July 14, 2011
During the 82nd Regular Session, discussions continued regarding the soundness of public pension plans in Texas. Legislators did address the defined benefit (DB) plans vs. defined contribution (DC) plans in a few introduced bills, none of which passed out of committee. As filed, one bill proposing to switch the Employees Retirement System of Texas (ERS) and the Teacher Retirement System of Texas (TRS) from DB plans to DC plans would have cost the state budget over $3 billion over the next two year budget. During the legislative session, testimony regarding the condition of statewide and local public pension funds in Texas indicated that funds in Texas are in better condition than most systems around the country.
Two predominant legislative issues during the 82nd regular session were a proposed Pension Review Board (PRB) fee assessment to generate revenue to fund the PRB and House Bill 2731 which proposed various oversight changes for public pension plans.
The PRB funding proposal would have applied a mandatory 50-cent assessment on active and retired employees of public pension systems in Texas. The PRB assessment language was included in several bills including the General Appropriations Act (the budget). Communications with legislators pointed out potential conflicts of the assessment with the Texas Constitution and the Internal Revenue Code, as the assessment could cause a diversion of pension funds that are to be held in trust for the sole benefit of the member and beneficiary. The PRB assessment language was ultimately removed and budget writers opted to fund the PRB from general revenue as opposed to the revenue that would have been generated from the assessment.
House Bill 2731 was introduced by Representative Vicki Truitt, Chair of the House Committee on Pensions, Investments and Financial Services (PIFS), and was intended, as the Chair stated, to begin a dialogue with the public pension community. The bill proposed several new statutes affecting Texas public retirement systems. Although the original version of the bill was seen as quite far-reaching, Chair Truitt remained open to a move away from that version of the bill and continued to communicate with stakeholders. In the end, the bill passed out of committee but never made it to the House floor for debate.
House Bill 2460 by Chair Truitt passed and was signed into law. It intends to establish more transparency for local public pension systems by extending the application of the state’s public information laws to the governing bodies of public retirement systems in Texas. Working with Chair Truitt, the bill was amended to safeguard the personal information of public safety personnel.
The legislature also passed Senate Bill 350 by Senator Tommy Williams. This bill restructures the three funds currently used at the Texas Municipal Retirement System (TMRS) by combining them into one. This significant change will provide for positive, long term improvements to the system’s structure.
The City of Austin passed legislation amending the statute governing the city’s municipal employees, police and firefighter pensions. Governor Perry did not sign the Austin bills, allowing the bills to go into effect without his signature, but did include a statement pointing out that local pension systems receive no state funding and should not need the legislature’s approval when changing benefit structure. Noting his concern that the legislature continues to mandate local retirement benefits, the Governor wrote this: “The Texas Legislature should get out of the business of approving local retirement benefits for cities.” He also recommended that local governments work with the legislature to repeal the mandate requiring certain cities to come to the legislature for changes to their retirement systems. It is anticipated that this may lead to an interim review of the Texas Legislature’s involvement with local retirement plans.
It is expected that discussions regarding the soundness and oversight of public pensions, as well as the debate regarding defined benefits vs. define contribution plans, will continue during the interim as lawmakers continue to work on the structure of public pension systems. These items are all likely to be considered during the interim as the Pension Review Board is reviewed by the Sunset Commission.
An NCSL report summarizes selected state pension and retirement legislation enacted from January 2011 through the date of publication. http://www.ncsl.org/?tabid=22763
