Wednesday, April 15, 2015

Be Wary of HB 2608 and the call for “Local Control”

TEXPERS Executive Director Max Patterson has produced an op-ed regarding HB 2608. We would appreciate sharing and publishing when possible.
Among the many low-key, but potentially damaging, pieces of legislation now being considered by the Texas legislature is HB 2608, filed by State Representative Jim Murphy of Houston, to address budget problems in the state’s largest city. Members of the Texas Association of Public Employees Retirement systems oppose the Houston bill: it would radically – and detrimentally -- alter the structure of pensions in other cities around the state. 

HB 2608 is simple in intent: it would eliminate the Legislature’s review of retirement benefits changes that cities and their pensions work out for their local police, firefighters and municipal employees. Proponents say the Legislature interferes in city affairs and that HB 2608 gives the people paying local taxes “a clear voice” in how their pension system operates.

But is any of that true?

A good many local pensions, with the help of their city governments, sought decades ago to enshrine city- and employee-contribution rates, retirement age benefit formulas, and cost of living adjustments in state code. Mayors and city councils have fleeting political and budget goals in the long life of a city. Pensions, on the other hand, are built with long-term returns in mind. They calculate hard financial mathematics every day to ensure that their investments will meet future retirement benefits. (In Texas, roughly 60% of pension benefits are created from investment returns.) While local elections and competing budget priorities among council members might resemble a tennis match, the pensions are playing chess.

And so it was that many pensions and cities came to set their pension operations in state law, so that only when the city council, the pension, retirees, unions and city staff came to consensus would the Legislature be asked to vote and approve changes to their governing documents. Beyond that, the Legislature plays no role in the local affairs of Texas pensions.

Given that our pensions are among the best performing in the nation, the system has worked well.

So along comes HB 2608, attempting to persuade a majority of legislators that the problems now being experienced in Houston warrant wholesale change to the structure of pensions across Texas.

In our view, Houston’s problems with its pensions didn’t stem from involving the legislature in pension issues. Decades ago, various leaders began short-changing the pensions of the money they needed to remain actuarially viable.

At first the pensions went along, accepting the city’s promises for re-payment. As time went on, and the city kept digging holes, the pensions balked at accepting any more “deals” that served the city’s short term budget goals, but ignored the long-term liabilities of their pensions.

TEXPERS keeps an eye on the investment performance of local pensions. Our yearly research shows most pensions, when given a chance by their cities, do a great job of earning the investment returns needed to keep the promises their city makes to public employees. Only when cities balk at honoring their commitments do pensions get in trouble, such as has happened in Houston.

HB 2608 should be opposed because of what we know of local pensions which have “local control.” Those are the cities whose budgets often fail: nothing is more tempting to mayors and councils than promising unsustainable benefits to large, motivated city employee groups – the ones who vote. While the proponents of HB 2608 suggest that city governments will manage their finances responsibly through “local control,” experience doesn’t support their contention.

Keep the current system of checks and balances which has worked so well across the great state of Texas. Oppose HB 2608.

Wednesday, April 8, 2015

TEXPERS releases annual study on Asset Allocation and Pension performance

In a press release today, the Texas Association of Public Employee Retirement Systems noted that Texas’ local pensions for police, firefighters and municipal employees increased their rate of return for the 20-year period which matters most in determining pension health.

See the full report here and the press release below, but here are some highlights in terms of pension performance.

Best       20-year average return – 10.14% – Big Spring Firemen’s Relief and Retirement Fund

15-year average return –8.3% -- Houston Municipal Employees Pension System

10-year average return – 9.35% -- Houston Municipal Employees Pension System

5-year average return – 11.10% - VIA Metropolitan Transit Retirement Plan

3-year average return – 15.83% -- Irving Firemen’s Relief and Retirement System

1-year average return – 12.41% - Irving Firemen’s Relief and Retirement System

Thursday, February 12, 2015

Open Season on Defined Benefit Plans in Austin

When the 84th Texas legislature convened early in January, it triggered a starting gun for some political groups to begin calling for the end of defined benefit plans. This year the Texas Public Policy Foundation is leading the charge.

In late January, TPPF published and promoted a report titled, “Reforming Texas’ State and Local Pension Systems for the 21st Century,” a 28- page document which, when it actually talks about Texas, admits that the state and its local pensions aren’t in bad shape. The goal of the report seems mostly to try to compare Texas to New York, California, and Illinois, and then to scare Texans and our elected officials into making wholesale changes that aren’t necessary.

A quick look at the data they use for analysis comes from 2008 and 2009, some of the worst years ever in the recent stock market history. Cherry-picking select data to bolster a position doesn’t make for a convincing argument.

But the report continues with that approach in its focus on troubles at the Texas Teachers Retirement System. It’s widely known that the state shortchanged its contributions to TRS over the years, and that those contribution shortfalls are causing TRS problems today.

Without naming or exploring the issues around a single local Texas pension that might be experiencing trouble, the report cites its view of nationwide trends as evidence that Texas’ local pensions will experience similar trouble.

Of course the danger with such a report is that its assertions might become more widely believed, even though its data is built on house of cards.

In this type of environment, it’s important for the people at Texas’ local pensions to keep their elected officials informed about the health of their system and what they are doing to continually improve it.

Monday, February 2, 2015

Pension Review Board Data Is Open to Interpretation

Nationwide, the opponents to defined benefit plans use alarmist statistics based on the unfunded liabilities of pension systems to create unfounded concerns.

 In Texas recently we’ve seen the Texas Public Policy Foundation, an Austin-based research group with a political ax to grind, use a similar tactic to accomplish their goal. They want all defined benefit plans to convert to defined contribution plans like 401 K’s.

 Take for example a recent opinion-editorial in the Austin American-Statesman, in which a TPPF analyst cited a Texas Pension Review Board “report” that saw a $4.4 billion swing in the gap between benefits earned and plans’ assets for all Texas pensions.

 The “report” that the analyst used was simply a spreadsheet of broad data. It was not an official determination of the PRB itself.

 And given a TEXPERS review of several PRB spreadsheets, it was very unclear as to what periods the analyst was comparing.

 Nonetheless, our review showed that $4.4 billion, while certainly a lot of money, would only be a single-digit percentage change, for comparison periods in the last year. Consider that state and local Texas pensions combine to manage more than $230 billion in retirement assets and their unfunded liabilities have ranged from $49 billion to $57 billion in the last 18 months of reports. These changes might occur because of revised actuarial assessments of workforces or new information about asset values. They are fluid situations with many variables.

 Using the raw data from the PRB reporting spreadsheet to bolster political arguments against defined benefit plans is common practice for opponents to the current system. Take those types of reports with a grain of salt.

 And, be sure to keep your elected officials up to date on the true working dynamics of your pension so that they don’t become swayed by the data cherry-picking common to the opponents of DB plans.

Thursday, January 29, 2015

TEXPERS rejects Texas Public Policy Foundation’s call for radical departure from existing pension policies

Max Patterson, executive director of the Texas Association of Public Employee Retirement Systems (TEXPERS), today rejected the Texas Public Policy Foundation’s (TPPF) call for transition from defined benefit plans to defined contribution models for state and local public employees. Patterson issued his remarks after the TPPF distributed a paper that purports to “reform” Texas’ state and local pensions.

“The TPPF is incredibly out of touch with the economic conditions of Texas,” Patterson said. “Their assessment of the Pension Review Board’s unfunded liabilities reports took two snapshots in time and found there was an 8 percent decrease in the funded status of all Texas state and local pension systems from early to late 2014. Unfortunately, that type of fluctuation can occur very quickly in today’s global debt and equity markets and is not indicative of anything meaningful, other than the market volatility which all systems encounter. Thus the TPPF’s call for transition to defined contribution plans for new employees is incredibly short-sighted.”

“In the interest of developing good public policy, TPPF might first consider asking Texas cities how difficult it has been to recruit new able-bodied employees to police, fire fighting, and strenuous municipal jobs given the incredible competition with the shale-oil boom around the state,” Patterson said. “Moreover, the hiring crisis in many cities is causing an increase in overtime for senior employees, which is rippling through municipal finances and their pension outlays. The TPPF doesn’t even consider these dynamics,” Patterson said.

Patterson noted the recent appointment of Senator Kirk Watson to the Senate Finance Committee and applauded his stated goal of protecting the pension of state employees and teachers. Patterson said Watson and others recognize the need for changes to the Employee Retirement System in this legislative session.  

“The state of Texas needs to set the right example for local pensions by providing the necessary funds to retirement systems they established. If the Texas Public Policy Foundation were interested in developing good public policy, they might first look at how much of the downturn in funded status has occurred because of government entities taking contribution holidays. That is the true source of the larger problem of funded status shortfalls, not short term indicators that fluctuate with market conditions.”

Thursday, January 15, 2015

TEXPERS’ Max Patterson saluted as ‘Champion’ of pension security

TEXPERS yesterday distributed a press release which acknowledged that CORPaTH recognized Max Patterson as a "Champion" of pension security.

You can see the complete press release here.

You can also see the video that CORPaTH produced featuring Patterson for its award ceremony in December by clicking on the image below.

Monday, December 15, 2014

IAFF video worth the watch for those concerned about retirement security

Short documentary films have earned their place as great communications tool for complex subjects. 

As such, we recommend your viewing a 13-minute educational piece on public employee pensions, their history, the retirement crisis facing the American worker, and the threats to a retirement instrument that is actually working for public sector employees. The video was created by the International Association of Firefighters and provides comments from David Crow, the president of the Arlington Fire Fighters Local 1329 and Diane Oakley, the executive of the National Institute on Retirement Security, among others.