Teacher Retirement System of Texas study suggests pension fund should be left as-is

money

The Teacher Retirement System of Texas, a staunch supporter of its pension system just as it is, will codify that opinion with a study expected for release later today.

Don’t be at all surprised if the Employees Retirement System of Texas comes to the same conclusion when, as the Austin American-Statesman reports today,  the retirement system releases its report sometime next week.

And who called upon the two largest public employee pension systems in the state to offer up studies of themselves? Why, the state Legislature, no doubt aware there is something of a public pension crisis, reported on in detail by Texas Watchdog.

Last year, the Rhode Island Assembly, in a bid to avoid fiscal ruin, slashed benefits for 21,000 in the state’s pension plans, reducing, but not eliminating, its unfunded liability. Changes included moving employees into 401(k) plans, with the state matching employee contributions to their pensions.

By comparison, the Teacher Retirement System in Texas has roughly 835,000 members, the Employee Retirement System more than 140,000. Even critics of the pension programs and their combined unfunded liability of $28 billion aren’t suggesting they are in the same pitiful way as the systems in Rhode Island.

There is, however, considerable concern among state politicians aware that beginning with the economic downturn in 2008 the portfolios of public pension plans have performed considerably worse than expectations.

Accountants for pension plans use an 8 percent annual return as a base for calculating what employees and the state need to contribute to keep their plans healthy. Most pension plans, including those in Texas, haven’t been close to that base, hence the growing unfunded liability.

Bill King, a Houston lawyer who helped found Texans For Public Pension Reform, has called the 8 percent return “complete actuarial bullshit.”

Diverting the contributions of employees into 401(k) plans would cause the unfunded liability for the teachers fund to increase to $36 billion from its current $24 billion, Brian Guthrie, executive director of the Teacher Retirement System, told the Statesman.

Ted Melina Raab, legislative director of the Texas chapter of the American Federation of Teachers, said changing the current system would have nothing to do with fiduciary reality.

"Any move away from (a guaranteed pension) is one that is based on ideology and politics," Raab told the Statesman.

By a happy coincidence, those ideological and political legislators will be able to factor into their deliberations compensation for the directors of the pension plans.

Ann Bishop, head of the Employees Retirement System, who makes $312,000 a year, is the highest paid head of a state agency in Texas, according to a recently released study by the Texas Auditor.

Guthrie, who earns $270,000 a year, is the fourth highest paid agency head. Guthrie’s chief investment officer, however, makes $480,000 annually and his investment-fund director $330,000, the report says.

Talmadge Heflin, director of the Center for Fiscal Policy for the free-market Texas Public Policy Foundation, says, foreboding reports aside, he thinks the Legislature is prepared to make changes to put the pension plans on more sound footing.

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Contact Mark Lisheron at 512-299-2318 or mark@texaswatchdog.org or on Twitter at @marktxwatchdog.

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Photo of money by flickr user 401(K) 2012, used via a Creative Commons license.