TEXPERS: Texas Public Employee Pension Funds Set Record in Achieving Legislature’s More Stringent Requirements

AUSTIN (November 29, 2022) – More Texas state and local pension funds combined in 2021-22 to meet or exceed greater expectations established by Texas Legislature in 2021, according to a trend analysis of aggregate amortization periods performed by the Texas Association of Public Employee Retirement Systems.

The 2021 Legislation, titled HB 3898, asked the Pension Review Board to establish routes for pension systems to aim at 30- or 25-year amortization periods (pending some systems' grandfathered status) before triggering requirement for extensive planning adjustments. The PRB is the state agency mandated to oversee all Texas public retirement systems, both state and local, regarding their actuarial soundness. Amortization periods are the number of years needed to match all outstanding retirement benefit commitments with pension system assets.

Fifty-one pension systems for police, firefighters, and municipal employees managed to remain in the Texas Pension Review Board's “recommended” amortization period of 0-25 years, comparing well to the 45 systems in that category in 2020. PRB statistics were not uniformly available for comparison in 2021.

Art Alfaro, the executive director of TEXPERS, commented on the achievement: “Fully 51 of the 100 systems monitored by the PRB are now living up to the high standards established by the PRB and Legislature. The PRB’s staff actuary in October described many other situations where the pension systems will show more progress in future reports given increased contributions by members and city sponsors, the issuance of pension obligation bonds, and other adjustments.”

The crowning achievement in this year’s report is the 10 systems achieving a 0-year amortization period, twice as many from the 2020 report. Forty-one systems are below the 25-year marker set by HB 3898, a result slightly above the 40 systems achieving that marker in 2020. Only seven systems are in the least healthy “infinite” amortization period category. There were 12 systems in that least desired status in the 2020 report.

“The Pension Review Board cautions against using amortization period as the sole determinant of systems’ health and over the years has added funded ratios and other measures to their standards for monitoring,” Alfaro said. “However, we believe this report continues to demonstrate that pension funds are working toward and achieving success in the goals set by the Legislature.”

The October 6, 2022, Actuarial Valuation Report produced by the PRB also indicated that the number of pensions with a target rate at or below 7 percent hit a multi-year high at 49. The target rate is the investment return that pension systems use in their actuarial calculations to set the contribution rates for members and city sponsors. Lower targets are viewed as being more conservative but may require higher contributions from City sponsors and employee members.

“Even with more systems targeting lower annual investment returns, they achieved the improved amortization period rates,” Alfaro said.

TEXPERS full report is available at Special Report 2022 Amortization Period Trend Analysis.

Charts may be viewed here.

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The Texas Association of Public Employee Retirement Systems (TEXPERS) is a statewide voluntary nonprofit association which provides quality education to trustees, administrators, professional service providers and employee groups and associations engaged or interested in the management of public employee retirement systems.

Media Contact: Joe Gimenez, 713.478.8034, [email protected]