TLFFRA Sets Dates for its Annual Conference, Sept. 7-9th, 2014 in Lufkin, Texas

The Texas Local Fire Fighters’ Retirement Act was created as a result of the Texas Legislature created the Office of the Fire Fighters’ Pension Commissioner (FFPC) during the Great Depression so as to protect the pensions of fire fighters throughout Texas.

Every year, TLFFRA hosts an Educational Pension Conference that focuses on strategies for pension fund administration and investments. The organization has set its 2014 dates as Sunday September 7 through Tuesday, September 9 in Lufkin, Texas, about a 2 hour drive northeast of Houston and a three hour drive southeast of Dallas. More information will be coming available at http://texasfirefighterpensionconference.org/.

Please consider attending next year’s conference. – Max Patterson

Texas’ Biggest Cities Compare Favorably to Others in Pension Costs Per Taxpayer Revenue

Cities have been under fire these last several years because there is the perception that they pay a disproportionate amount of yearly revenues to the retirement benefits of employees.

TEXPERS has been fighting this assertion on many fronts, but it’s nice when a third-party organization undertakes a major research project and adds some perspective to the issue.

The Center for State and Local Government Excellence released a study today, “Gauging the Burden of Public Pensions on Cities,” that asks a simple question: “How much do residents of a city pay for pensions—not just for city pensions, but also for school district and county pensions in their jurisdictions?”

To answer the question, the CSLGE researchers used data from 173 cities around the United States, including 10 of Texas’ biggest cities. Their finding was that, across the nation, pension costs average 7.9% of the total revenue base of those cities.

In Texas, our 10 biggest cities are among the bottom half of CSLGE’s 173 city sample, paying the least amount of taxpayer revenue to their pensions. In fact, the pension costs of the ten Texas cities average 4.2% of their tax revenues, nearly a full 50% below the national average.

The CSLGE study confirms what we’ve been saying over the years:

1)    Texas’ local pensions do not put their cities at financial risk
2)    Locally administered pension plans do a good job of managing a balance of city employee pension benefits with the city’s overall financial goals
3)    Compared to the statistics of pension systems in other states, Texas is head and shoulders above most, if not all, states on many different measures.

We are very pleased to see this study but we know this alone won’t change the minds of those with a bias against public employee pensions. – Max Patterson

Houston Chronicle Publishes TEXPERS Op-Ed on the Differences between Detroit and Houston

As a service to its membership and the taxpayers of Texas, TEXPERS tries to stay on top of the debates about pensions that occur in its different members’ cities.

Today, we had an article published in the Houston Chronicle in response to one columnist’s assertions that Houston is moving on the path to bankruptcy just as Detroit did recently.

We thought the assertion to be a bit much and had to take it on, which you can read here.

The lesson here is that respected columnists and newspaper folks sometimes just can’t resist the temptation to have knee-jerk reactions to what is occurring in other parts of the country and then to apply it to pensions here in Texas. It’s a dangerous game as it skews and misleads people’s view and opinion on pensions. We’ll continue to set the record straight on these matters whenever we can. – Max Patterson

TEXPERS Informational Video Now on YouTube

The Texas Association of Public Employees Retirement Systems is moving into its 25^th year and as such we thought it would be good to provide everyone with a visual overview of who we are and what we do.

Truly, the really remarkable story in the video is the dedication of our members and their staff. Our annual conference and summer forum are no picnics. They require time and attention from attendees. Listening to presentations on alphas, betas and deltas in the investing context is not easy. Neither is completion of our Certified Trustee Training program, for which many give up their weekend to complete. When you see in this video people intently listening to lectures and visiting with their legislators, please know they are taking time away from their real jobs to serve their pension system and, by extension, the taxpayers in their cities and towns, by ensuring the sound operation of a local pension system.

Please take a look. – Max Patterson

TEXPERS Wraps Another Successful Summer Forum

We at TEXPERS are just now getting our feet back under us after the Summer Educational Forum in San Antonio last week. What a great time was had by all! We had 422 registered attendees to the conference, which is about what we’ve been having nearly every summer now.

To get an idea of what they were learning, here’s a thumbnail sketch of the first two days of workshops and presentations:

• Fiduciary Responsibility and Insurance Solutions
• Global Yield Curve Asset Management
• Global Investing: Challenges and Opportunities
• Research Highlights in Pensions and Retirement Security
• GASB from a Portfolio Manager’s Perspective
• QE Withdrawal
• The Compelling Case for Allocating to Managed Futures
• Comparing Fund Benchmarks to Endowments and Foundations
• Asset Allocation Strategies - Tactical and Strategic
• Debt Instruments
• Quantitative Analysis
• Investment Opportunities in Africa and Asia

Get ready for our 25^th Annual Conference next year at the Renaissance Worthington hotel in Fort Worth, March 23-26. More information will be made available here as we develop the conference. – Max Patterson

New Study Demonstrates 401(k)s Better for Higher Income Employees, Pensions for Low Income Workers

The battle over which style of investment plan is best seems to be somewhat dependent upon your income status and whether you work in the private or public sector, according to a researchers at the Employee Benefit Research Institute.

Here are some excerpts from a MSN story, “Which is better: 401(k) or a pension?” that covered the EBRI study.

But if you reduce the assumed rate of return, the traditional pension starts to look better for lower-income people, the study found.

For example, when the rate of return is decreased by 200 basis points, a 25- to 29-year old lower-income worker who is eligible for a plan for 30 to 40 years would see his income replacement rate at retirement with a 401k plan drop to 4 percentage points lower than he would have enjoyed with a pension plan, at the median.

For the next highest income group in the above scenario, their replacement rate with the 401k would be 1 percentage point less than with a traditional pension.

However, for the two highest-income groups, the 401k is still better: that plan provides a 6 percentage point and 15 percentage point replacement-rate benefit over the pension, at the median, even when a lower rate of return is assumed.

And combining the lower-return assumption with a higher-cost annuity assumption (reflecting the current low-interest-rate environment, which is substantially different from recent history), then traditional pensions look even better

The study’s author makes a point we’ve been making all along, that pension plans should be supplemented – not replaced – by 401(k)s:

In an ideal world, [Jack VanDerhei, a research director at EBRI and author of the report] said, workers would have access to both a traditional pension and a 401k or similar defined-contribution plan.

"If you have both," he said, "then obviously you have less employee investment risk, you have less employee longevity risk and you still are giving employees the upside if they choose to participate in the 401k plan."

And finally, you have to read to the bottom of the page to find out that the study really only considered private sector defined benefit plans:

Also, the data looked at private-sector pension plans. It did not include public-sector plans. Doing so would have pushed the data more in favor of pensions.

"I can promise you I would get much different results had I done a public defined-benefit as opposed to a private defined-benefit comparison," VanDerhei said.

Public pension plans -- those offered by government entities -- generally offer more generous benefits than private-sector plans, and usually include cost-of-living adjustments in retirement.

And the reason for those “generous benefits” is that throughout the employees’ working years they probably earned much less than private sector employees. -- Max Patterson

Media Echo Chamber Doesn’t Apply to Texas, Again

Upon reading the Asset International Chief Investment Officer article “MomentumBuilding Toward DC in US Public Sector,” we paused” to ask ourselves “Is this true in Texas?”

As we’ve said so many times with previous assertions about Texas pension systems, “No, this is not true in Texas!” Not only is the implication untrue, but the facts are wrong as well.

The aiCIO article leads with the anecdote of Arizona Governor Jan Brewer last week signing a law creating defined contribution plans for judges and other elected politicians taking office after January 1, 2014. It goes on to note how problems in Illinois and Kentucky “brought the problems [of pension liabilities] to the forefront of public debate.” Then the story makes this statement:

Pennsylvania, Florida, Washington State, Kentucky, and Texas all have bills or serious proposals to shut or swap open DB pensions for DC schemes that have appeared in legislatures over the past few months.

Did we miss something?

We’ve been here watching the entire Texas legislative session in 2013 and we are completely unaware of any proposals to shut or swap open DB pensions for DC schemes, either for the statewide pension plans or local pension plans. This topic just wasn’t part of the legislative discussion, at all.

Here’s what did happen. The 2011 Legislature required the Texas Employees Retirement System (ERS) and Texas Teachers Retirement Systems (TRS) to report on their funding status, in what is known as an interim report, between Texas the 2011 and 2013 legislative sessions. The pensions included a consideration for switching from DB to DC plans among their options for improving funded status. Members of the legislature reviewed the report and no bills were filed in this regard in the 2013 session.

We gave the reporter the benefit of the doubt and actually went back over all the bills to see whether we missed anything – we didn’t.

So, given all this, we’re scratching our heads about the mention of Texas in this story.

The most significant legislation affecting pensions that did become law was the passage of House Bill 13, the transparency and training bill that was requested by Texas Comptroller Susan Combs. We’ve written about that bill many times on this blog, so we won’t waste your time with a rehash. But, we should note that HB 13 had nothing to do with switching or ending DB to DC plans.

We guess the moral of the story is, “Don’t believe everything you read in the media, even if it is on the internet.” Bonjour! – Max Patterson