regents (BOR) of the University System of Georgia. Until then TRS had set the employer rates for both plans and required the same rates. Unfortunately, the BOR have not changed their rates after it was first granted the authority, whereas TRS has revised its rates upwards. This is what has caused the current difference in the two required rates, which is now being used as the basis to estimate the so-called $28 million “liability.

This $28 million does not represent a “give away.” In effect it represents the collective loss borne each year by all university employees who now participate in ORP because the System is contributing at a lower rate than they do for its other employees who participate in TRS. Conversely, it amounts to a budget saving (“rent”) for the university system, which it uses for its other needs. In the future, the System will have to set aside in their budget all TRS-required contributions for any employee converting from the ORP to the TRS. It will be a normal cost of doing business for the university system.

There will be “no loss” to the Teacher’s Retirement System, and the financial solvency of TRS will not be “jeopardized.” Reason: the University System will have to make TRS whole by forwarding all required contributions to TRS for those choosing to join the TRS from ORP.

“Why would someone want to switch plans if there wasn’t a financial benefit”? There are benefits to switching from a 401(K)-like plan to a traditional retirement plan. The recent stock market and real state crashes have decimated most 401(K) accounts. TRS provides professional money management, a conservative and disciplined investment track record, and low costs/fees. Actuarially, TRS will be fully compensated by anyone switching from ORP.

TRS is the only plan in our State that was created for both teachers and academics, and it “does not put academics ahead of our teachers.”

The real question we need to ask is this: will we be happy to have our sons and daughters taught by second-rate professors? Will we be happy if they obtained their degrees from a university system that is considered only second-rate?

chris1000 February 27, 2014 at 4:50 pm

Peach14, you are spot on. I have been amazed at the poor understanding of the importance of this bill in terms of recruitment and retention of high qualified university faculty. And the costs are covered by the employee, not the state. The issue of a difference in the contribution rates is real and also a factor that should be fixed for fairness. Thanks for your detailed explanation. I only wish our representatives would take a minute to consider them.

Looks like this bill has been tabled and unfortunately the can will be kicked down the road.

Harry February 28, 2014 at 3:31 pm

For every highly sought STEM professor, there are 20 professors in commodity slots.

peach14 February 28, 2014 at 12:16 pm

Yes, it would be very helpful if Mr. Michael Silver above could study this matter more thoughtfully and comment/opinion-ate based on data and facts?

Using inflammatory rhetoric does not help us at all with a Bill that is being debated by our Legislature.

Thank you…

Michael Silver March 1, 2014 at 8:17 pm

No fear Peach. I’m going to look into it. When I figure out how much the Chancellor and University System tried to steal from teachers and the taxpayers, I’ll be sure to make them and the Legislature aware.

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