COMPTROLLER ISSUES PUBLIC PENSIONS REPORT

As the debate over public pensions continues across the country, a new report issued by Texas Comptroller Susan Combs concludes that Texas statewide pensions systems, including the Texas Municipal Retirement System (TMRS), are in “pretty doggone good shape.”  Although Combs’ report, Your Money and Pension Obligations, is favorable to TMRS, it does question the actuarial soundness of some local retirement plans.  She states that “while some of the largest plans, given current contribution rates, promised benefits, and plan assumptions – including rates of return, retirement age, and longevity – are projected to run out of money in the future, most others are on track to be fully funded within 30 years.”  The report goes on to state that “in Texas, many public pension systems appear to be stable and should be able to support the workers who have paid into them through retirement.”

TMRS and Past Reforms

TMRS is a “cash balance plan” in which members make regular contributions to individual accounts that are matched with employer contributions and supplemented with investment income.  TMRS covers 849 cities, and each city can design a benefit plan to meet its needs and cost structure.  Over the last two legislative sessions, TMRS and interested stakeholders have been instrumental in assisting the legislature to pass reforms that have made the system a model pension program for the country.  Reforms, such as diversifying investments and administratively combining funds, have resulted in lower city contribution rates and one of the highest funded ratios of any statewide pension plan.

Over the last few years, many states have undertaken major public pension reforms.  Chief among those reforms is a movement to convert public pension plans from defined benefit plans to defined contribution plans.  Some organizations in Texas have been seeking reforms in public pensions, including advocating for a constitutional amendment against cities offering defined benefit plans.  These groups claim that this conversion would save local governments money over time and would align public sector benefits with those in the private sector.

The outcome of that debate remains to be seen, but there is no question that TMRS is financially stable and more actuarially sound than both of Texas’ largest public pensions, the Teacher’s Retirement System of Texas (TRS) and the Employees Retirement System of Texas (ERS).  The following chart compares TMRS against TRS, ERS, and the Texas County and District Retirement System (TCDRS), which covers 620 county and district employers.

 

TMRS

TCDRS

TRS

ERS

Asset Value

$18.3 Billion

$17.8 Billion

$115.3 Billion

$24 Billion

Liability

$21.6 Billion

$19.9 Billion

$139.3 Billion

$29.1 Billion

Amortization

30 year or less closed

20 year closed

Infinite

Infinite

Funded Ratio

85.1 percent

89 percent

82.7 percent

82.6 percent

Average Annual Benefit

$16,306

$18,312

$22,764

$18,614

 

 

 

 

 

Local Pension Plans in Texas

Although TMRS is on solid footing, the report states that the same can’t be said for some local plans.  The report shows that, of the 81 local plans, 31 percent have a funded ratio below 80 percent and an amortization period above the recommended 30 years.  Another 53 percent have an amortization period that exceeds 30 years or a funded ratio below 80 percent.  These 81 local plans serve about 184,000 employee-members. (Approximately 60 percent of Texas’ local plans cover firefighters or police officers, with the remaining covering general employees.)

Recommendations

The report makes the following recommendations as they pertain to public pensions:

  1. consider giving the Pension Review Board sufficient authority and resources to administer a mandatory board member training program and to improve and expand the collection and reporting of public pension data for a clearer picture of pension plan health;
  2. consider requiring the Pension Review Board to adopt model ethical standards and conflict of interest disclosure requirements for public pension boards, although many public pension boards follow standards on ethics and conflict of interest;
  3. consider requiring all public pensions to post primary contact information on a public website to provide greater transparency, and to allow public input.  Also consider requiring each plan to post online and report to the Pension Review Board basic historical investment return, including net investment returns for each of the last 10 fiscal years and one-year, three-year, five-year, 10-year, 30-year, and since inception rolling rates of return; and
  4. consider a study by the legislature and the appropriate government agencies to examine the financial health of public pension plans and their ability to meet long-term obligations, considering their benefits, contributions, and investment returns, and recommending solutions to mitigate any risk of failing to meet those obligations in order to provide a more complete review of public pensions in Texas.

Conclusion

Since 2009, 44 states (including Texas) have made changes to public pension plans to cut costs and increase stability.  For example, the reforms over the last few years in TMRS have resulted in lower contribution rates for cities, improved actuarial funded ratios for cities, and reduced year-to-year volatility in city contribution rates.  These changes have made TMRS an example not only for other local pension plans, but also for Texas’ other statewide public retirement systems.

The comptroller’s full report is available at
http://www.texastransparency.org/yourmoney/pdf/TexasItsYourMoney-Pensions.pdf.


TML member cities may use the material herein for any purpose. No other person or entity may reproduce, duplicate, or distribute any part of this document without the written authorization of the Texas Municipal League.

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