PRB Committee Meeting Held May 7
The staff of the Texas Pension Review Board is developing new guidelines that would require systems and their sponsors to move more quickly to identify actuarial problems and then develop Funding Soundness Restoration Plans to correct them.
By Joe Gimenez/Contributing Writer
During a May 7 meeting, the actuarial committee of the Board asked staff to develop the new guidelines as well as suggest tighter legislative triggers requiring Funding Soundness Restoration Plans, or FSRPs. Both changes may wind up as recommendations to the 2021 Texas Legislature.
> Listen to the Meeting: Recording of PRB's actuarial committee meeting held May 7.
> Additional Resources: Actuarial committee meeting packet for May 7.
“Conceivably a [pension] system could take up to six years ... between [an actuarial] valuation that identifies that they are not meeting minimum standards and the time they are actually required to submit a FSRP,” said Keith Brainard, the actuarial committee chairman. “You could fall into bad actuarial shape and have no requirement to identify a [FSRP] for several years, during which time things could get even worse.”
The Pension Review Board is the state agency mandated to oversee all Texas public retirement systems, both state and local, regarding their actuarial soundness and compliance with state law. FSRPs require pension systems and their sponsors to come up with contribution rates that reduce their unfunded liabilities below 40 years, after 10 years of implementation.
During the recent meeting, Brainard and committee members discussed the effects of lowering the FSRP amortization threshold to 25 or 30 years, substantially below the current legislative trigger of 40 years.
If a reduction to 25 years were implemented today, 27 more pension funds would be required to develop FSRPs. Currently, 17 pension systems are subject to or at risk of needing FSRPs, and six others have previously formulated FSRPs. So 48, or nearly half, of the Texas state and local pension systems monitored by the PRB would be in some stage of a FSRP process under the proposed guidelines.
The entire Board will review staff recommendations at its June 30 meeting, when it can either adopt staff options or send them back to committee for more work. Ultimately though, the committee put these issues on the runway for recommended legislation.
“We will undoubtedly see the results of today's discussion rolled into the biannual report, which the PRB provides to the Legislature ahead of every session,” said Art Alfaro, executive director for the Texas Association of Public Employee Retirement Systems, after the meeting. “The PRB seems to be taking the stance that city sponsors need to honor their pension commitments, which we agree with fully. But our experience is that lowering the bill – through pension benefit cuts – occurs more often than paying up.”
During the meeting, Brainard reacted strongly to an actuarial staff report showing 12 systems with 40-75 year amortization periods, and 13 systems with amortization periods of infinity.
“I think, honestly, the picture is abysmal, and that doesn't even include the results of the last two months when we've experienced a market decline,” Brainard said. “The state and its political subdivisions are going to be experiencing a revenue decline ... If three-fourths of the plans in the state end up on a funding soundness restoration plan list, then so be it. The consideration is not the number of plans on this list. The consideration ought to be what is sound criteria for funding a pension plan.”
Brainard and the Pension Review Board have consistently noted that systems receiving adequate funding are in a better position to meet their long-term obligations. The PRB's 2014 Study of the Financial Health of Texas Public Retirement Systems makes this point clear.
David Stacy, a TEXPERS board member and trustee for the Midland firefighters pension, attending the May 7 committee meeting and asked its members to consider that public plans need to develop realistic, sustainable ways for maintaining a “real” benefit for public employees. From a purely actuarial view, the easiest way to create sound plans would be to cut benefits, he said. While that might look good on paper, it is not in anyone's best interests.
“I have serious reservations about the PRB making recommendations to the legislature on overall appropriate funding policy in Texas without engaging anything about a meaningful net benefit to the employee groups at the end of the day,” Stacy said.
Kelly Gottschalk, the executive director for Dallas' police and firefighters' pension, cautioned the committee about making too many possible adverse inferences from staff compilations of funding policies. She noted Dallas' unique set of circumstances which came from the 2017 Legislature and how they are continuing to work through various processes established by that legislation.
> Joint Meeting: The PRB also hosted a joint meeting of the actuarial and investment committees on May 7.
> Additional Resources: Joint committees meeting packet for May 7.
About the Author: