TEXPERS Advises Galveston on Pension Fund Dynamics

TEXPERS' executive director, Max Patterson, urges the city of Galveston to guard itself against the pitfalls of moving to 401(k)-styled defined contribution plans for its public employees, police officers and firefighters. Patterson wrote a July 25 op-ed for The Daily News of Galveston County.  Click here to read Patterson's editorial. If you don't have a subscription to the newspaper's site,  the full article as originally submitted is posted below.  Raise the Foundations of Galveston's Pension Funds By Max Patterson "Stay in school. Finish your degree. Don't get distracted." It's hard to argue against these words of wisdom. Tried and true, they offer solid guideposts to success in life. The cities which contribute to their pension funds for police, firefighters and city workers have similar words of wisdom to guide them: "Fund the full contribution required to maintain a healthy retirement plan. Work with your pension fund board closely. Don't disrupt your pension systems' ability to make long-term investments." We know principles these work well. Most of the 93 pension systems monitored by a state monitoring agency have used these to thrive since the great financial meltdown of 2008-09. They have, in the aggregate, shortened the time it would take to pay off all current and future retirement obligations to their employees.  Not all cities have recovered in equal fashion. Unforeseen problems can arise. In Dallas, outsized investments in real estate couldn't mature as expected. In Houston, adjustments to unsustainable benefits promised in the stock market heydays before 2001 were made. Those cities worked on solutions to those challenges in the last regular legislative session. Galveston's pension funds have faced down a double whammy. In 2008, Hurricane Ike struck, requiring the city to lay off police, firefighters and municipal workers while retaining the obligations to their retirements. Pension fund health can suffer when the contributions for younger employees aren't available as assets for longer-term investing. At the same time, pension fund assets across the United States were suffering hard knocks from the stock market. These blows might have spelled absolute disaster for Galveston's pension funds. It did not. Texas pension funds are durable - they are structured well to weather storms. Galveston's pension funds have shown steady improvements in the last six critical years of adjustment, just like most other Texas pension systems. The Galveston Employees' Retirement Fund now has one of the most cherished positions in the state, below the 15-year mark for amortization period, a measure similar to the estimated payoff for your home mortgage. Galveston's pension systems for firefighters and police also have shown slow but steady progress given the setbacks. Now is not the time for Galveston to become impatient or to defer payments to its pension funds. We know that surefire disaster occurs when a city shortchanges its annual required contribution. The ARC is the number actuaries derive after they number-crunch every single factor to determine the lowest contribution for the city to pay for workers' employment. Having an actuarially sound pension fund attracts good people to serve in tough, thankless jobs. A solid retirement plan with modest but adequate benefits also helps retain a workforce. There is a competitive market for well-trained police, firefighters and municipal employees. Other Texas cities and towns would love to have your city's staff. They promote their retirement plans to your employees. Don't think for a second that Galveston can move away from defined benefit plans and not suffer. That's not the experience of any city or town which disrupted its retirement plans. As Galveston continues its economic juggernaut and moves forward on its remarkable recovery after Hurricane Ike, the city should do what it has historically done. It should look at the likelihood of future storms and raise foundations. Fund your pension systems appropriately. Don't set them on course to go underwater. Patterson is executive director of the Texas Association of Public Employee Retirement Systems and previously served as the appointed city treasurer for three city pension plans in Houston's Finance & Administration Department in 1990-96.

With trillions in investments, public retirement systems may shape global climate change reform efforts. Find out what risks your fund needs to be aware of inside the new edition of TEXPERS Pension Observer. 

Things you'll learn in this issue:

• Why you need to gauge how your fund communicates with its members
• How to prepare your fund for Texas' next legislative session
• New insights into pension system investments
• How TEXPERS' new communications manager can work with your fund to spread the importance of defined benefits
• How climate change plays into your fund's investment risks
• The five best practices in becoming an empowered leader of your fund

TEXPERS Pension Observer is published quarterly and is the official magazine of the Texas Association of Public Employee Retirement Systems. 

A print version is in the mail and will soon arrive in the mailboxes of TEXPERS members. Until then, enjoy the digital version below.

Infographic: 3 Things That Make TEXPERS' 2017 Summer Forum Better Than Ever

An illustrated look at what to expect during this year's event. Register now at www.texpers.org.

Infographic: TEXPERS Summer Forum. Don't miss out! Register today! www.texpers.org

Registration open for firefighter pension trustee training conference

By Allen Jones

TEXPERS Communications Manager

Fiduciary responsibility, board management, and investment practices are some of the topics firefighters serving pension boards can learn about during an upcoming trustee training conference.

The Texas Local Fire Fighters' Pension Conference occurs Oct. 1-3 at The Woodlands Waterway Marriot Hotel and Convention Center, 1601 Lake Robbins Dr. in The Woodlands. The township is a master-planned community located north of Houston along Texas 45.

Registration is required to attend the conference and costs $50 for trustee members. Those wanting to bring a spouse must pay an extra $25 registration fee. A registration form is available on the conference website at www.tlffra.org.

In addition to the board training programs, a golf tournament, skeet shooting, and a dinner will be offered free of charge. Those looking to stay at the hotel will receive a nightly room rate of $159.

Event sponsorship opportunities are available. Sponsorships range from $1,000 to $3,000 and provide a variety of marketing opportunities based on support level. Vendor booths are available for $500. Visit the conference website for additional details.

Conference organizers include The Woodlands Township, The Woodlands Firefighter's Retirement System, The Woodlands Convention Bureau and the Texas Local Fire Fighters' Retirement Act board.

The Texas Local Fire Fighters Pension Conference, a nonprofit corporation, hosts the event. According to its website, in addition to hosting the conference, the goal of the TLFF is to provide educational opportunities including regional workshops and lectures.

Legislative session good despite multitude of bills targeting public retirement

By Allen Jones

TEXPERS Communications Manager

Public pensions made it through Texas’ 85^th legislative session relatively unscathed, but that wasn’t for lack of trying on the part of legislators. TEXPERS tracked 27 bills related to public pensions and retirement during the session, which ended May 29. The association opposed 12 bills and supported one. TEXPERS took a neutral stance on the remaining bills.

Among those opposed by TEXPERS were two firmly pushed bills, Senate Bill 509 by Sen. Joan Huffman, R-Houston, and House Bill 2434 by Rep. Dan Flynn, R-Canton. Neither bill passed but both would have created unfunded mandates for pension systems.

Huffman’s bill would have required certain public pensions systems to evaluate investments in a report separate from those the systems already provide the state’s Pension Review Board. The proposed legislation did not offer any state funding assistance to pension systems. Flynn’s bill would have required certain funds to adopt a funding plan to achieve actuarial soundness. Not only would the legislation have required pensions systems to take on additional costs, but it would also have moved the Pension Review Board from an oversight agency to a statutory authority.

“Moving forward, it is incumbent upon all plans to attempt to address the issues raised by these two bills otherwise they are likely to reappear in the next session,” says TEXPERS Executive Director Max Patterson.

Other bills that were successfully opposed included legislation that would have limited the amount of annuity for basic pay of members of the armed forces, limited the ability of municipalities to raise funds for pension shortfalls, given cities the authority to approve or reject ordinances or resolutions regarding their pension funds, and moved the Employees Retirement System of Texas and Teacher Retirement System of Texas to defined contribution plans.

During the session, the legislature also addressed pension funding issues in Houston and Dallas, which were both local issues. Patterson hopes those funds will improve upon their problems and will not reappear in the next session in 2019.

An opposed bill that did manage to pass was known as the University Park bill. House Bill 3056, authored by Rep. Morgan Meyer, R-Dallas, and Flynn, is intended to replace the City of University Park’s 76-year-old pension system. The bill achieves that by amending the firefighters’ pension so it can place all of the fire department’s new hires in the Texas Municipal Retirement System. The amendment goes into effect Sept. 1. Although wording narrowed the exclusion to “municipalities with populations less than 200,000, in counties with a population not less than 2 million and not more than 4 million,” the concern is the trend could spread.

“Hopefully that will remain unique to University Park and not have a ripple effect on the other small plans,” Patterson said.

The lone bill supported involved the creation of a statewide retirement program for Texas workers who do not have access to employer-sponsored 401(k) investment plans. The legislation, House Bill 3601 authored by Rep. Roberto Alonzo, D-Dallas, stalled in the House’s Pensions Committee. (See a related article below).

TEXPERS previously published a recap of the legislative session on its blog. Op-eds from Patterson and TEXPERS’ board president, Paul Brown, regarding the session can also be found in “TEXPERS Pension Observer,” the association’s membership magazine. A digital edition of the magazine is available on the online.

The work of TEXPERS’ Legislative Committee and its Legislative Subcommittee in reviewing bills was extremely helpful and very much appreciated, Patterson says.

“Ways to improve the process will be ongoing with every effort to look for improvements,” he added.

Author Bio: Allen Jones is the communications and public relations manager for TEXPERS. He has a bachelor's degree in Journalism and Communications. He is a former community journalist and editor. He previously worked for the Houston Community Newspapers group and Hibu and was a freelance writer for the Houston Chronicle. 

Statewide IRA plan could level playing field with public pensions

By Allen Jones

TEXPERS Communications Manager

Legislation seeking to establish a statewide 401(k) retirement plan for private-sector workers who do not have access to retirement benefits through their employers failed to make it into law this legislative session. That doesn’t mean the idea has been K.O.-ed.

The legislation was among 27 pensions and retirement related bills tracked by TEXPERS during Texas’ 85^th legislative session. It also was the only bill to receive the association’s backing.

Authored by Rep. Roberto Alonzo, D-Dallas, House Bill 3601 died without having received a single vote. When the legislative session ended May 29, the bill was left pending action in the state’s House Pensions Committee, preventing it from progressing to the full House for a vote.

Establishing the state retirement pool may have failed to gain traction this year, but for Alonzo, authoring the bill was merely a first step to help secure retirement for millions of full-time working Texans who do not have access to retirement savings. The state’s regular legislative session may be over, but he intends to keep building support for the plan until he can refile it during the state’s next legislative session in 2019.

“Sometimes it takes several sessions to get a bill across the finish line,” Alonzo says.

The Dallas representative has been in office since November 1992. His constituency re-elected him in January. Alonzo spent many years focusing on securing defined benefit pensions for public employees. During the recent legislative session, he served as vice chairman of the House Pensions Committee. He was named Legislator of the Year in 2015 by the Texas Public Employees Association, a legislative advocacy organization for state government employees and retirees. He also took a leadership role in addressing the unfunded liabilities of the Employees Retirement System pension fund.

Alonzo says he will run for reelection in 2019 and is confident he will retain his seat in the House. Securing retirement for public and private-sector workers is at the top of his agenda.

Before becoming a lawyer and later running his first campaign for office in 1992, he grew up on a family farm in Crystal City, Texas. The seat of Zavala County, Crystal City was settled as a farming and ranching community was once referred to as the “Spinach Capital of the World.” Growing up, Alonzo says he never thought about a pension or retirement while working his family’s farm.

“Our pension was having a big family,” he says. “We took care of each other. I’m 60 years old now. I’m grown up; I’m an attorney and a legislator. I see the benefit of pensions. I see how the government can be a part of it by ensuring those who’ve contributed to society have some savings when they retire.”

Alonzo’s retirement bill received the support of TEXPERS, says its executive director, Max Patterson, because it would be an opportunity to see all working Texans start planning for their golden years.

Many critics want to compare public workers having a defined benefit plan when private-sector workers only have 401(k)s, Patterson says, but a state pool would level the playing field. Plus, he says, a statewide 401(k) would be voluntary as those workers would have the option of opting out of the plan.

“Numerous states have moved in this direction, and now it’s time for Texas to come on board,” Patterson says.

In July, Oregon became the first state to launch a retirement savings program for employees whose employers don’t provide one. California, Connecticut, Illinois, and Maryland also gained legislative approval to establish similar programs. According to a July 10 report in “Pensions & Investments” magazine, 24 other states are considering a similar idea and legislators are keeping an eye out on the challenges faced by states that have already enacted the investment programs.

More than 30 million full-time, full-year private-sector workers between the ages of 18 and 64 do not have access to an employer-based retirement plan, according to data provided in a 2016 report published by The PEW Charitable Trusts. That means that nationwide, only 58 percent of workers had access to a workplace retirement plan. And the study indicates that among those, 49 percent of workers were not participating in a plan. The percentage is worse in Texas. Only 50 percent of its workers have access to retirement, according to the PEW report.

Under Alonzo’s proposed plan, the Texas program would be managed by the state and offer conservative investment options. He says enacting a pooled plan would stabilize contributions and equalize investment risk while providing for a lifetime of retirement income for Texans.

Current studies indicate a significant number of Americans are struggling financially and are not saving for retirement. Investment experts believe state programs like Alonzo’s proposal could encourage retirement savings.

Rachel Schneider is senior vice president of the Center for Financial Services Innovation, an organization dedicated to improving the financial health of Americans. She says Alonzo’s proposal is precisely what states should be doing to help people better prepare for life after work.

She recently co-authored “The Financial Diaries: How American Families Cope in a World of Uncertainty.” The book is the result of a lengthy research study into why a large portion of Americans feel financially insecure. In the book, Schneider and her co-author, Johnathan Morduch, found that 65 percent of households in the study sample had a savings account, but only 8 percent of them saved at least as much as their perceived need. Schneider says households were saving money, but not for long-term needs, especially not retirement.

“On average, 72 percent of their savings was intended for needs that had to be met within the next six months,” she says. “Eighty-three percent would be spent within a year. Only 10 percent was for needs three or more years away.”

In addition, the book’s authors say those workers with access to 401(k)s are taking on too much risk as private investors. It is a risk employers should be shouldering if states cannot enact retirement programs.

“What we are doing right now is expecting people to know so much about their own financial lives and their own financial futures,” Schneider says. “That isn’t realistic.”

Schneider says government institutions are best positioned to create pooled risk structures that spread the cost of economic ups and downs across large groups.

“Achieving this will require a mix of legislation, regulation, collective action, and recognition by businesses that worker and consumer protections are in their corporate self-interest,” she says.

She likes what Texas and other states are trying to do for private-sector workers, but says more needs to be done, such as urging financial service companies to create savings programs that enable people to make good choices so the shift within the investment market is less worrisome.

“Financial service companies can do a lot to create new products or services or improve financial services to do more to build financial health,” Schneider says.

She hopes lawmakers and companies will use her research to understand why so many Americans are feeling financially insecure. Understanding that she says will help create stable earnings which will then enable people to save for lives outside the workforce.

Author Bio: Allen Jones is the communications and public relations manager for TEXPERS. He has a bachelor's degree in Journalism and Communications. He is a former community journalist and editor. He previously worked for the Houston Community Newspapers group and Hibu and was a freelance writer for the Houston Chronicle. 

Defined benefit pension systems survive, but turbulence ahead

By Joe Gimenez

Contributor

The 85^th Legislative session ended with affirmation that defined benefit plans will remain the preferred retirement vehicle for public employees across the state. Despite noise from several political groups who oppose DB plans, not a single defined contribution element was introduced to the pension systems in statute. Nor was there any modicum of success in forcing other systems into DC plans.

Maintenance of the status quo is testament to TEXPERS’ core position: defined benefit plans serve Texans well by maintaining trained workforces at reasonable cost. DB plans help cities manage their budgets through deferred compensation, empowering the pension fund to invest employer and employee contributions so as to create, in many cases, 50-70 percent of an employees retirement benefits from investment returns.[A1]  And most importantly, the larger trends indicate that most Texas pension funds have been steadily improving for each of the last six years.[A2]  The systems have overcome a low-interest rate, slow-growth environment and reduced their assumed rates to reflect new market expectations. They continue to perform and balance the workforce needs of their city with responsible benefits and investments.

The yearly filing of a “local control” bill, House Bill 1502, went nowhere. The current laws maintaining 13 of the largest local public pensions in statute were unchanged. Not even a hearing was held on the matter, as compared to the ballyhoo created last session when local control bill sponsor Rep. James Murphy convened a press conference before a late session hearing. [A3]  In the sense that state laws help preserve these systems as quasi-trust funds for employees who earn the benefits, the session was very successful in pushing the local control advocates to irrelevancy.

But pension systems and public employees should not become complacent. The foes of defined benefit plans will continue to agitate in the interim. They will push legislators to authorize unneeded studies about defined contribution plans. They will seek unnecessary third-party verification of system operations. They will skew Pension Review Board statistics in the media so as to sway public opinion against defined benefit plans and public employees’ earnings.

One such foe began its work influencing the general public for the 86^th Session just one week after the 85^th ended. The Texas Public Policy Foundation hosted luncheon briefings across Texas featuring the comments of defined contribution advocate James Quintero. These sorts of efforts will continue through the next 18 months. Legislators do pay attention to organizations which show the most energy influencing their constituents. It’s never too early for pension systems to anticipate the start of the next session, using the interim to tell their story to locally elected officials and representatives. It matters.

Author Bio: Joe Gimenez is a business management and communications counselor to business unit directors for Fortune 500 companies and public employee pension funds for the past 20 years. His clients include TEXPERS, San Antonio Fire and Police Pension Fund, Houston Firefighters’ Relief and Retirement Fund, Microsoft, Capgemini, Dell, Eli Lilly, and others. He has a Master’s degree from George Mason University in International Trade and Transactions. 

TEXPERS' 2017 Summer Forum will be held Aug. 13-15 in San Antonio, Texas. Register today: www.texpers.org.