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TRS conceded that alternative plan structures can shift risk away from the State since members become responsible for managing their own investments. However, according to the report, changing structures from a defined benefit plan to an alternative plan can present other risk factors, including how to manage the unfunded liability of the legacy defined benefit plan and the risk that diminished retirement income could increase retiree use of social services post-retirement due to a lack of retirement self-sufficiency. In addition, TRS noted that changing benefits under the existing plan for new hires only does not have an impact on the current unfunded liability. The system can currently pay projected benefits until 2075, but has an unfunded liability of $24.1 billion. Other public systems have also conducted studies that show a switch to a hybrid or defined contribution plan would be costly (see“Study Warns Against DC Plan for Wis. State Employees”). The TRS report can be accessed from its web site at http://www.trs.state.tx.us.
TRS conceded that alternative plan structures can shift risk away from the State since members become responsible for managing their own investments. However, according to the report, changing structures from a defined benefit plan to an alternative plan can present other risk factors, including how to manage the unfunded liability of the legacy defined benefit plan and the risk that diminished retirement income could increase retiree use of social services post-retirement due to a lack of retirement self-sufficiency.
In addition, TRS noted that changing benefits under the existing plan for new hires only does not have an impact on the current unfunded liability. The system can currently pay projected benefits until 2075, but has an unfunded liability of $24.1 billion.
Other public systems have also conducted studies that show a switch to a hybrid or defined contribution plan would be costly (see“Study Warns Against DC Plan for Wis. State Employees”).
Rebecca Mooreeditors@plansponsor.com