Presentation - Texas Public Policy Foundation

Texas’State&LocalPensions:
OurStableFounda9onforCivilSociety
Presenta9ontothe
TexasPublicPolicyFounda9onAnnualConference
ByMaxPaBerson
Execu9veDirector,TEXPERS
January8,2016
1
OurView
•  Addressingthedata
–  Unfundedliabili9es
–  Amor9za9onperiods
–  Fiscalhealthofpensionfundsinstatute
•  OurTake
–  DCplansarenotworkingasplannedinAlaska,
Michigan,WestVirginia
–  DBplansworkbeBer;DCplanscostmore
2
3
Thisunfundedliabilitycatchallisnotagood
measuresofstatewidepensionhealth
•  Unfundedliabili8esarenotdebt
–  Nointerestaccrues,bondsarenotissued(inmost
cases)
–  Totalpaymentnotneedednextyear,oreventhenext
10years
•  Unfundedliabili8esfluctuate
–  Marketreturns
–  Changesinbenefits
–  Changesinactuarialcalcula9ons
–  Decisionsbyci9esastowhentocontribute
4
Fourstatewidesystems,with2.5millionemployees,
accountfor$44.9billion,or79%of$57billion.
$3.7
$7.7
$1.4
(billions)
TeachersRe9rementSystem
$32.1
EmployeesRe9rement
SystemofTexas
TexasMunicipalRe9rement
System
TexasCounty&District
Re9rementSystem
Source:TexasPensionReviewBoardActuarial
Valua9onReport,June2015
5
TheTeachers’Re8rementSystemhasthelargestUL,
butitisbeingaddressedbyLegislators.
$9billion
Benefitspaid
$18billion
Investmentreturn
$32billion
Unfundedliability
$130billion
Totalassetsinfund
$0
$20
$40
$60
$80
$100
$120
Source:TimLee,execu9vedirector,TexasRe9redTeachersAssocia9on,July2015
$140
6
12localpensionsinTexas’largestci8esandin
statuteaccountfor14percentofthe$57billion
(hundredsofmillions)
$209
Aus9nsystems
$1,233
Dallassystems
$1,265
$3,299
ElPasosystems
FortWorthsystems
Galvestonsystems
$307
$336
Total:$7.8
billion
$1,200
Houstonsystems
SanAntonioFire&Police
Source:TexasPensionReviewBoardActuarial
Valua9onReport,June2015
7
77otherlocalpensionsaccountfor
$4.2billion(7%)oftotalUL
$7.8
billion
$4.2
billion
4StatewideSystems
12LargeCityPensions
77otherpensionsystems
$45
billion
8
Unfundedliabili8esarenotthePRB’s
preferredmeasureofpensionfundhealth
“Agerconsideringdifferentmeasurements
ofpublicre9rementsystems’financial
health,thePRBdeterminedthatthemost
appropriatemeasureisasystem’scurrent
amor8za8onperiod,whichmeasuresthe
lengthof9me,inyears,neededtopayfor
theunfundedliability…”
9
“25%ofourstateandlocalplansare
completelyunderwater…
“24ofthe93planshaveamor9za9on
periodsinexcessof40yearsorsomeof
themhaveinfiniteperiods.
“Thatmeanstheydon’thaveplans.
Theirplanistorunoutofmoney.”
JamesQuintero,Aug.18,2015
TEXPERSSummerForum
10
Watchtrendsofseveraldifferent
measures
•  Monitoringthetrendsofamor9za9onperiods
ismoreimportantthansta9csnapshotsfor
trackingoverallsystemichealth.
11
Texasstateandlocalpensionsmadethemostsignificant
improvementinamor8za8onhealthinlastfiveyears.
12
8pensionsimprovedoutoftheinfinitecategory,
evenwithstricterGASBrepor8ngin2015.
50%decrease
13
4pensionsystemsmovedinto
thePRB’srecommendedamor8za8onperiod
14
Thenumberofpensionsystemswiththebest
TexasPensions’Amor9za9onTrends
amor8za8onperiodofzeroyearsincreasedin2015
15
Ourview
•  Wetoowouldpreferthatallpensionsystems
achievethezeroamor9za9onperiodandare
fullyfunded.
•  Wealsowouldlikeall401(k)sintheprivate
sectortohave$1millionormoreinthem,
whichisfarabovetheaverageof$91,800.
16
17
7of11Pensionfundsbeattheirassumed
rateofreturnover20years
PensionSystems
inStatute
Assumed
RateofReturn(%)
20-yearAvg.
RateofReturn(%)
CityofAus8nEmployees’
Re8rementSystem
7.75
7.5
8
8.5
7.75
8.0
N/A*
N/A**
8.5
8
7.25
8.64
8.7
N/A*
9.16
9.27
8.26
N/A*
N/A**
9.19
8.78
N/A*
Aus8nFireFighters
Relief&Re8rementFund
Aus8nPoliceRe8rementSystem
DallasPolice&FirePensionSystem
ElPasoFiremen&Policemen’s
PensionFund
FortWorthEmployees’
Re8rementFund
GalvestonEmployees’
Re8rementPlanforPolice
HoustonFirefighters’
Relief&Re8rementFund
HoustonMunicipalEmployees
PensionSystem
HoustonPoliceOfficer’s
PensionSystem
SanAntonioFire&Police
PensionFund
Codifica9ondoesnot
affectpensionfunds’
abilitytoexceedlongtermassump9onsfor
ratesofreturn.
Source:TEXPERS2015
AssetAlloca9on
Surveyofmembers.
*Notprovidedbypensionfund**Notsurveyed/notaTEXPERSmember
18
9of11pensionfundsimprovedtheir
amor8za8onperiodin2015
PensionSystems
inStatute
CityofAus8nEmployees’
Re8rementSystem
Aus8nFireFighters
Relief&Re8rementFund
Aus8nPoliceRe8rement
System
DallasPolice&FirePension
System
ElPasoFiremen&
Policemen’s
PensionFund
FortWorthEmployees’
Re8rementFund
GalvestonEmployees’
Re8rementPlanforPolice
HoustonFirefighters’
Relief&Re8rementFund
HoustonMunicipal
Employees
PensionSystem
HoustonPoliceOfficer’s
PensionSystem
SanAntonioFire&Police
PensionFund
Amor8za8on
Period2014
(years)
Amor8za8on
Period2015
(years)
NetImprovement
(decrease)
27
26
1year
20.9
10.5
10.4years
28.9
29.4
(0.5years)
10
10
0
76/Infinite*
23/32*
53yrs/+NA*φ
49.3
36
13.3yrs
65.8
55.1
10.7yrs
30
30
Unchanged
Infinite
35
+NA
Infinite
23
+NA
6.2
7.3
(1.1years)
*ThedivisionsreportseparatelytoPRB.FirstnumberisFiremen’sandsecondisPolice.
Φ Improvementfrominfinitycannotbecalculated,butisobviouslyposi9ve. From2014-2015onlytwo
pensionfundsinstatute
experiencedworseningof
theiramor9za9onperiod,of
1.6yearstotal.
Threepensionfundsinstatute
exitednega9vecategoryof
infiniteamor9za9on.
7of12exceededthePRB’s
recommendedamor9za9on
periodof25years,butonly
oneisbeyondthe40year
amor9za9onperiodmaximum
thatisprescribed.
Sourceofdata:Texas
PensionReviewBoard
June2015Actuarial
Valua9onReport.
19
OurViews,basedonstudies
•  DiggingintothetrenddatasupportsTEXPERS
viewthatstateandlocalpensionfundsare
doingwelloverall.
•  Twoaddi9onalstudiessupportourposi9on
thatdefinedbenefitplansarerightforTexas
publicemployees.
20
ActuariesusingAus8n,Houston,SanAntonioemployeedatafoundthat
DCplanscost39-44%morethanDBplanstodeliversimilarre8rementbenefits.
Source:AnalysisofDefinedBenefitPlansEfficiencyinAus9n,Houston,SanAntonio–July25,2011
21
ThreestateswhichswitchedfromDBto
DCexacerbatedtheirfundingproblems.
Alaska
–  $5.7billionfundingshortall(duetoactuaryerror)causedAlaskatoswitchnewemployeesto
DCplans.
–  Fewercontribu9onscausedunfundedliabilitytoreach$6.9billionin2006,and$12.4billion
by2013,duetounderfundingbystate.
–  Stateforcedtomake$3billionpaymentin2014;morepensioncostsshigedtomunicipali9es.
Michigan
– 
– 
– 
– 
– 
Closedstateemployeesplanin1997with109%funding.
15yrslater,wasonly60.3%funded.
ARCincreasedfrom$230millionin1997to$611millionin2013
Averagebalancein2013wasabout$50,000
Those60+averaged$123,000
WestVirginia
– 
– 
– 
– 
Statecontributed7.5%ofteachersalary
AverageDCaccountbalancein2005was$41,478
DCmemberplanshadmuchlowerinvestmentreturns
Reopenedplanin2005,fundedlevelnowat58%,statehashalveditsfundinggapandARC
todayislessthan2010.
Source:CaseStudiesofStatePensionPlansthatSwitchedtoDefinedContribu9onPlans,by
Na9onalIns9tuteonRe9rementSecurity,February2015.
22
Texas’State&LocalPensions:
OurStableFounda9onforCivilSociety
www.TEXPERS.org
www.TEXPERS.blogspot.com
23