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Texas’ public pension funds are solvent through 2075

There was a hearing in the Lege this week about the state’s pension plans, and the good news is that they’re in pretty good shape. The better news is that the members of the Lege’s pension committee recognize that fact.

State Rep. Rob Orr, R-Burleson, who is said to be in the running to be chairman of the committee in the next legislative session, said state pension funds are in good financial shape and should not be lumped into the discussion about poorly run plans. Both plans have more than 80 percent of the assets they need to cover long-term benefits, which experts deem a critical threshold.

“It appears to me that the state is doing a superior job compared to a lot of the other pension plans, and the focus should be on the plans that are in trouble,” Orr said, adding that some of the municipal plans, in particular, are out of whack.

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“Here in the Austin echo chamber you’re starting to hear it’s going to be a priority,” said state Rep. Rafael Anchía, D-Dallas, who is a member of the committee and opposes doing away with the guaranteed pensions.

Committee Chairwoman Vicki Truitt, R-Keller, who lost her bid for re-election in the primary, urged her returning colleagues not to get caught up in the national tumult around public pensions and instead keep the focus on Texas, where the statewide funds are in good financial shape.

“That is who we need to keep in mind the taxpaying public and the state employees and the welfare of the state in general,” Truitt said during a two-day hearing last week on pensions.

The state has avoided the mistakes that other pension plans have made because of constitutional and statutory provisions that require annual contributions from both the state and the members and that limit benefit increases. Members of both the teacher and employee retirement systems in Texas have not received an ongoing cost-of-living boost since 2001.

Even so, there is a lot of chatter that some powerful political forces will push the issue.

Forrest Wilder wrote about the plans and the reports that documented their good condition a couple of weeks ago.

You may recall that there is a campaign afoot to “reform” (i.e. radically change) Texas’ public pensions for teachers and other public employees. Basically, the reformers want to abandon the defined-benefit model, which guarantees certain retirement benefits, and replace it with a defined-contribution system built potentially on self-managed accounts such as 401(k)s. There’s also talk of raising the retirement age and other cuts to benefits.

The problem, though, is that Texas’ public pension systems are in pretty good shape, popular with workers and the alternative is risky. Still, the interests pushing for change are powerful and persistent. So, the Legislature ordered the Teacher Retirement System and the Employees Retirement System to take a closer look at their funds. The TRS report was released this week.

The study found that switching to a defined-contribution model would be more expensive, result in reduced benefits to retirees and is unnecessary.

As it is, the pension fund is solvent through 2075—a good sight better than, say, Social Security—and could be solvent indefinitely if the state would modestly increase its share from the current 6.4 percent to 8 percent, comparable to other states. Teachers could pay a slightly larger share too to help solve the problem.

If teachers were to invest their retirement benefits, TRS estimates that 92 percent would do worse than the current system. A typical 62-year-old retiree who made his or her own investments could expect to have income of just 28 percent of their teacher salary, about $12,500 a year. The federal poverty level for a household of one is $11,700.

The reason is simple: Professionally-managed investment pools perform significantly better than individual investors—8.6 percent vs. 5.3 percent, according to the TRS report.

2075 is a long way off. I’ll be 109 years old in 2075 if I live that long. Do we not have some more immediate priorities to talk about in this state? I mean seriously, TxDOT will run out of money in 2014 for new road construction. Texas’ long term water needs are woefully under-addressed. By comparison, the pension fund is the Rock of Gibraltor. Yet that’s what we’re talking about because the ideological visigoths that are calling the shots don’t like the pension fund and don’t like teachers. When I talk about a matter of priorities, this is the sort of thing I’m talking about. We’re never going to deal with the real problems of this state as long as the current crew is in charge.

UPDATE: The Statesman urges the Lege to leave the public pension plans alone.

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