The TEXPERS Blog

PRB Establishes Committee to Study 'Principles' of Pension Fund Design 

By Allen Jones, TEXPERS' Communications Manager 

The State Pension Review Board of Texas established a three-person committee to develop “principles” its members consider best for retirement plan design. Once compiled, the committee is to present its recommendation to the entire board for review and possible adoption.

Keith Brainard, board vice chairman, suggested the formation of the committee during an Aug. 11 board meeting held at the state Capitol. The committee was formed after discussion of an item on the meeting’s agenda that called for the development of “PRB Principles of Retirement Plan Design.”

A timeframe to submit a report was not discussed, and Brainard says any “best principals” of retirement plan design eventually adopted by the board would not be enforceable by the agency. He says any approved report would serve as a general statement of appropriate elements funds should consider.

The committee will discuss benefit plans. However, Brainard says he doesn’t want to consider moving from pooled asset plans to anything that would require individuals to oversee their own investments.

He was appointed by the board to lead the committee. Board member Stephanie Leibe and Josh McGee, the PRB chairman, also were named to serve on the committee.

During the meeting’s public comments session, TEXPERS board member David Stacy said he appreciated Brainard’s interest in establishing best practices and urged the board to keep meetings open to the public.

“I know it is a pain and cumbersome [to keep meetings open],” Stacy says, “but it ensures the meetings are fully vetted [by constituents].”

TEXPERS will continue to provide updates regarding the committee’s work. Click here for a link to the agenda and meeting materials.

Highlights from the PRB meeting:

• New pension funding guidelines went into effect June 30. A funding requirements document outlines six funding policies that are intended to help funds “determine a reasonable approach to responsible funding” regardless if a plan’s contribution rates are fixed or actuarially determined. Among the guidelines, the PRB suggests actual contributions made to a plan should be sufficient to cover typical costs and to amortize unfunded actuarial accrued liability during “as brief a period as possible, but not to exceed 30 years.” The guideline states that 10 to 25 years is a preferable target range. “Plans with amortization periods that exceed 30 years as of June 30, 2017, should seek to reduce their amortization period to 30 years or less as soon as practicable, but not later than June 30, 2025,” according to the document. Plans that use multiple amortizations, according to the document, should make sure the weighted average of all amortization periods does not exceed 30 years. The guideline also states that “benefit increases should not be adopted if all plan changes being considered cause a material increase in the amortization period and if the resulting amortization period exceeds 25 years.” Click here for the funding requirements document. 
• Funded ratios of public pension plans in the state are the same as they have been, says Kenny Herbold, the PRB’s staff actuary. He presented an actuarial valuation report on the fiscal conditions of 93 registered plans during the agency’s Aug. 11 board meeting. According to his report, the funded ratio of assets and liabilities is 79.4 percent for the current effective date. The prior effective date funded ratio was 79.8 percent. Market value of assets are $243 billion. The last effective date value of assets was $235.5 billion. Actuarial value of assets for the current effective date is $253.3 billion. The prior effective date value of assets was $242.6 billion. Of 93 plans registered, 29 plans have amortization periods between 10 and 25 years, 19 range between 25 and 30 years, 18 have periods ranging between 30 and 40 years, 13 have periods ranging more than 40 years but are not infinite, seven have ranges less than 10 years, four have infinite amortization periods, and three have zero years. Plan discount rates for the current effective date among the 93 registered plans: 25 range between 7.5 and 8 percent, 22 have 8 percent, 16 have 7.5 percent, 11 are between 7 and 7.5 percent, nine are less than 7 percent, seven are at 7 percent, and three are more than 8 percent. The median plan discount rate is 7.75 percent. 
• Ashley Rendon, a policy analyst with the PRB, updated the board on progress of 12 pension plans making towards achieving a 40 year amortization period. The systems previously submitted funding soundness restoration plans with the PRB. Two plans, the Harlingen Firemen’s Relief and Retirement Fund and the Odessa Firemen’s Relief and Retirement Fund, previously had infinite amortization periods. As of Dec. 31, 2016, the Harlingen fund had an amortization period of 48.4. As of Jan. 1, 2017, the Odessa fund had a period of 48.6, although the calculation was still under review. Among the plans, Wichita Falls Firemen’s’ Relief and Retirement Fund had a Jan. 1, 2015, reported amortization period of 105.9. That plan is now at 49.4 as of Jan. 1 of this year. A full list of funds are listed under TAB 3C in the document link above. 
• The PRB is seeking to copyright its trustee training materials. Although the material will remain open source, anyone who copies the text of the materials will be required to attribute the PRB as the source. • The next PRB meeting is set for 10 a.m. Nov. 16. The location has not been determined, however, it is expected to be held at the state Capital building, says McGee, chairman of the PRB. The meeting’s agenda will be posted to the PRB’s website at www.prb.state.tx.us.