Agency confirms improving health of state and local pension funds for public employees

AUSTIN (Feb. 5, 2019) –  A key measure of pension fund financial health shows continuing improvement at the retirement systems for police, firefighters, state and municipal workers, teachers and special district employees, according to a report given January 24 at the quarterly Texas Pension Review Board meeting.

The PRB keeps tabs on 99 pension funds established for the employees of cities, counties, special districts and the state. Kenny Herbold, the agency’s staff actuary, told PRB members that even with “seeing really large increases in unfunded accrued (liabilities) and a drop in the funded ratio, you’ll notice that … amortization periods are actually coming down and not going up.”

“So, despite what some statistics might indicate would seem to be moving in the wrong direction we do have some others that are positive,” he said.

The amortization period indicates the years it would take pension systems to pay all the promised retirement benefits to public employees with assets in hand. Fewer years are better. Pension systems with shorter amortization periods are in the “bottom” ranges preferred by the state agency. Ultimately, amortization periods are theoretical – not all public employees would ever retire on the exact same day and begin collecting benefits. Texas laws for pension plans solely use amortization periods as their trigger for more rigorous reviews.

Herbold also noted that the negative statistics for the total unfunded liabilities and funded ratios were due mostly to forward-looking changes at the Teachers Retirement System of Texas. He acknowledged that TRS accounts for about 50 percent of all pension fund assets and liabilities in Texas and therefore tends to skew the PRB measures which use dollar-weightings.

Herbold’s comments about amortization periods were similar to previous years’ studies by the Texas Association for Public Employee Retirement Systems which affirmed long-term positive trends for pension funds’ health. TEXPERS is a private association comprised of most of the pension plans watched by the PRB.

TEXPERS has been reporting the steady improvements in pension funds’ health since 2015 using PRB amortization period data. In 2017, TEXPERS’ report also noticed how pension systems were improving while simultaneously and steadily reducing their target rates below eight percent, a move which could have made amortization periods move higher but were not. TEXPERS’ 2018 report confirmed the trend: “Amortization periods continue to improve despite the systems’ efforts to lower their target rates for investment returns.”

TEXPERS board president Paul Brown said the PRB’s focus on amortization periods is very appropriate.

“We were glad to hear Mr. Herbold recognize that other statistics tend to skew their characterizations because of the dollar overweighting of TRS and four other large state systems,” he said. “We continue to have every confidence in TEXPERS’ value to state legislators as an objective resource when these matters come before them in session.”

Herbold also told PRB members that all Texas pension systems had moved their target rates for investment returns below eight percent. The reduced expectations heed the advice of consultants which forecast slower global economic growth in the decades ahead. Such adjustments reflect conservative management principles.

Herbold said that, mathematically, the amortization periods were improving despite pension systems decreasing their targets for investment returns.

“We’re seeing the assumed discount rates coming down and amortization periods are not necessarily increasing as much as we might expect along with that for some of the smaller plans,” he said. “So that’s certainly a positive aspect.”
The Texas Association of Public Employee Retirement Systems is a voluntary nonprofit association that provides education and legislative advisory services to the trustees, administrators, professional service providers, and employee groups that manage the retirement money of police officers, firefighters, and municipal and district employees in cities across Texas. It’s 80+ members represent nearly 300,000 active and retired employees and manage more than $22 billion in retirement assets.