FINANCE COMMITTEE CONSIDERS STATE PENSION FUNDS
(AUSTIN) — The state employee pension fund is on track to run out of money by 2061, according to testimony offered before the Senate Finance Committee Tuesday. The Employee Retirement System (ERS) of Texas currently has unfunded liabilities of $14.7 billion, and agency director Porter Wilson told senators that without legislative action, the liability is projected to grow more than a billion dollars each biennial budget cycle.
Comptroller Glenn Hegar took time out of his own agency presentation on the Office of the Comptroller to highlight the impact of this liability, which he fears could put the state’s perfect credit rating at risk. “The rating agencies are consistently and continually giving fair notice that these issues are weighing on Texas’ rating,” he said. Hegar encouraged senators to address this issue this year and set the fund on a path toward solvency, as lawmakers did with the much larger Teacher Retirement System (TRS) last session. “Are we going to solve it all in one swoop? No,” he said. “But just as you did with TRS, it’s on a six-year path. If we don’t, I don’t think Texas wants the black eye of having a warning on our credit when in reality, look at all the good things we have going on in this economy.”
In 2019, the Legislature took steps to address a $47 billion unfunded liability in the teacher pension system and raised contribution rates from both the state and active employees, phasing increases in over six years.
Some senators took issue with the fund’s return on investment. In addition to state and employer contribution, fund managers rely on investment income to pay for benefits, but they have not been meeting a seven percent investment target over the last three years. Georgetown Senator Charles Schwertner does not think that is acceptable. “If they were my financial advisor, I would’ve fired them,” he said. Schwertner wanted to ensure that the fund’s managing board understands that in the current, low-interest investment market, they need to re-evaluate investment strategies.
If the state can’t get its arms around this issue, Schwertner said, the state would regret it. “It leads to a tinderbox, that is going to blow up in the face of states,” he said. “Texas is in better shape than other states, but I do not want to see Texas go into a situation where we have a decline in our markets by 30 or 40 percent and we come back to this Legislature and it’s the number one issue that no one has an answer for.”
Pension benefits are a major incentive for state employees, with 75 percent of state employees reporting that they were a major factor in choosing to work for and stay with the state, according to Wilson. The median salary for a state employee currently sits at around $36,000. “That’s a pretty low wage if you’re living in Austin, Texas for sure,” said Lubbock Senator Charles Perry. He cautioned against resolving the unfunded liability in a way that hurts beneficiaries. “Our employees signed on with an expectation and I think it’s only fair that we meet that expectation if it’s conceivably possible,” he said. “From here we don’t see how we can get there, but I think this group of people can figure out a way to get there.”
Committee Chair and Flower Mound Senator Jane Nelson said that despite the uncertainty surrounding economic issues this session, ERS reform will be a key issue for Senate budget writers. “The Employee Retirement System is a priority of this Legislature and of this committee,” she said. “As we get more and more certainty, we will fill in the details.” Houston Senator Joan Huffman, who led TRS reform efforts in 2019, will also be carrying ERS reform on behalf of the Senate this session.
The Senate will reconvene Tuesday, February 16 at 3 p.m.