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.”

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.

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.

http://youtu.be/Xtl7ZfiYrxc

Laura and John Arnold Foundation lose $1 million in Phoenix campaign, but they have plenty more to spend

So far, the Laura and John Arnold Foundation has not actively participated in any election in Texas regarding public employee pension plans. At least not to our knowledge. But given their method of operation in other states, we’d bet it won’t be long before they enter the fray here. It’s just a matter of finding a local champion for their cause.

As example of what they are up to, consider the Reuters report Wednesday that the LJAF spent $1 million in Phoenix to pass Prop. 487, a measure to change the non-safety employees’ defined benefit pension system to a 401(k). Somehow the effort raised another $400,000 as well. 

Nonetheless, Phoenix voters rejected Prop. 487 by a large margin, 56.5 to 43.5%. The pension was noted as being 62% funded, which is not comparatively bad compared to some other pensions' funded status. As long as the funded ratio’s trend is in the right direction, with the city and employees working to make the ARC each year, the pension should be able to meet its obligations in the future.

The Phoenix venture was just one of many elections that the Arnold Foundation has participated in. They have been busy in Rhode Island, Florida, California, and Kentucky.

We mention this because we believe it’s only a matter of time that they enter an election in Texas. They are just looking for the right race horse to carry their message. – Max Patterson

How Much is Your Pension Saving your City?

When the subject of police, firefighter, and municipal employees’ annual salaries come up for debate at city council, the discussions focus on how much budget should be dedicated to their salary, health care, and pension contributions.

But imagine a different world, where the debate would focus on how much the city might save in future public assistance expenditures by making their complete pension contribution to employees today. Wouldn’t that be a much healthier discussion?

Yes, it would be, if more people knew the findings from the National Institute of Retirement Security (NIRS) research. That organization used U.S. Census Bureau data to calculate that households without income from defined benefit plans suffered much higher rates of poverty in retirement than those who did have DB plans.

And NIRS estimated that, in 2010, 1.22 million fewer households received means-tested public assistance because of their DB income. NIRS said that, in dollar terms, governments saved $7.9 billion they would otherwise have paid as public assistance because of defined benefit pension income.

The moral to the story is that defined benefit pension benefits ultimately save federal, state, and local governments from having to provide some public assistance payments to the elderly in their jurisdictions.

To learn more, look up the NIRS report titled “The Pension Factor 2012,” which details its calculations for these findings. It may be that if more city officials knew these facts they might not be so inclined to switch their employees’ retirement plans to defined contribution plans. And they might understand their city’s pension contributions to be a “Pay now, or pay more later” type of trade-off.

Pension Funding is a Local Matter

Our blog articles contend that every Texas city knows better than Austin or Washington how to appropriately fund their pension. It’s good to see an article in Governing.com reflect our position.

The story, “Pensions’ Unfunded Liabilities Still Going Up,” is based on a Loop Capital Markets survey of a number of cities. It found that, overall, American state and local pensions’ funded ratios decreased from 65.6 percent to 65.3 percent when comparing the 2012 to 2013 periods.

Let’s focus on the comments by Loop Capital Markets managing director Chris Meir in summarizing the study. He said that that pension reforms across the country have been whittling away at unfunded liabilities in many states and localities, but the processes are slow:

Thanks to each state’s particular legal and economic structure, he said, the reform process has been a “state-by-state skirmish,” thus dragging out the process. “Therefore, we do not believe [this] is a systemic problem,” he said. “It is a state-by-state problem with a state-by-state solution."

We’ll add that this dynamic produces very unseemly processes that aren’t for the faint of heart. Every state is different, just like every city is different. The study describes how states experiencing the biggest declines, like New Jersey, Massachusetts, New York and Virginia, are older states with more expensive infrastructure to maintain. Some of those states are also seeing population decreases. Those and other dynamics require continuous management from elected officials.

Similarly, all of Texas’ cities, in one form or another, wrestle with balancing city infrastructure needs with their civil service infrastructure needs. It’s an ongoing give-and-take process.  But it should always be handled at the state level for state pensions, and the local level for local pensions.

It’s possible that the seemingly sloppy, stop-and-start, two steps forward, one step back process is too much to handle for many who follow such matters at foundations and political research organizations. Nothing is neat and simple, but to those ivory tower folks who are inclined to put everything in boxes, the pension funding discussion process must be infuriating. Nonetheless, we have yet to find any other process that can honor and reflect the individual characteristics of each city and their different pensions.

We salute the people who take up these tasks daily. – Max Patterson

New Pensionomics Report indicates Texas economy gets $12 billion boost from state and local pension benefits

The National Institute on Retirement Security took another look at the economic impacts of pension payments in 2012 to retired state and local government employees. 

The key finding: pensions in and outside Texas generate $12.1 billion in direct payments to Texas residents. Pension benefits are then spent in local communities, rippling their effects as one person’s spending becomes another person’s income. The multiplier effect of these benefits supported $23.7 billion in total economic output per the chart below.

You can read the entire report here.

We are always impressed by the overall amounts of benefits that the pensions generate from employer and employee contributions to the funds. Here’s the telltale paragraph:

Between 1993 and 2012, 21.80% of Texas’s pension fund receipts came from employer contributions, 16.09% from employee contributions, and 62.11% from investment earnings. Earnings on investments and employee contributions—not taxpayer contributions—have historically made up the bulk of pension fund receipts.

In essence, this 62.11% is imputed savings to taxpayers for the benefits received by their public employees. Don’t tell the IRS or they’ll find out some way to tax that from us! – Max Patterson