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Year of the Pensions

Texas Legislature Targets Pensions

If Texas' 2017 legislative session were on the Chinese zodiac calendar, this year would have been known as "the year of the pensions." From pension reform bills to new reporting regulations, this year's legislative session included a variety of bills aimed at public employee retirement. 

The session ended May 29. Although Texas Gov. Greg Abbott has called for a special session, none of the bills on the agenda involve public pensions.

TEXPERS alone tracked 27 bills that were in some form related to public pensions, including two bills focused on reforming pension plans in Houston and Dallas. TEXPERS watched the movement of the bills to ensure legislators didn't attempt to force the plans to adopt 401(k)-like defined contribution components that would have required police, firefighters and municipal workers to play the role of a financial analyst by making their own investments and take on a greater financial risk.

TEXPERS opposed 12 bills. Among the proposed legislation tracked by TEXPERS, bill would have added more actuarial costs to public pensions through new reporting requirements, set the state's Pension Review Board up as a statutory authority, 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 ability 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.

TEXPERS did, however, approve a bill that would have established a retirement savings plan for private sector workers who do not have access to a plan through their employers. The legislation, authored by D-Roberto Alonzo, did not receive enough support to pass.

TEXPERS members may download a copy of the association's bill tracking matrix by logging into the membership portal of the TEXPERS website.

Texans for Secure Retirement, a nonprofit group of public employees and retirees concerned about the prospects for public and private sector employee retirement security, provided a roundup of the legislative session. The roundup includes a few bills TEXPERS didn't track but readers may be interested in knowing about. 


Highlights from the TSR:
  • Houston and Dallas Reform Bills - The legislature approved both Dallas and Houston pension bills which were considered must pass by stakeholders. The bills have been touted as a big win for Texas's two biggest cities. However, the final compromise required employees give up more than other stakeholders.
    •  The new Houston law, Senate Bill 2190, requires firefighters, police and municipal employees contribute more to their pensions. The bill, authored by Sen. Joan Huffman, R-Houston, limits cost-of-living increases depending on the fund's performance and reduces the number of years an employee can participate in the Deferred Retirement Option Plan, also known as DROP. If by July 1,  2021,  the funded ratio is less than 65 percent, the defined-benefit plan switches to a cash-balance plan for new employees. Cash balance plans are a hybrid that combines elements of 401(k) plans and defined benefits. While they provide a defined annuity, it will be less than what a  defined benefit plan provides because the annuity is determined by its most recent five-year smoothed rate of return as opposed to returns based on 30 years of performance.The success of this law depends on the passage of $1 billion pension obligation bond in the November elections. Municipal employees and police pension funds will be the recipients of the bond proceeds because the city borrowed from the funds.
    • The new Dallas law, House Bill 3158, applies to municipal employees,  police, and firefighters. It will cut $1.4 billion, raise the retirement age to 58, discontinue lump sum DROP account distributions, and limits cost of living increases. The board will consist of 11 members, six appointed by the city's mayor and five from associations. A two-thirds vote is required to increase or decrease benefits so that the city cannot change benefits without the backing of the fund. The city cannot open a new plan in lieu of this plan. At the end of six years, the Pension Review Board will appoint an independent actuary to review the pension plans financial health. The board is required to act on the PRB's recommendations. In 2025 the legislature can make benefit changes if the fund is not acting “in good faith. The Dallas pension reform bill was authored by Rep. Dan Flynn, R-Canton.
  •   Pension Review Board: Josh McGee Nomination Confirmed - Josh McGee's confirmation as chair of the State Pension Review Board was a disappointment. McGee is a vice-president at the John Arnold Foundation, a nonprofit which has been throwing millions of dollars at efforts to end defined benefit pensions for public workers and convert their pension into 401(k)'s or individual retirement accounts favored by the financial industry. The McGee nomination was stalled for months because Texas Democrats had sufficient votes to block his confirmation. However, Sen. Huffman took advantage of an absence by Sen. Royce West, D-Dallas, from a day's proceedings to put the nomination up for a vote. The Senate Republicans seized the opportunity to confirm McGee by one vote.
  • No study of defined contribution and alternative pension plans - On a positive note, SB 509, which would have required study of converting public employee pensions into defined contribution or 401(k)-type of individual retirement accounts, did not come up for of vote on the House floor. The bill was authored by Sen. Huffman.
Bills that Passed:
  • State employee group benefits program and health benefit plans for University Employees - HB 4035, by Flynn, allows a retiree who is participating in the uniform program to authorize the retirement system to deduct the amount of the contribution and any other qualified health insurance premium from the retiree's regular monthly service or disability retirement annuity. 
  • University Park Firefighters - HB 3056, by Rep. Morgan Meyer, R-Dallas, allows City of University Park firefighters to participate in the Texas Municipal Retirement System. The system offers defined contribution benefits in the style of 401(k) plans.
  • Employee Retirement System -  SB 301, Sen. Kirk Watson, D-Austin, is an Employees Retirement System sunset review that allows the agency to function. The agencies next review will be the year 2029.
  • Ending retirement benefits of elected officials - SB 500, by Sn. Van Taylor, R-Plano, takes away a retirement annuity received by an elected official that is convicted of a felony associated with duties of the office.
  • Repealing obsolete pensions -  SB 1735, by Sen. Bryan Hughes, R-Mineola, repeals certain obsolete laws governing state pensions and other similar benefits. The bill includes removal from statute state pensions for Confederate soldiers, soldiers of the Texas Revolution, and Texas Rangers who served before 1947. 
  • Public School Retired Employees Group Benefits Act - HB 3976, by Rep. Trent Ashby, R-Lufkin, amends the Public School Retired Employees Group Benefits Act to provide for a high deductible health plan, a basic plan and Medicare Advantage and prescription drug plans for retirees ages 65 and older. A retiree, dependent, surviving spouse, or surviving dependent child who is not eligible to enroll in Medicare is eligible to enroll in a high deductible health plan offered under the group program. A retiree, dependent, surviving spouse, or surviving dependent child who is eligible to enroll in Medicare is eligible to enroll in a Medicare Advantage plan or a Medicare prescription drug plan offered under the group program. There is also an optional basic coverage for graduate students if their compensation is more than the payments required for the coverage.
TEXPERS Executive Director Max Patterson also serves as president of the TSR. To learn more about the organization, visit www.texansr.org.

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