We took note of a recent communication from The Texas Public Employees Association, the oldest and largest state employee group, to their members about a story in the Austin-American Statesmen. As a non-partisan, non-union association, TPEA is the leading advocate for ALL state employees and retirees before the Texas Legislature and their communication serves to correctly frame a situation now facing all statewide public employee pension plans. Please note their call-out about the policies that two of the largest pension systems adhere to in order to maintain cost feasibility to taxpayers. – Max Patterson
Troubling Proposal To End Traditional Public Employee Retirement Plans Floated
A recent Austin American-Statesman article discusses a group in Houston that wants to amend the Texas Constitution to prevent new public employees from participating in defined benefit retirement plans, such as those under ERS and TRS, even though these state plans are in good fiscal shape.
Although this group appears to be motivated by problems with local retirement plans in Houston, their proposal would have dire consequences for retirees and employees in all public pension plans in Texas.
TPEA believes the efforts by this group and others pose a potentially serious threat to maintaining our retirement plan. All state employees and retirees and their families should be sure to communicate with legislators their support for our current retirement plan. State employees and retirees have worked hard for this benefit and it provides modest but stable benefits that are essential for our retirement security.
While a number of states and some localities nationally have troubled retirement plans, Texas and our state leaders, by contrast, stand as a national model on how to establish and prudently manage sustainable retirement plans.
Two state-run retirement plans, ERS and TRS, include features that keep costs low, prevent abuses found in other states, and promote long-term sustainability. These features include:
· Shared responsibility for contributions between the state and employees.
· No pension “spiking”.
· No contribution holidays.
· No collective bargaining by ERS or TRS participants.
· No automatic cost of living adjustments (COLAs).
· Strong statutory and legislative requirements to ensure accurate actuarial impact analysis of proposed changes.
State leaders have actively managed both ERS and TRS to help ensure long-term sustainability of the plans. Legislative leaders enacted significant changes to TRS in 2005 and to ERS in 2009. These changes prefigured reform plans many other states and other plans are now attempting to put in place.
TPEA researched some of the claims made about defined benefit retirement plans during consideration of HB 2506 during the past legislative session and found that most are not supported by the facts. For instance, claims have been made that the decline in participation in defined benefit plans by private employers has taken place because such plans are inherently too expensive. In fact, changes in federal laws and regulations played the major role in the decline of private sector DB plans. This NIRS study found “the public sector has not been subject to the regulations that so drastically changed funding and accounting rules in the private sector.”
Analyses of defined contribution retirement plans such as 401(k) plans also show that they are a poor choice as a primary retirement savings vehicle because many eligible plan participants fail to contribute sufficiently, invest less than optimally, and frequently withdraw contributions prematurely. An analysis comparing DB and DC plans also found that traditional defined benefit plans are much more cost-effective. “The cost to deliver the same retirement income to a group of employees is 46% lower in the DB plan than in the DC plan.”
Since state employee salaries are 15 to 20 percent below pay for comparable private sector jobs, the promise of a stable and predictable retirement income is a key motivator in maintaining an affordable and competent workforce for Texas taxpayers. While these issues will continue to be studied and debated, it is essential that decision makers look at the facts here in Texas and not rely on faulty comparisons based on problems in other states.