The TEXPERS Blog

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.