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Thursday, February 12, 2015

Open Season on Defined Benefit Plans in Austin

When the 84th Texas legislature convened early in January, it triggered a starting gun for some political groups to begin calling for the end of defined benefit plans. This year the Texas Public Policy Foundation is leading the charge.

In late January, TPPF published and promoted a report titled, “Reforming Texas’ State and Local Pension Systems for the 21st Century,” a 28- page document which, when it actually talks about Texas, admits that the state and its local pensions aren’t in bad shape. The goal of the report seems mostly to try to compare Texas to New York, California, and Illinois, and then to scare Texans and our elected officials into making wholesale changes that aren’t necessary.

A quick look at the data they use for analysis comes from 2008 and 2009, some of the worst years ever in the recent stock market history. Cherry-picking select data to bolster a position doesn’t make for a convincing argument.

But the report continues with that approach in its focus on troubles at the Texas Teachers Retirement System. It’s widely known that the state shortchanged its contributions to TRS over the years, and that those contribution shortfalls are causing TRS problems today.

Without naming or exploring the issues around a single local Texas pension that might be experiencing trouble, the report cites its view of nationwide trends as evidence that Texas’ local pensions will experience similar trouble.

Of course the danger with such a report is that its assertions might become more widely believed, even though its data is built on house of cards.

In this type of environment, it’s important for the people at Texas’ local pensions to keep their elected officials informed about the health of their system and what they are doing to continually improve it.

Monday, February 2, 2015

Pension Review Board Data Is Open to Interpretation

Nationwide, the opponents to defined benefit plans use alarmist statistics based on the unfunded liabilities of pension systems to create unfounded concerns.

 In Texas recently we’ve seen the Texas Public Policy Foundation, an Austin-based research group with a political ax to grind, use a similar tactic to accomplish their goal. They want all defined benefit plans to convert to defined contribution plans like 401 K’s.

 Take for example a recent opinion-editorial in the Austin American-Statesman, in which a TPPF analyst cited a Texas Pension Review Board “report” that saw a $4.4 billion swing in the gap between benefits earned and plans’ assets for all Texas pensions.

 The “report” that the analyst used was simply a spreadsheet of broad data. It was not an official determination of the PRB itself.

 And given a TEXPERS review of several PRB spreadsheets, it was very unclear as to what periods the analyst was comparing.

 Nonetheless, our review showed that $4.4 billion, while certainly a lot of money, would only be a single-digit percentage change, for comparison periods in the last year. Consider that state and local Texas pensions combine to manage more than $230 billion in retirement assets and their unfunded liabilities have ranged from $49 billion to $57 billion in the last 18 months of reports. These changes might occur because of revised actuarial assessments of workforces or new information about asset values. They are fluid situations with many variables.

 Using the raw data from the PRB reporting spreadsheet to bolster political arguments against defined benefit plans is common practice for opponents to the current system. Take those types of reports with a grain of salt.

 And, be sure to keep your elected officials up to date on the true working dynamics of your pension so that they don’t become swayed by the data cherry-picking common to the opponents of DB plans.