Texas Pension Review Board staff actuary David Fee and agency intern Annika Leong, briefed board members July 10 on the latest steps in the Funding Soundness Restoration Plan. Their report outlined shifts in actuarial assumptions, valuation timing, key system statistics, and statewide funding trends, highlighting both system-specific changes and broader patterns in public pension liabilities and assumptions.

The PRB monitors the actuarial health and reporting compliance of Texas state and local public retirement systems.

Here’s a recap of the board meeting:

Updates on Assumptions and Mortality Tables

Mortality Tables

• New 2016 public sector mortality tables were released in May, replacing the previous 2010 set.
• Analysis showed liability decreases for teachers and general employees but increases for safety personnel (firefighters and police) due to lifespan differences.
• Savings may occur in joint-survivor plans due to gender-based lifespan offsets.

Economic Assumption Changes

Three systems—Temple Fire, TESRS, and University Medical Center—updated their discount rate and/or payroll growth assumptions since December:

• Temple Fire lowered its discount rate from 7.75% to 7.3% and raised payroll growth from 3.75% to 4.25%.
• TESRS reduced its rate from 7.5% to 7.25%, with plans to drop further to 7% under SB 2065.
• University Medical Center increased its rate from 4% to 5%, remaining below average.

Other systems, including El Paso Fire and Police pension plans, have voted to reduce their future rates from 7.75% to 7.5%, narrowing the number of systems using rates above 7.5% to just four.

Valuation Frequency and Timeliness

The intern reported on valuation submission timelines:

• Annual systems: average 7 months delay from valuation to PRB submission.
• Biennial systems: average 9 months, with the longest gaps reaching 2.75 years.
• Smaller systems (under $100M in assets) tend to choose biennial valuations to reduce costs.

Systems subject to FSRP or facing funding pressure often accelerate actuarial work to avoid making decisions based on outdated data.

Funding Periods and Ratios

Funding Period Trends

• Number of systems with >30-year funding periods dropped from 28 to 21 since June 2023.
• Systems targeting with 15-year funding periods and under grew from 33 to 38.

Funded Ratio Metrics

• Aggregate ratio sits at 79%, while the average across systems is closer to 75%.
• More than 50% of TLFFRA systems are below 65% funding.

Systems like Midland Fire, which received a $54M cash infusion, showed immediate funded ratio increases (improvements), while others relying on gradual contribution hikes show delayed impacts.

Notable System-Level Changes

Several systems were highlighted for specific actions:

• Amarillo Fire removed its second tier and granted ad hoc cost-of-living adjustments (COLAs).
• Galveston Fire raised both city and member contribution rates by 1.5%, improving their funding period.
• Dallas Employees and Midland Fire completed FSRP processes.
• Houston MTA nonunion updated outdated lump sum mortality assumptions from 1971, a key example of actuarial modernization.
• University Health is working on aligning lump sum assumptions with PRB guidance.

Wichita Falls Fire received a $1M one-time contribution and an ongoing increase in payroll contributions, with future changes expected to meet FSRP goals.

Observations from Board Members

Key insights included:

• Concerns about overly optimistic return assumptions in TLFFRA systems versus better-equipped statewide funds.
• Use of inflated expected returns can distort a system’s real financial health and push costs onto future generations.
• Recommendations were made to require updated valuations when systems become at-risk, especially as part of the next rule review in 2026.

Systems with Long Funding Periods & At-Risk Classification

The board identified several systems with funding periods >40 years:

• TESRS (targeting 30 years under SB 2065)
• Dallas Employees (completed FSRP)
• Austin Fire (covered by recent legislation)
• Wichita Falls, Sweetwater, Marshall Fire, Harlingen Fire—all in varying stages of funding corrective action.

Systems with funded ratios below 65% and funding periods >30 years will now trigger an FSRP immediately, rather than waiting for consecutive valuations. This marks a significant policy tightening.

Systems Facing Fund Exhaustion

Nine systems were identified where assets are projected to deplete before benefits are fully paid:

• Some, like Dallas Employees and Sweetwater, have completed or are actively working on FSRPs.
• Others, such as the San Angelo and Marshall fires, have yet to make FSRP-related adjustments.
• Beaumont Fire is in the process of developing its plan, with participation from both city and board representatives.

The board also flagged systems like Nacogdoches County Hospital District, which lacks active contributions and relies solely on investment income, a high-risk situation.

Retiree-Funded Ratio Concerns

A segment of the report focuses on systems where assets are insufficient to cover existing benefits:

• While concerning, many of these systems do have a 30-year funding period, suggesting corrective measures are underway.
• The most distressing cases involve low ratios without a clear path to restoration, prompting oversight and follow-up.

Trend Analysis Over 6 Years

Across the state:

• Expected returns have decreased, showing alignment with realistic investment goals.
• Funding periods have improved, particularly for statewide systems and TLFFRA systems.
• Funded ratios have generally risen, with notable progress from systems like Midland Fire.

However, municipal plans still face challenges; over half saw declines in funded ratios, often due to delayed implementation of reform measures.

Final Remarks and Strategic Outlook

The board emphasized:

• Continued need for realistic actuarial assumptions to avoid masking long-term deficits.
• Importance of timely valuations, especially when systems are nearing or entering at-risk status.
• Potential legislative adjustments and rule changes in 2026 to improve oversight and responsiveness.

Intern Annika Leong received commendation for her detailed analysis and first presentation, reflecting the PRB’s commitment to fostering actuarial expertise. 

About the Author: Joe Gimenez is a public relations expert who focuses on communications for pension funds. He provides support for TEXPERS and various Texas funds and public affairs initiatives.

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