We at the Texas Association of Public Employee Retirement Systems are proud of all 80 of our member systems, but we are pleased to draw attention to 12 pension funds in seven of Texas' largest cities.
These 12 are unique. Certain parts of their governance structures are encoded in state law. To make changes, the legislative committees overseeing the process require 100% agreement among the city council, mayor or manager, pension fund Board of Trustees, retirees' associations, and public employee unions.
Without complete agreement among all those parties, the House committees will dispose of them. In practice, pension funds and their city sponsors typically do not bring proposals to the legislature unless they are in agreement. We are unaware of the Legislature making any changes to statute without the full consent of all parties.
The Texas Pension Review Board pays close attention to amortization periods. They say that an amortization period reflects a pension fund's ability to pay its normal cost plus its unfunded actuarial accrued liability. The normal cost is the projected benefit payable in the current year. The accrued liability represents benefits earned not covered by plan assets.The amortization period then measures the length of time, in years, needed to pay for the unfunded liability. For instance, if a retirement system has an amortization of 20 years, current funding is available to pay the system's normal cost and the accrued liability over 20 years. The following chart shows that most pension funds are improving their amortization period.
Given the improving trend, Texans would do well to consider the true meaning of "local control" for the 12 public employee pension funds currently in state law.
Some policy groups have been tag-teaming a tale about how the 12 pension funds in seven of Texas' largest cities interact with the legislature. They assert that legislators "control" the pension systems through state laws. Eliminating those laws, they say, would return final decision-making authority over benefit calculations, contribution requirements and governance to the city council members and mayors who are directly elected by taxpayers in a given locale. This narrative is misleading.
No Texas legislative committee has ever required its own changes to those cities' pension funds. Having such power and exercising it would fall within the normal definition of "control." If the Legislature truly controlled the 12 pension systems in statute, it could theoretically take over those cities' entire budget process to make unilateral pension benefit adjustments or require more funding from the city. That has never happened.
City councils already have the authority needed to alter statutes. A council and mayor/manager must work collaboratively and constructively with city staff, the pension fund board, current municipal employees, firefighters, police and their retirees, and actuaries to develop proposals that meet fiscal and fiduciary restraints. Only then will the Legislature take up the proposal for review and vote.
The current process occurs by design.
Decades ago the 12 pension systems and their city councils agreed that the Legislature would be a good check-and-balance to the contentious process surrounding pension fund changes. The pension funds were concerned about the budget dysfunction that can occur when temporary politicians seek money for constituents' pet projects. Similarly, city councils wanted to ensure that pension benefits would not break the budget. By placing them in statute, and minimizing the ability of the mayor or council to stack a pension board, they created a push-pull tussle between themselves, with the Legislature as backstop.
In contrast to local pension systems in other states, this conservative, common-sense safeguard in the Texas design has worked extremely well.
Pension systems are complicated. Willfully twisting terms and skewing common understandings to achieve a short-term political victory will create unintended consequences. The stakes are high. Texas pension funds in statute perform well.
Good state laws help create great results.