COMMITTEE HEARS PUBLIC PENSION FIX

(AUSTIN) — The Senate Finance Committee on Monday heard a bill that would solve financial instability in the plan that pays retirement benefits for state employees and law enforcement officers. Without reform, Senator Joan Huffman told her colleagues that the fund for the Employee Retirement System (ERS) is on a path to run out of money to pay earned benefits while leaving the state responsible for billions in unfunded liabilities. “This is a financial problem that will not go away without legislative action,” she said. “Now is the time to address ERS to illustrate that Texas can continue to be fiscally responsible with taxpayer funds by paying down existing debt to save on future interest payments.”

Huffman was the architect behind the law that reformed the much larger Teacher Retirement System in 2019. That system was facing $47 billion in unfunded liabilities, but the Legislature approved increases in contributions and a one-time cash infusion of $500 million that put the fund into the black. “I’m pleased to report that that fund is now on a stable path, paying down the unfunded liability, it’s actuarially sound with a funding period of 26 years and reached an all-time high last week of 185 billion dollars,” said Huffman. “However, we now face a dire situation with ERS and must take legislative action or the plan may run out of money to pay benefits that have already been earned… and the state would be on the hook to pay off the unfunded liability that is currently at 14.7 billion dollars.”

SB 321 takes a different tack than last session’s TRS reform bill. Current employees wouldn’t see a change to their contribution or payout structure, but anyone hired by the state after September of 2022 would be put into a “cash-balance” benefit plan, similar to a 401(k) account. New employees would pay six percent of their salary into an account guaranteed to yield four percent per year, with the opportunity to earn up to seven percent based on market performance. When they retire, the state would match the amount in the account at 150 percent - or 300 percent for law enforcement and prison officers - and use that figure to calculate a lifetime annuity for the retiree. “This is clearly a cash-balance plan similar to what the counties have had successfully for a long time,” noted Houston Senator Paul Bettencourt. “They seem to not hemorrhage as much money than defined benefit plans.”

Georgetown Senator Charles Schwertner, who offered a bill before the Finance Committee Monday that would require ERS to explore all cost-saving options every biennium, said SB 321 represents an interesting new approach. “I believe this is the first time in the last 10 years that I’ve seen anything any different than a continuation of the defined benefit plan,” he said. “This is probably the most important bill, other than the budget, that we address from a finance standpoint this session.” Schwertner has been a critic of the current ERS plan, which relies on investment returns that he said have consistently underperformed projections.

As the bill now stands, the Legislature would authorize an ongoing payment into ERS of $350 million every year through 2053, but Huffman told members she intends of offer a floor amendment to raise that to $510 million in order to retire the entire unfunded liability. Huffman allowed that’s a big number but said that it would actually save the state $35 billion in interest payments over the next 32 years. “I understand this is a long-term financial commitment, but this plan is cost efficient, significantly limits the state’s risk moving forward while still providing a guaranteed benefit to our state employees,” said Huffman. “If this proposal fails, at least $1.5 billion will be added to the unfunded liability before we convene for the 88th Legislature.” Finance Committee members advanced the bill to the floor, but Huffman told members that she would have a number of tweaks to the plan she will introduce as amendments to the bill on the floor of the Senate.

The Senate will reconvene Tuesday, April 20 at 1 p.m.

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