NCPERS Confirms: Change Happens at Public Sector Employee Pensions

A few weeks back we received a phone call from a Texas newspaper journalist doing his work on a budget battle kicking up on his city council beat. The city had notified its public employees’ pension that it would be tinkering around the edges with a few changes needed to help its budget balance. The changes would mostly affect the benefits of future employees who might receive slightly less of a promised benefit. It seemed apparent to us that the reporter was sensing a dust-up that could get ugly. The uglier the better of course, so that the story might gain front page billing.

We felt bad about it, but we felt that we rained on his parade a bit when we told him that the situation in his city is not uncommon. This type of city budget balancing dance occurs in one form or another, in one city or another, at different times of every year across the state of Texas.

From our statewide viewpoint, as the representative of pensions across Texas, we see these sorts of processes happen all the time. Fundamentally they are all the same: the system is set up so that all cities in Texas collaborate in one way or another with their public employee pensions to make things work from a budget balancing viewpoint. The only thing that makes them different is the degree of acrimony that one or two people typically bring to that process.

This is the Texas system, where decisions about cities’ abilities to fund their employees retirement are continually adjusted at the local level so that they don’t break the budget, or absorb funding for other city services. We don’t want to appear Pollyannaish here though: some cities do get out of balance for different reasons and that causes acrimony. But by and large cities try to buy the highest quality employees they can afford, with differing levels of current and future benefits, within their budgets and workable, collaborative processes. That’s the Texas system.

Which brings us to the main point of this blog. The same thing seems to be happening across the United States according to a recent study conducted by the National Conference on Public Employee Retirement Systems and Cobalt Community Research. The NCPERS 2012 Fund Membership Study tabulated responses from 146 state and local pensions administering 7.5 million retired memberships and managing assets of more than $1.2 trillion.

The study’s respondents indicate that they are continuing to respond to a slow economy with changes that seek “to ensure long-term sustainability for their stakeholders,” meaning the retirees and the cities that sponsor their retirements. Here’s the tell-tale paragraph:

Several areas that showed increased activity over the 2011 study include: increased employee contributions, increased age/service requirements, reduced wage inflation assumption, tightened use of overtime in the calculation of a benefit, made benefit enhancements more difficult, reduced the multiplier, shortened the amortization period...

If you believe the critics of defined benefit plans, and you shouldn’t, you would think that public employees are hell-bent on keeping their current levels of benefits at all costs, even if they drive their city to the poorhouse.

Sure, there may be a few places in the country and in Texas where certain dynamics have evolved to put cities and their employees at odds over expected benefits. But those are the exceptions and not the rule. They get the headlines.

Most plans seek mutually beneficial ground to mete out benefits according to a city’s ability to pay them – and to allow a city’s residents to enjoy the longevity of qualified, experiences professionals working mostly thankless jobs. – Max Patterson