HOUSTON (August 24, 2016) – A report from the Texas Association of Public Employee Retirement Systems shows that 93 state and local pension funds combined in 2015-2016 to achieve the best trend performance improvement in financial health in six years, breaking last year's record.
TEXPERS based its assessment on the Texas Pension Review Board's year-over-year comparisons of pension funds' amortization periods. An amortization period indicates the number of years needed to pay off all present and future projected benefits to employees. It is similar to a home mortgage in terms of years needed to pay off interest and principal owed. The PRB says that amortization periods are the single “most appropriate” measure of public retirement systems' health.
The most substantial improvement in the 2015-16 period occurred among three pension systems moving out of the infinite amortization period, from 7 to 4. This follows a dramatic improvement of 8 fewer pensions in this category in the prior year. An infinite amortization period means that there will not ever be enough funds to pay future benefits.
In addition, five more pension systems attained the PRB's recommended status of amortization periods of 25 years or less, setting another six-year record of 39 pension funds achieving this feat.
TEXPERS executive director Max Patterson said: “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.