Towers Perrin, the firm which gave us that bogus report on pension fund costs, says that the city did too know that its liability was going to skyrocket.
In its first public statement, actuarial giant Towers Perrin said "those involved in negotiating and implementing the benefit improvements ... understood that this would be the ultimate effect."Reaction was swift from city officials now trying to deal with the pension program's shortfall, currently projected to be as much as $1.5 billion through 2022.
"Nobody ever advised us that we had near this kind of obligation," said Anthony Hall, city attorney under Mayor Lee Brown and now Mayor Bill White's chief administrative officer.
"People would have been out of their minds to know this and proceed," he said.
"The Towers Perrin report of February '01 speaks for itself," Mayor White said through a spokesman.
In that report -- an analysis of legislation in Austin that would increase pension benefits for Houston city workers -- Towers Perrin predicted that the city would not chip in more than 14 percent of its payroll toward the pension through 2009. On that basis, city officials agreed not to oppose the legislation.
But by last fall, Towers Perrin had revised the city's expected contribution to the pension fund to be a maximum of 42 percent of payroll. As an example, the contribution for 2009 would be $204 million from taxpayers instead of the previously estimated $94 million.
In a two-page statement, released from its headquarters in Stamford, Conn., Towers Perrin implied that the city should have known about the expected impact. Its statement said that in February 2001, the same month the firm issued its report, the state Pension Review Board issued an independent opinion that "underscored the inherent uncertainties involved in projecting actual future costs of benefits."
Indeed, the actuary from competing firm Milliman USA said the Towers Perrin assumptions were "very optimistic," according to a copy of the opinion obtained by the Chronicle.
The Towers Perrin statement went on to say that in November 2001, the firm revised its estimates based on another year of the pension's experience and "again reflected the need for increased city contributions."
That report came out after the bill was passed into law, however. And while it reflected a higher contribution rate, the maximum rate was predicted to be 20 percent, not the 42 percent Towers Perrin predicted last fall. The payment for sample year 2009 was $120 million, not the later-revised $204 million.
"They had a chance to give a good (report) well after the legislative session was over, and that one wasn't even close either," said Philip Scheps, the city's former director of finance and administration.
A spokesman for Towers Perrin said he could not comment beyond the written statement.