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Texas teacher pension law lifts service fee cap

Texas teacher pension

The subject of Texas teachers’ retirement systems remains contentious, in part because the state’s teachers have one of the lowest pensions in the country.

The latest salvo in that war is over the recently signed HB 2820, which lifted the cap on service fees for teachers’ 403(b) retirement accounts (a 401(k) equivalent for non-profit institutions). 

The Dallas Morning News has led the charge against the bill, declaring it “open season” on Texas teachers’ retirements. In a series of stories and editorials, the paper laid out the various ways that predatory service fees steal tens of thousands of dollars from people’s nest eggs.

The previous cap in place on teacher’s 403(b) accounts was 2.75 percent, which is higher than the average fee load for a 401(k) at 0.45 percent. 

Critics of the law feel that the already-cash strapped teachers of the state will find themselves prey to lenders eager to take advantage of them for profit.

The bill’s author, Rep. Dan Flynn (R-Van), hit back against the reporting.

“Sometimes the paper just gets it wrong, and in the case of the 403(b) article they certainly did so, and unnecessarily frightened teachers and provided unvetted/non-fact checked information. I have requested a retraction or correction to the Dallas Morning News editorial essentially doubling down on the story about 403(b)s,” says Flynn. 

“The bill amended Texas law to remove the Teacher Retirement System—[which] neither had the funding or manpower to properly administer these products—from the 403(b) product regulation and will eliminate dual regulation already being conducted by other appropriate state and federal agencies. Updating Texas law governing 403(b) products has allowed the Teacher Retirement System to focus on its core function of managing one of the largest public pensions funds in the country to provide the retirement support teachers were promised and deserve.”

Texas American Federation of Teachers seems equally unconcerned about the effect of HB 2820 on teacher retirements. Jennie Kennedy, the Chief of Staff & Director of Public Affairs at the Texas American Federation of Teachers, stressed that the law would have no impact on the TRS Texas teacher pensions. She points out that Texas was the only state which had a cap like this in the first place, and echoed Flynn’s assertion that the Teacher Retirement System simply did not have the manpower to handle the 403(b) program.

“HB 2820 removes regulatory authority over 403(b) products from the Teacher Retirement System,” says Kennedy. “In order to offer qualified investment products to employees of educational institutions in Texas, a company would be required to be licensed by the Texas Department of Insurance and be in compliance with minimum capital and surplus requirements. While the Teacher Retirement System has been charged with certifying these plans, TRS does not have the staff or expertise to do so. Oversight is conducted by state and federal agencies, including the Texas State Securities Board.”

Given this perspective, some might find it hyperbolic to claim that there is a plot to rob Texas teacher pensions of their hard-earned money to benefit the insurance and investment companies with outrageous fees.

However, it’s inarguable that the cap on the plans being sold to teachers was already higher than is optimal for public servants or anyone of medium means looking to secure a comfortable retirement. It’s naïve to think that no one involved in selling these products to teachers will seek every penny of profit they can manage at the expense of teachers.

Though teachers still have a Texas teacher pension fund, it is one of the lowest in the country. The amount that teachers are required to pour into the TRS has doubled since 2002, while the state’s contribution has remained the same. Even as Texas teachers struggle with paychecks, often putting their own money towards needed school supplies for their classrooms, a disproportionate chunk of their wages is being siphoned away for a fairly stingy pension.

Into this environment come people selling 403(b) products, a dream of a rest and comfort down the road for these public servants. Some financial experts point out that these investments are profit-driven and less sound than traditional pensions, and that some teachers worried about retiring will gamble on plans that don’t have sufficient regulation.

“Before investing in any financial instrument, we strongly advise members to speak to a financial advisor,” says Kennedy. That does not sound like total confidence in this parallel, privatized retirement system.

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