Texas Comptroller report: Public pensions a critical concern for taxpayers


by MARK WIGGINS / KVUE News and photojournalist SCOTT MCKENNEY

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Posted on December 4, 2012 at 8:01 PM

Updated Wednesday, Dec 5 at 11:37 AM

AUSTIN -- The board game LIFE begins with picking a career. As you move across the board, you pick up paychecks along the way. In the end, you retire, hopefully as a millionaire.

Retirement in real life can be uncertain and 2.3 million public employees in Texas rely on public pension plans supported by taxpayer dollars.

In a report released Tuesday morning, Texas Comptroller Susan Combs said the health of public pensions is of critical importance to taxpayers as well as public employees.

"Those are teachers and those are firefighters. They're police, state, city and county employees," said Combs. "If a local pension experiences difficulty, sometimes the local government, you the taxpayer paying for it, has to kick in more money."

The report gathers data from pension plans around the state. While the report references significant difficulties concerning pension systems in Houston and Fort Worth, it also provides a look at the health of public pension systems in smaller cities and municipalities across Texas.

"I was actually stunned by how hard it was to get information," said Combs, who told KVUE that by the time the report was released, 29 subjects had still failed to respond to open records requests filed by her office. "One gentleman asked me how dare I even ask him about it, which I thought was fairly interesting. It was really good for my blood pressure."

According to the report, the City of Austin Employees' Retirement fund has than $932 million in unfunded liability and a funding ratio of less than 66 percent. While the numbers suggest the City of Austin's pension is not as underfunded as many other cities, it's significantly less than the 80 percent funding ratio held by some as the baseline for determining fiscal health.

"The City of Austin has already taken steps to improve the long-term financial soundness of its Employees' Retirement System which serves more than 8,000 employees and more than 4,000 retirees," system chief operations officer Russell Nash told KVUE in a statement Tuesday.

"In 2011, the City, through Legislative action, reduced benefits for employees hired on and after January 1, 2012.  Through the restructuring of benefits and contributions made by the City and employees, the Employees' Retirement System is on a course to be fully funded in less than 30 years. This is a key measurement of financial health used by both the Governmental Accounting Standards Board and the Texas Pension Review Board."

"The majority of public pensions in Texas are doing very well," said executive director Max Patterson of the Texas Association of Public Employee Retirement Systems. "There are some isolated cases where there have been some difficulties in funding and in those cases that I'm aware of there have been dialog between the pension fund and the city elected officials and they've made changes in benefit design. They've made changes in contribution, whether or not the city puts in more or the employees put in more."

While he commended Combs for the report, Patterson told KVUE that much of the information provided in the report is already available through the proper channels.

"You can't argue against transparency, the information should be available," Patterson said. "There's no question that the information that pension plans have in terms of fundedness and their benefit design is all open to the public. It always has been. I believe that the majority of the information that she was seeking and commented on is available at the [Texas] Pension Review Board. There might be an issue with the state Pension Review Board of being able to put the information out to make it more readily available and easy for the public to get, but my experience has been if anybody asks for information from the PRB, they're very forthcoming."

Combs said state level plans are for the most part in good shape, though there's always room for improvement.

The report lists the vital statistics for a handful of statewide pension funds including the Teacher's Retirement System (TRS) of Texas, which serves more than 1.3 million current and former teachers and other school and university employees.

According to the data, the average annual benefit for a fully-vested retiring teacher in 2011 is $22,764. Since 80 to 95 percent of teachers' retirement plans exclude them from participating in Social Security, that's effectively what they will have to live on after retiring.

"We have the most efficient system possible right now," said Association of Texas Professional Educators policy expert Josh Sanderson. "If you look at other peer groups, other retirement systems across the country, the average payment equals about 83 percent of their pre-retirement income. In Texas under TRS it's about 52 percent, so you can see it's significantly lower. We're doing that partially because we contribute significantly less. If you look at the top ten pension systems in the U.S., we contribute less than nine of those."

While acknowledging a trade off between efficiency and level of benefits, Sanderson argued that relatively small changes could raise the average annual benefit of teachers retiring in Texas.

"To be actuarially sound we'd need a contribution rate from the state and active members of about 7.6 percent," Sanderson said. "If we bumped up the state contribution rate what it is now to that amount, we would move from number nine of the list of states in the top ten to number eight. We would still be extremely efficient when comparing us to peer groups, and by doing that we would be able to increase retirees' benefits."

The report "Your Money and Pension Obligations" completes a series of reports entitled "Texas, It's Your Money," released by Combs in 2012 as part of an effort to increase government transparency and provide taxpayers with a detailed breakdown of the state's financial hazy spots. Combs told media that recommendations based on the report's findings will be submitted to Texas Legislature when it convenes in 2013.

"One of the things that I did discover is that the Pension Review Board, which is a stalwart group, has so few people they need additional resources to do this," Combs said. "The main thrust of these reports is financial transparency and accountability. We feel very strongly that those two things, if you have transparency, you can then get accountability."

"I think it's more of an issue of the complexity of it and understanding," said Patterson. "It's very complex, there's a huge learning curve understanding pensions and the funding of pensions, and to be frank about it I'd say the majority of elected officials don't understand. They go to the bottom line, what's it going to cost for the city to contribute each year, and that becomes their driver in terms of putting it in the budget."

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