Texas' State and Local Pension Funds Reach 6-Year Pinnacle of Financial Health
The 93 state and local pension funds which report financial statistics to the Texas Pension Review Board combined in 2015-2016 to achieve the best overall six-year improvement to their amortization periods, the PRB’s single “most appropriate” measure of public retirement systems’ health, according to a TEXPERS comparison of PRB data.
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.
TEXPERS based its assessment on specific information requests it made of the PRB for standardized year-over-year comparisons of its Actuarial Valuation Report for the previous six years. The PRB data are available on a dedicated page on the TEXPERS website: www.TEXPERS.org/amortization-report.
TEXPERS offered the following observations on the data:
TEXPERS Executive Director Max Patterson offered the following comments on the report:
The most constructive way to read the chart is to understand that decreases in the bottom three rows and increases in the top rows show improvement.
There are 39 pension systems in the Pension Review Board’s recommended amortization period of 0-25 years, which is better than the 34 in last year’s report, and the most in six years.
For the purposes of this review, we are assuming uniform movement from the bottom three rows, least healthy indicator, to the three higher, healthier categories. We did not explore the data for the number of pensions making offsetting moves from lower to higher amortization periods because the overall trend is the most important consideration.
The most substantial improvements in the 2015-16 period occurred in:
the number of pension systems moving out of the infinite period, from 7 to 4.
the increase, to 23 from 20, in the number of pension funds in the 15-25 year amortization period.
The total number of pension funds in the non-recommended amortization ranges decreased to 54 from 59 in the previous year. This measure also is the least in six years.
“These amortization period trends matter more than accountants' moment-in-time snapshots of unfunded liabilities when assessing pension fund health. We 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 employer, we will continue to see ongoing improvements to amortization periods.
“This positive trend for amortization period should be put in perspective. Stock market performance in 2015 was the worst in seven years and left a lot to be desired. As 2016 market performance has recovered well, we think this amortization period improvement trend will continue. Texas lawmakers should, with confidence, maintain the status quo going into the next legislative session,” Patterson said.