In the Texas pension fund battles, the opponents of defined benefit plans regularly manufacture a “sky-is-falling” tale about the aggregate amount of unfunded liabilities, the difference between assets on hand and future benefits owed. They use the UL because all the other measures of pension fund health for Texas’ state and local pensions are pretty darn good.
Take for example a recent finding by the Texas Association of Public Employee Retirement Systems regarding amortization periods. The Texas Pension Review Board has said that amortization periods are the single “most appropriate” measure of public retirement systems’ health and defines them as “the length in time, in years, needed to pay for the unfunded actuarial accrued liability (UAAL) and reflects a system’s ability to pay its normal cost plus UAAL.”
TEXPERS found that the 93 state and local pension funds which submit data to the PRB combined in 2014-2015 to achieve the best overall improvement in financial health in five years.
The most substantial improvement occurred in eight pension systems moving out of the worst, infinite amortization period. That correlated in an increase, to 17 from 13, in the number of pension funds at less than infinite and more than 40 years amortization. Another four systems from the infinite amortization moved into even lower amortization periods below 40.
TEXPERS assessment was based on information requests it made of the PRB for standardized year-over-year comparisons of pension funds' amortization periods, as presented in PRB Actuarial Valuation Reports for the previous five years. This improvement indicated that pension funds are continuing to find good investments and manage their benefits in an appropriate way to secure the retirements of public sector employees.
TEXPERS executive director Max Patterson said: “Our report stands in stark contrast to those which focus on unfunded liabilities in order to produce alarming headlines. Pension fund experts will tell you that amortization trends matter more than accountants’ moment-in-time snapshots of unfunded liabilities when assessing pension fund health.
“The trend toward lower amortization periods across all Texas pensions, in conjunction with the TEXPERS Asset Allocation report showing excellent pension fund investment performance in the 20- and 30-year periods, should provide lawmakers with the confidence to maintain the status quo," Patterson said.
TEXPERS has created seven graphics to describe the PRB data at www.TEXPERS.org/Amortization-report. Please share the report on your Facebook pages so that more people will understand how well Texas pension funds are performing.