Though Texas pension system is one of the best-funded in the country (Glans, 2012), it still faces different problems that require operative solutions and bold reforms. Recently, Texas conservatives attempted to draw public attention to the need for pension reform by pushing their own proposals and amendments. Initiators of the new pension reform call the state to make quick decisions that are aimed at preventing crisis in Texas pension system (Weisman, 2012). Though the conservatives’ initiative is hotly disputed, it is evident that the needs for change are overdue and should be on the agenda.
The objective of the paper is to review retirement plans that operate within the state; outline gaps that exist in Texas retirement system; and propose solutions that can be applied to resolve the mentioned problems. Furthermore, the paper presents the list of general recommendations that are aimed at increasing the efficiency and feasibility of Texas’ pension system.
Texas Retirement Plans
Various retirement plans that operate within the state are indispensable part of compensation package that “increase an employee’s economic security and improve morale” (ERS, p. 1). Currently, the Employees Retirement System (ERS) of Texas is presented by defined benefit plans administered by the state, defined contribution plans administered by ERS, and hybrid plans that operate in Texas cities, counties, and districts (ERS, 2011). Brief review of each retirement plan is presented below.
The history of defined benefit plans administered by the state traces back to 1947 when the state employee retirement fund was officially introduced by the Legislature (ERS, 2011). Later, in 1958, defined benefit plan was worked out. The plan is based on equal contribution of the state and an employee toward retirement. According to the plan’s policy, the contribution of each party is a minimum 6% of payroll (ERS, 2011).
Defined benefit plan is the state’s most popular retirement program. In 2010, $1.6 billion were paid to 79,311 annuities (ERS, 2011). The plan’s popularity among the majority of Texas’ employees can be explained by its longstanding excellent reputation, the variety of investment funds that are available for the plan’s owners (CNN, 2012), and guarantees of constant payment that last throughout one’s retirement (CNN, 2012). Brief review of each advantage is proposed below.
Firstly, it must be admitted that the majority of the state’s most reliable retirement programs operate as defined benefit plans. For example, the Teacher Retirement System of Texas is one of the largest national retirement systems; in 2010, the system paid $5.9 million retirement benefits, $141 million disability benefits, and $226 million death and survivor benefits (TRS, 2011).
Secondly, defined benefit plan does not require an employee’s direct investment. The above-mentioned percentage of payroll is deducted from an employee’s wage. This system has already proven its high efficiency compared to defined contribution plans. Unlike defined benefit plan, the owners of the latter are usually given choice, whether to invest their money for retirement or not (CNN, 2012). Often, employees prefer to omit any deductions for retirement or their investment is insufficient …