Key Pension Committee Recommends Pension Review Board Changes to Legislature
In its Interim Report to the 87th Texas Legislature, the House Committee on Pensions, Investments and Financial Services focused on plans’ compliance with Senate Bills 322 and 2224, passed in the 86th Legislature.
Click here to read the full report.
Given a “small handful of plans” that failed to comply with the Legislature’s 2019 bills, the committee accepted the Pension Review Board’s contention that the Legislature should strengthen PRB enforcement authority “to further protect pension beneficiaries and taxpayers.”
In recommending changes to SB 322, the committee shrugged off concerns about the costs which plans incur to comply. “There is a case to be made that the cost of a third-party consultant is justified to gain a stronger analysis of the investment program,” the report’s authors said. The fees which pensions paid to comply with SB 322 ranged from zero to $60,000 in 2020, according to informal reports to TEXPERs. New legislation may require the analyzing consultants to have absolutely no existing relationship to the pension plan. This was a hard-fought issue in SB 322’s development, where the compromise that third-party’s could have an existing relationship with a pension fund so long as it did not directly or indirectly manage pension fund money.
The 10 plans that used rolling amortization period benchmarks to violate SB 2224’s call to achieve 100 percent funding caused the committee to recommend that a new bill require that all plans use closed amortization periods. And the inability of systems to address contribution shortfalls that align with their SB 2224 funding policies will draw plan sponsors into the 2021 session. “The legislature should also consider requiring plans and plan sponsors to collaborate on the funding policy to ensure buy-in from all invested parties so that sponsors are aware of and committed to the goals,” the interim report said. The PRB in recent years has drawn significant attention to some cities which failed to contribute appropriately to their employee retirement systems.
Although not explicitly discussed in the report, the summary recommendations signaled stricter enforcement ahead. It accepted the Pension Review Board’s premise that the Board is “[o]ne of the best tools available to public pension systems” and suggested the Legislature should “[e]xplore ways to grant the PRB enforcement capabilities to step in when public pension plans become detrimental to their members.”
Furthermore, the Legislature will be urged to “evaluate methods for ensuring that all public pension plans maintain a maximum of a 30-year amortization period.” This request would build upon the 2015 legislation, which established the 40-year amortization period as the trigger requiring systems to develop and submit Funding Soundness Restoration Plans to the PRB. Reducing the FSRP threshold to 30-year amortizations could bring 30-40 additional systems into PRB purview for FSRPs.
Committee member Rep. Gary Gates, R-Fort Bend County, added recommendations suggesting that the state’s Employee Retirement System explore placing new “employees into a defined contribution plan, a cash balance plan, or a hybrid plan which would combine parts of a defined contribution plan and defined benefits plan.” No other recommendations touched on defined contribution plans.