The Texas House released the first batch of interim reports from House committees on Thursday. Reports from nine committees were posted online. One of those reports came from the House Committee on Pensions. Their interim report to the 85th Legislature includes background, analysis, and recommendations. Below is a spotlight on the recommendations directly from the report; however, for complete details please refer to the report.
In the days and weeks to come, the House will post reports from other committees as the reports are completed.
Interim Recommendations
It is the Committee's recommendation that all pension plans work with their respective cities in order to negotiate and come to an agreement that works for both the members of the funds and the taxpaying citizens of those cities while it is still financially feasible to do so. "IOU's" and "promises" cannot be used in place of assets to determine solvency. It is the Committee's recommendation that missed payments and contributions can be made up through use of appropriate instruments such as pension obligation bonds and/or one time payments. The Committee will not recommend one time funding increases from the State as a way to boost historic shortfalls as this is both impractical and local considerations and changes need to be enforced before that discussion can take place.
It is imperative that cities understand that if they do not act now, the cost to repair plans will be beyond the means of any city (large or small) to sustain any of the current pension plans. If a suitable agreement is unable to be reached, severe actions will need to be taken to ensure the financial sustainability of pension plans. These actions would include some or all of the following measures: Freezing cost of living increases until a time where the plan is actuarially sound, reducing benefits, increasing contributions, eliminating or drastically changing DROP programs, and/or requiring cities to make up missed contributions and freeze all city pay until such a time as the plans are actuarial sound. The Committee does recommend that a combination of pension obligation bonds and excess bonding capacity be used to make up for historic shortfalls in actuarially recommended contributions. It is crucial that shared sacrifice be shared between cities and plans handling pension obligations. The pension plans themselves cannot be fixed by simply changing the type of plans. The problems that were uncovered and addressed during the interim committee hearings do not mean it is suitable or desirable to switch plans from defined benefit to defined contribution without more knowledge and understanding what that would do to current membership, current employees or future generations of employees.
