TRS Information for School Board Members
Message from Shawn Graham, TRS Executive Director
As a School Board Member, you are an important and valued stakeholder of the Montana Teachers’ Retirement System. Our mission at TRS is to provide long-term financial security for our members while maintaining the stability of the fund. We recognize that in order to accomplish this mission, we need the support of our participating employers and their governing boards.
Although public school districts in the State of Montana are required by law to participate in TRS, I think you should be proud of and promote the fact that, as an employer, you provide access to a defined benefit retirement system which, in turn, provides long-term financial security for your employees.
This webpage is designed to help you understand the importance of the role TRS plays in recruiting and retaining qualified teachers and administrators. I encourage you to review the information provided below and to contact us via the Ask TRS mailbox if you would like additional information. We welcome your questions and comments.
What is the Montana Teachers' Retirement System?
TRS is a defined benefit (DB) pension plan qualified under Internal Revenue Code (IRC) Section 401(a). State law established TRS in 1937 to serve public school teachers and other public employees who work in an instructional or educational services capacity in the state of Montana. Membership in TRS is mandatory for all K-12 public educators, except for persons teaching fewer than thirty days in each fiscal year.
TRS law is codified in Title 19, Chapter 20, Montana Code Annotated (MCA), part 44 of the Administrative Rules of Montana (ARM).
Since its creation in 1937, Montana TRS has grown from an initial enrollment of 3,367 members to nearly 20,000 active and inactive members. As of FY2018, TRS pays retirement, disability, survivor, or minor child benefits totaling approximately $352 million annually to over 16,000 individuals worldwide. As shown in this infographic, over 13,000 of those recipients live in Montana. The dollars they receive from TRS constitute an important part of the local economy.
Administratively, TRS is attached to the State of Montana Department of Administration but has its own executive director and board. A deputy director and approximately 20 staff members manage all day-to-day business of the retirement system.
The TRS Board of Directors is comprised of six members appointed by the Governor. Four of these members, including at least one active classroom teacher and at least one retired member, represent the teaching profession. Two public members from other professions fill the remaining seats. Each TRS board member serves on at least one committee; in addition, one member represents TRS on the State of Montana Board of Investments (BOI) board.
The TRS board meets five times per year in Helena. For a list of current members and the schedule of upcoming meetings, see the TRS Board page.
How do defined benefit (DB) and defined contribution (DC) plans differ?
In a defined benefit (DB) pension plan such as the Teachers’ Retirement System, both the employer and the worker are required to contribute a percentage of earnings to the retirement system. Vested members – those who have accrued at least five years of service – may apply for a monthly benefit upon reaching retirement age and terminating all employment in TRS-reportable positions.
The retiree’s benefit amount in a DB plan is not based on the account balance. Instead, an actuarial formula takes into account the individual’s total years of creditable service, average final compensation, age at retirement, and other factors to determine the monthly benefit amount, which is guaranteed for the retiree’s lifetime. In January of each year, a Guaranteed Annual Benefit Adjustment (GABA) provides a modest benefit increase to Montana TRS retirees who have received at least 36 benefit payments.
A Defined Contribution (DC) plan, on the other hand, makes no promise of income in retirement. When an employer offers a 401(k) or other DC plan, its workers are under no obligation to enroll in that plan, nor is the employer required to make contributions. This places the burden on workers to decide whether and how much to contribute, how to invest the funds among a limited number of options, and how to withdraw the funds after retiring. In addition, because DC retirement accounts are subject to market forces and do not guarantee income for life, retirees who outlive their savings may be more likely to rely on family support or public assistance programs for basic needs.
What about administrative costs? A 2014 report by the National Institute on Retirement Security found that DB pension plans are “inherently more cost-efficient than DC plans.” The report cites three structural cost advantages of DB plans: longevity risk pooling, the ability to maintain a well-diversified portfolio over a long investment horizon, and low fees and professional management.
- For more information about TRS, we encourage all Montana school board members to view "TRS 101" – a short introductory presentation designed to help early- and mid-career educators understand the value of their TRS membership. You can view the full-color presentation slides HERE.
Challenges to TRS – and your role as a school board trustee
The section of TRS law entitled "Retirement System -- Policy" (19-20-102, MCA) may provide a helpful summary of TRS and its purpose.
One paragraph within that section is shown below:
These provisions seek to prevent unfair manipulation of retirement benefits that would harm the system and jeopardize the future retirement of all members. Without such restrictions, a member’s final salary could be inflated to achieve a larger monthly benefit. Or, a member could retire and then return to work at a high salary without paying the same contributions required of active members.
Periodically, legislation is brought forward that attempts to weaken these restrictions or limit employer contributions. Often, bill sponsors are sincere in the belief that changing the law will help school districts resolve short-term budget shortfalls, attract more candidates, or address other immediate concerns. However, a long-term effect of such legislation is that it increases the system's unfunded liability, making it less likely that TRS can fulfill obligations to thousands of current and future retirees.
To be sure, many of Montana's school districts face constant funding challenges. However, a strong pension plan should be viewed not as a costly burden but as a valuable tool to help recruit and retain qualified teachers and administrators.
If you have questions about TRS or if you would like more information about promoting its value in your district, please email us at Ask TRS. Together, we can achieve the TRS mission: To promote long-term financial security for our members while maintaining the stability of the fund.
Links and resources
- Title 19 Chapter 20 MCA
- Administrative Rules of Montana, Chapter 2.44
- AARP and NIRS 2018 Report on Economic Impact of TRS
- National Institute on Retirement Security website
- NCTPR Research Report (May 2018): Unintended Consequences
TRS laws, rules, and policies are the basis for the information provided in this section. Questions of interpretation will be resolved by application of those laws, rules, and policies.