Texas Comptroller Susan Combs

Susan Combs Throws Cold Water on Texas Public Pensions “Crisis”

by

Above: Texas Comptroller Susan Combs at a town hall meeting in Brownwood last summer. Combs is among the GOP leaders who've been encouraging folks to look on the bright side of last session's school funding cuts.

So, about that public pension crisis… According to Texas Comptroller Susan Combs, and the data-driven report she released yesterday, there really isn’t one. “We’re actually in pretty doggone good shape,” she said at a news conference yesterday. Teachers, city workers, cops and firefighters can rest a little easier.

The report, which considered eight statewide pension systems and 81 local plans, found that Texas’ situation “doesn’t appear as alarming as the problems faced by some other states.” However, Combs did caution that costs are “growing and we shouldn’t assume that problems will never arise.” She also identifies a handful of pension plans—Ft. Worth and Houston’s municipal employee plans, in particular—that are in actual trouble.

Coming from a prominent Republican elected official, one who will likely run for lieutenant governor, this amounts to a bucket of cold water thrown on the movement to “reform” pensions in Texas. Conservative organizations, including the corporate-funded Texas Public Policy Foundation, have been urging a radical transformation of Texas’ pensions on the theory that the plans are spiraling toward insolvency. Their vision: ending a guaranteed retirement income backed by professionally-managed funds, and moving toward a 401(k)-type system.

Max Patterson, executive director of the Texas Association of Public Employee Retirement Systems (TEXPERS), characterized Combs’ analysis as “very positive.” “An overwhelming majority of officials think that way,” he said. “I haven’t heard any kind of hue and cry among lawmakers that there need to be huge changes.”

The Combs report underscores the persistent problem with the reformer’s theory: Most of the pension plans in Texas, including the big statewide ones covering teachers, state workers and some local and county employees, are in decent-to-great shape. Out of the 89 pension plans that Combs examined, the combined fund ratio (assets measured against liabilities) was 82.5 percent. A rough rule of thumb used by actuaries is that funds over 80 percent are in decent shape.

Of the four biggest statewide systems—Employees Retirement System (ERS), the Teacher Retirement System (TRS), the County and District Retirement System (TCDRS), and the Municipal Retirement System (TMRS), which collectively serve about 2 million Texans and hold over $175 billion in assets—Combs found that all four had funded ratios, the plan’s assets measured against liabilities, over 80 percent.

The Texas pension plans’ health is a testament to sound oversight by lawmakers, said Tim Lee, executive director of the Texas Retired Teachers Association. Unlike other states, Illinois and Rhode Island for example, Texas’ big public pensions have offered modest—some would say stingy—benefits and posted good rates of return. In other words, the sort of conservative fiscal management that many Texas Republicans are proud of.

Lee contrasts that with the reformers.

“Ultimately their goal, their No. 1 agenda item is to get the state off the hook for anyone’s retirement plan,” he said. “It’s all about whether the state of Texas is going to have any obligation in a person’s retirement security. For 75 years it’s worked pretty well.”

Lee and the Combs report do identify long-term challenges. For example, both the Teacher Retirement System and the Employees Retirement System have long-term unfunded liabilities large enough ($24 billion and $5.1 billion, respectively) that they will eventually run out of money. Huge losses in 2008 amidst the market downturn are a factor. About two-thirds of the revenue for these big pension plans comes from investment income.

But for TRS and ERS the main culprit is a lack of full funding from the state of Texas. The Texas Legislature has whittled away at its contribution to these funds. Prior to 1995, the state chipped in 7.31 percent to teachers’ retirement. (The teachers, who don’t participate in Social Security, kick in 6.4 percent.) But for the last decade or so the state has only put in 6 percent, robbing the fund of an estimated $11 billion, according to Lee.

Lee says the solution is making “tweaks” to the state’s contribution. TRS is asking the Legislature to kick up its share 1 percent by 2015. That would reap about $375 million for the fund over the next two years and put the fund “really close to being actuarially sound.”

Blake Rocap, an Austin attorney and former clerk of the House Committee on Pensions and Investments, makes the argument that TRS is a great bargain for the state. The vast majority of Texas teachers don’t participate in Social Security, so the state doesn’t chip in the federally-required 6.2 percent, and the fund has been outperforming its own 8 percent investment benchmark.

“The wisest thing the Legislature can do to maintain the health of the public pension plans is to increase its contributions today,” he said.