Special Report: Texas’ State and Local Pension Funds Achieve Continuing Improvements through 2017

The 93 state and local pension funds that report financial statistics to the Texas Pension Review Board combined in 2016-17 to maintain their trend performance for their amortization periods , the PRB’s single “most appropriate” measure of public retirement systems’ health,** according to a TEXPERS’ comparison of PRB data.***

The steady performance is occurring even while most systems work to lower their target rates (also known as the assumed rate of return) to reflect expectations for investments in a low-interest rate environment. The lower target rates could have moved pension amortizations in undesirable directions but did not.


Figure 1

TEXPERS offers these observations:                                

  • The most constructive way to read Figure 1 is to understand that increases in the top three rows and decreases in the bottom three rows show improvement.
  • There are 39 pension systems in the Pension Review Board’s recommended amortization period of 0-25 years, which is the same as the 2016 report.
  • The most substantial improvements in the 2016-17 period occurred in the two pension systems moving out of the infinite and >40<infinite categories, into the >25<40 year category.



Figure 2    
  • Figure 2 shows significant movement toward lower target rates. Despite 11 pension systems moving below 8 percent, any negative effect on am periods has been negligible. If anything, the lower rates have slowed the overall improvement of the am period measurement.
                                                                                         
TEXPERS Executive Director Max Patterson offered the following comments on the report:
“We continue to maintain that Texas pension fund Trustees and staff can, with time, make necessary adjustments to improve upon various measures of performance. As long as the key ingredient of appropriate funding is provided by their city employer sponsor, we will continue to see ongoing improvements to amortization periods.
 
“Lower target rates are not sending amortization periods soaring. It appears that pension fund boards are taking a gradual approach to making their systems more conservative, ultimately benefitting their city sponsor with less needed contributions.”

* The figures indicated in this report include data from seven full years from 2011 through the fall of 2017. Most pension funds don’t get their investment returns reported to them until the end of January, so the summer/fall year-over-year comparisons are better indicators.
 
**  The PRB defines amortization period as “the length in time, in years, needed to pay for the unfunded actuarial accrued liability (UAAL) and reflects a system’s ability to pay its normal cost plus UAAL.” UAAL is the present value of benefits earned to date that are not covered by plan assets and normal cost is the portion of cost of projected benefits to the current year.[1]
 
*** TEXPERS based its assessment on specific information requests it made of the PRB for standardized year-over-year comparisons of Actuarial Valuation Reports through the August reporting periods. The PRB data are available on a dedicated page on the TEXPERS website: www.TEXPERS.org/amortization-report.

More charts are available at https://www.texpers.org/2017_am_period_charts
 
 
[1] “Summary: Study of the Financial Health of Texas Public Retirement Systems,” by the Texas Pension Review Board, December 2014, page 2. http://www.prb.state.tx.us/files/reports/financial_health_study_summary.pdf