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A look at state’s retirement systems

POSTED: November 29, 2012 5:54 p.m.

With nearly 64,000 active and 42,000 retired members from various participating state agencies, the Employees’ Retirement System is the largest of the seven plans administered by the Employees' Retirement System of Georgia (ERSGA). Teachers and Regents staff are covered under the Teachers Retirement System.


Between the end of FY2011 and the end of FY2012 active membership declined by 3 percent and retirees receiving benefits increased by 4 percent. This is probably a reaction to state budget cuts. ERS assets for retiree benefits are $11.6 billion as of June 30.


Members of ERS receive benefits that differ based on the date of hire. Those hired prior to 2009 were only eligible to receive state subsidized benefits from a defined benefit plan. A defined benefit plan (commonly known as a pension) provides retirees with a monthly benefit based on their pre-retirement salary and years of services.


In 2009, new hires were only given the option to join the Georgia State Employees’ Pension & Savings Plan (GSEPS). Georgia moved to the GSEPS plan to manage the growing cost of employer pension contributions and the reflection of a trend to more mobile retirement plans. The state was experiencing turnover of 21 percent among workers in their first five years of employment. The tradition of prior generations to stay their entire career with the same employer isn’t as prevalent today.


The GSEPS pension plan may be more attractive to new employees because it allows those who wish to make a career in state government similar benefits of the older defined benefit plans while allowing others the flexibility and portability of a 401(k). Members of GSEPS receive a substantially smaller pension but are eligible for a defined contribution plan. A defined contribution plan provides benefits based on the amount the employee and employer contribute to the plan and any returns on that investment. Commonly known defined contribution plans are 401(k) and 457(b) plans. Based on employee contributions, the 401(k) plan matches between 1 percent and 3 percent.


Under all plans, members may retire and receive normal benefits following 30 years of service or after reaching 60 years of age and completing 10 years of service. Retirement benefits are calculated using the monthly average of the highest paid consecutive 24 months, multiplied by the years of creditable service and an applicable benefit factor.


Overview of Teachers’ Retirement System
The Teachers’ Retirement System is the largest of the state’s retirement systems. TRS, where the majority of members are teachers in local school systems and most Regents staff, has around 214,000 active members and more than 97,000 retirees. TRS is a defined benefit system that allows a retiree to draw a monthly benefit upon retirement in an amount determined by his or her salary and years of service and roughly equates to 2 percent of the employee’s current salary for every year of service (with a minimum vesting period of 10 years).


In FY2011, TRS paid out $3 billion in benefits with an average monthly payment of $2,750, or $33,000 for the year. As of June 30, 2012, TRS’s actuarial assets totaled $53.5 billion, a decrease of $597 million from the total asset value on that same day in 2011.


Teachers and members of TRS make a considerably higher contribution to their retirement plans and a COLA is built into the calculation. This is an issue that was highlighted a couple of years ago when the TRS Board was encouraged to forego the annual COLA as ERS had done. Under state law, teachers contribute up to 6 percent of salary and in the FY2013 budget are scheduled to pay 6 percent. The local system will contribute 11.41 percent in FY2013, which is part of the QBE formula. Under TRS, COLAs are based on increases or decreases in the Consumer Price Index (CPI). TRS members who retire under the age of 60 with less than 30 years of service will be eligible to receive their first COLA after reaching the age of 60 or when they would have reached 30 years of service, whichever occurs first.

Georgia’s retirement plans well-funded
The nationally-accepted funded ratio for a healthy retirement system is generally seen as being between 80 percent and 100 percent. In the latest actuarial report, Georgia’s ERS funded level is at 76.0 percent, down from 80.1 percent in the previous year. Similarly, the TRS funded ratio fell from 85.7 percent to 84 percent. As ERS is under 80 percent, lawmakers and administrators will need to keep a watchful eye on this system and continue making the annual actuarial required contributions. The decrease is primarily the result of stock market losses during the recession and the changes in the number of active and retiree members.


Lawmakers in Georgia have traditionally been very responsible about meeting retirement obligations. A primary reason for the state’s sterling credit rating has been this commitment. In 2014, it is anticipated that between $150 and $200 million will be added to the budget to ensure the long-term soundness of the plans. This is on top of a similar amount added in the 2013 budget. Many states have not been as diligent about keeping up with their pension obligations. Illinois, at a funding ratio at 43 percent, is seen as the worst in the country in terms of pension obligations. In 2011, the state issued bonds to cover their pension responsibilities.


As a note, Georgia is constitutionally forbidden to use bonds to cover operating expenses. Illinois’s bond ratings were downgraded this past summer as a result of its pension crisis and reports are starting to emerge that fixing the system will consume a significant part of the state’s budget.


Based on fiscal year 2010 data (the most recent state comparison from the PEW Center on the states), Georgia ranks in the top ten nationally for retirement system funding. During 2010, 68 percent, or 34 states, had systems with funded ratios below 80 percent. Georgia is doing its best to avoid the problems encountered by other states in this area.


I may be reached at
234 State Capitol, Atlanta, GA 30334
(404) 656-5038 (phone)
(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
Or call toll-free at
1-800-367-3334 day or night

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