Wednesday, July 21, 2010

Local Control: The Foundation of Texas Public Pension Funds

We want our readers to have a good foundational understanding of what TEXPERS is and who we represent.

TEXPERS was founded in 1989 as a voluntary nonprofit educational association. Our members are the trustees, administrators and participants of public employee retirement systems in Texas, as well as professional service providers, employee groups and associations engaged in or interested in the management and financial soundness of those systems. TEXPERS consists of 84 retirement systems, 9 employee groups, 180 investment professionals. Our members manage the money for retirement hopes of more than 420,650 active and retired participants.

It’s important that you know and keep in mind that TEXPERS does not manage money! Instead, our members, spread out across this great state, oversee the management of the money and the administration of benefits of the retirees in their cities, counties and other public entities.

TEXPERS provides fiduciary education to plan members for their administration of benefits and selection of investments on behalf of their members. Instead of a centralized organization managing the money of public employees, our state has largely chosen to give local entities control over the investment activities and benefit levels for their retirees.

This makes sense from the perspective of local control, of keeping decisions close to the people they impact most.

For instance, most if not all of the funds have boards that are comprised of several members from the community in which the organization resides. To pick one name, the Lubbock Fire Pension Fund manages the retirement money of firefighters in Lubbock. The firefighters occasionally vote not only on the members of that Board but also changes and modifications to their pension plans. The Board is then responsible for working with their elected city representatives and the Texas state legislature to make sure those changes are allowed.

To see this in action, take a look at this link which will take you to the results of a vote the Lubbock Fire Pension Fund conducted in 2005. In just reading the first page it is neat to see that some 231 of 278 members of the pension fund participated in this vote on issues directly affecting them, including the definitions of service, final average pay that determines the levels of benefits, and the maximum service retirement benefit, and many other stipulations.

At other times the members of local funds will vote on the Board members who determine those issues. And city governments usually appoint a couple of their own people to the Board as well, often the city treasurer or finance director and a member of the city council, or a former member as it may be. This structure creates a certain check and balance system that we will discuss in more detail in future blog entries.

But it’s important to know that the fireman or police officer on the street has the ability to get involved in issues affecting their own retirement money, by voting directly on matters that are presented to them or by voting on who serves on their pension plan’s Board of Trustees.
It’s a model that has proven effective and that creates a lot of theoretical and practical effects on governance. We’ll be discussing those in future entries. – Max Patterson

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