The Moving Targets of Pension Fund Opponents
Max Patterson, For the Express-News
April 30, 2017
Texas Sen. Paul Bettencourt wants the public to believe that statewide retirement systems are in trouble because of low investment returns and that the solution will cause taxpayers to foot the bill. The truth is statewide retirement systems and some local pension systems are underfunded because for years, the state and some cities did not fund the plans they approved.
A Texas Association of Public Employee Retirement Systems, or TEXPERS, survey showed that about 25 percent of our members did not receive their full actuarially required contribution in 2016. Public employers now see this is a problem, but some people still want to blame the investment market.
Bettencourt talks about a “guaranteed rate of return.” There are no guaranteed returns in any defined benefit plans. There are only targets that funds hope to meet. I suspect many plan administrators would quickly lower their investment targets.
However, the flip side of such a move would force the employer to pay more into the plan, unless the plan was very well funded. Should this occur, Bettencourt could then say, “Look how bad they are.” Still, among 78 plans, the average actuarial return assumption is down to 7.6 percent and continues to show a downward trend as shown in the 2016 TEXPERS Asset Allocation report.
There is not a “serious debate underway on pension reform in the state of Texas,” as Bettencourt penned in an op-ed. He and some others want to create a debate so they can push their agenda to convert defined benefit plans to deferred compensation plans.
Missing from this so-called “debate” is the value of public employees. Every day, public employees such as police and firefighters perform duties so the rest of us can live in some semblance of peace. We take for granted the roads we drive on that municipal crews repair.
I contend that when asking the public to place a value on the people who perform these services, they put them near the top for a decent wage and a good retirement after 30-plus years of hard work. Unfortunately, Bettencourt fails to see the end result of his efforts to change defined benefit public pensions.
Bettencourt and others are making their objective to change retirement plans for public employees because they want to make sure businesses do not pay more taxes.
Palm Beach, Florida, shifted to a defined contribution plan, and after 42 percent of its public safety workers quit, it returned to a defined benefits plan, according to a May 12 report in The Palm Beach Daily News. It isn’t the only instance of failed attempts to convert to defined contribution plans.
The reality of a switch is that it immediately increases unfunded liability because it halts future contributions anticipated to go into the defined plan from new hires. This increases costs for taxpayers because of the unfunded liability and diminishes retirement security.
Businesses fear that elected officials will raise their taxes rather than taxes on working people. That is the only reason Bettencourt and some business leaders are going after retirement plans of public employees.
The goal of city and state pension plans is to reach full funding. There’s no need to get there right away, but you do want to be moving in that direction. And in some cases, it’ll probably take 20 to 30 years.
Max Patterson is executive director of the Texas Association of Public Employees Retirement Systems representing about 80 pension funds for police, firefighters and municipal employees.