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Employees Retirement System of Texas

Texas versus AirBnB update

From last week:

The Texas Comptroller’s office said Tuesday it’s reviewing the inclusion of Airbnb on a list of companies that boycott Israel and are banned from doing business with the state after the company announced a change to its policy for listings in the West Bank.

The home-sharing company said in a statement that it’s reversing a plan announced this November to remove about 200 rental listings from the territory, whose ownership is disputed by Palestinians. The company said it will donate the profits to humanitarian aid groups.

“Airbnb has never boycotted Israel, Israeli businesses, or the more than 20,000 Israeli hosts who are active on the Airbnb platform,” the company said in the statement. “We have always sought to bring people together and will continue to work with our community to achieve this goal.”

The company’s decision to delist the properties had prompted the state last month to blacklist it in keeping with a 2017 law that bans state agencies from contracting with or investing in companies that boycott Israel. The law was touted by Republicans, including Gov. Greg Abbott, as a way to show solidarity with Israel.

See here for the background. As I’ve said before, governments base policy decisions on who they do and don’t want to do business with all the time, so this policy is in and of itself not remarkable. It’s dumb and misguided, but not unusual. It’s also led to some other consequences.

Texas state agencies are beginning to divest nearly $72 million worth of stock in a company said to be boycotting Israel — the first financial move after a year-old law that bars Texas agencies from investing in such companies.

Two major state pension funds — the Employees Retirement System of Texas and Texas Permanent School Fund —own $68 million and about $4 million, respectively, worth of stock in DNB ASA, a Norwegian financial services company, officials said, though the company has denied it boycotts Israel.

[…]

The Comptroller’s office, upon the advice of two contracted consulting groups, identified four companies as having boycotted Israel, though all of them deny that they engage in any punitive ban.

Employees Retirement System spokeswoman Mary Jane Wardlow said the fund began divesting March 1, 2018, when it had about $68 million invested in DNB, and as of early April had divested about half that amount. Divestment should be complete by June, Wardlow said.

The Texas Permanent School Fund did not respond to a request for information on its divestment.

The state has no direct holdings in any of the other three companies on its divestment list, according to notifications to the state obtained by Hearst Newspapers.

Two of the six state agencies affected by the law —Texas County and District Retirement System and Texas Municipal Retirement System — had indirect investments in DNB, records show.

And three of the six state agencies affected by the law — the Employees Retirement System of Texas, Texas Municipal Retirement System and Teacher Retirement System of Texas — had indirect investments in Airbnb. (The only agency to disclose how much, ERS, had about $460,000-worth.)

But the law doesn’t require state governmental entities to divest from indirect holdings. It only requires them to send letters to the managers of the investment fund in question and request that they remove blacklisted companies from the fund or create a similar fund without those companies.

If the manager can’t come up with a fund with “substantially the same management fees and same level of investment risk and anticipated return,” the law requires no further action.

I mean, I don’t think this was a good idea, but if you do, then this is what you signed up for.

On to the benefits

Now that same sex marriage is the law of the land, Texas employers need to make sure that the spousal benefits they offer apply to all spouses.

RedEquality

“If an employer provides benefits to anyone who is currently married, they must now treat gay and lesbian employees the same and offer them the exact same benefits,” said Neel Lane, a San Antonio lawyer at corporate law firm Akin Gump Strauss Hauer & Feld.

“The ruling has an enormous impact on employers and employees in Texas,” said Lane, who represents on a pro bono basis a gay couple in Texas who have challenged the state’s ban on same-sex marriages.

[…]

Lawyers said they have been inundated with calls – mainly from small- and medium-sized business owners – seeking legal advice on updating employment and benefits forms but also asking if there are ways under Texas law to avoid having to make changes.

James Griffin, an expert on employment benefits and federal tax law at Jackson Walker in Dallas, said the legal advice he is giving his business clients is simple.

“Don’t waste your time looking for ways to defeat this,” Griffin said. “The Supreme Court decision is very broad. This issue is done. Make the changes and move on.”

Griffin and other lawyers say most large corporations implemented policies years ago that extend benefits to same-sex couples.

But they say some Texas-based companies that operate exclusively within the state have not addressed the issue because they have never had employees come forward and say they are gay and want benefits for their partners. Lawyers say that because Texas political leaders have been adamantly anti-same-sex marriage and benefits, many workers were afraid to step forward.

“Now, because of the Supreme Court ruling, a lot of people who have been reluctant are going to raise their hand for the benefits and the companies have to address it,” said Mark Shank, an employment law partner at Gruber Hurst Elrod Johansen Hail Shank in Dallas.

Among the employers who have already taken action is the state of Texas.

The state’s bureaucracy is moving forward to comply with the U.S. Supreme Court’s gay-marriage decision, even as state elected officials – including Gov. Greg Abbott – have lambasted the landmark ruling.

Starting Wednesday – less than a week after the decision – the Employees Retirement System of Texas, the University of Texas System and the Texas A&M System will extend benefits to spouses of gay and lesbian employees.

That means the state’s largest employer, the State of Texas, will join the list of those providing equal benefits to same-sex partners.

The decision is latest sign that state government is accepting the ruling, which struck down gay marriage bans in Texas and other states. And that bureaucratic churn provides a notable counterbalance to the saber-rattling by Abbott and other top Republicans.

“This is all kind of new for us,” said Catherine Terrell, a spokeswoman for the Employees Retirement System of Texas. “We’re just looking at what other employers have seen.”

The state employees some 311,000 people, according to the state auditor’s office. Terrell said ERS, which handles benefits for most state employees, was anticipating that about 1,500 spouses of gay employees would now enroll for benefits.

A “notable counterbalance to the saber-rattling”. I like that. When you consider all the county clerks who ignored Ken Paxton’s legal “advice”, it’s quite clear who’s really out of touch here. That doesn’t mean they’re going to acknowledge it any time soon.

The Teacher Retirement System of Texas is also providing these benefits now; they weren’t included in the Trail Blazers post. Regarding the UT and A&M systems, I like the quote in this Trib story about that:

Professors at Texas’ public universities celebrated the extension of benefits, saying the policy change will offer relief for many gay and lesbian employees and reduce the rate at which they leave Texas institutions in search of schools that accommodate same-sex couples.

Patrick Burkart, a communications professor at Texas A&M University, said extending benefits for same-sex couples will put the university on the “same competitive footing” as other research universities across the country because it will help retain and recruit top faculty and staffers.

“What we’re going to find out is how expensive it’s been to keep a discriminatory policy on the books as we have,” said Burkart, the secretary and treasurer of the A&M chapter of the American Association of University Professors, which has pushed for the benefits for years.

Burkart, who has served on several faculty search committees, indicated that the previous policy denying benefits to same-sex spouses or partners kept potential candidates from applying for posts at the school.

Hundreds of colleges across the country offer benefits to same-sex spouses or same-sex domestic partners.

”I think our university has suffered for it, and now is a great time to catch up and gather our strengths,” Burkart said.

I’m willing to bet none of our “saber-rattling” state leaders ever considered that, and if any of them did, I seriously doubt they cared. It is of course one big reason why so many private employers have been doing this for so long – you’ve got to keep up with the competition. Burying your head in the sand never works.

Let’s go back to the first story for a minute to see an example of another place where they can demonstrate that:

Legal experts also say the first major domino likely to fall will occur in federal court in Wichita Falls, where a federal judge in March, at the request of Gov. Greg Abbott and Attorney General Paxton, issued an injunction that prevented the federal Family and Medical Leave Act from applying to same-sex couples in Texas.

Because of the ruling, Texas was one of four states in the U.S. where FMLA benefits have been denied to gay couples involved in civil unions.

“That decision will almost certainly be reversed right away,” said David Coale, a partner at Lynn Tillotson Pinker & Cox. “State political leaders may try to fight it, but they are going to lose, and then they are going to have to pay a lot of money to lawyers for pursuing frivolous legal claims.”

See here and here for the background. The lawsuit involved federal employees in Texas, who were covered by an Obama executive order extending employment benefits to same-sex spouses. In the face of Obergfell v. Hodges, the injunction that was granted is clearly out of order. I presume a motion to lift the injunction will be filed shortly, and will be granted right away. Any other outcome is unfathomable.

Moving on, all the newly-married couples in Texas can now sign up for health insurance if they need to.

Same-sex couples who marry have had what the Affordable Care Act considers a “qualifying life event.” And that triggers a special 60-day enrollment period to purchase health insurance from Texas’ federally run, online marketplace, a group promoting enrollment said Tuesday.

Enroll America, a nonprofit supporting Obamacare, said in a release that under the health law, marriage is one of the unusual phenomena that allow consumers a mid-year bite at the apple. The others are having a baby, moving to a different coverage area, getting divorced and experiencing certain changes of income that would affect tax credits and cost-sharing subsidies.

“People don’t know that the special enrollment period exists,” Enroll America spokeswoman Annette Raveneau said in an interview.

[…]

Newly married same-sex couples and others with qualifying life events can sign up all by themselves, using HealthCare.gov.

Raveneau, though, strongly recommends that shoppers meet in person with a certified assistance counselor or Obamacare navigator. They can schedule appointments using Enroll America’s “Get Covered Connector.”

“The people who use an in-person assister, which are free, are twice as likely to finish the enrollment process and actually get a plan,” she said.

How many people might be able to do this? We can only guess, in part because the state has no plans to count how many same-sex couples get hitched.

Though Texas collects detailed data on marriages by county and age, getting better information on same-sex marriage rates in Texas could take years since the state has no plans to separately track those unions. Following Friday’s ruling, the Department of State Health Services released a new gender-neutral marriage application for counties to use. The application does not ask for the sex of either of the applicants.

“We are not specifically tracking those at this time,” said Carrie Williams, a spokeswoman for the department. “The application asks for Applicant One and Applicant Two and currently does not ask for gender.”

States in which same-sex marriage was legal before Friday have taken different record-keeping approaches. Oregon, Vermont and Washington track marriage licenses specifically issued to same-sex couples. California and Florida simply track all marriages, and do not differentiate between same-sex and opposite-sex unions.

The U.S. Census Bureau’s American Community Survey estimated in 2013 that there were 252,000 married same-sex couples in the country, but later said that was likely an overestimate, citing flawed data. A recent paper from a census researcher put the figure at closer to 170,000.

The patchwork of data collection means reliable numbers on how many same-sex couples are getting married in different states may not be available until the next census in 2020, said Drew DeSilver, a senior writer with the Pew Research Center who has researched the issue.

I guess I’m not too bothered by this, since there doesn’t seem to be a single standard practice nationwide. It would be nice to know, but given the way the updated form is worded, I understand the reasoning. I’m sure there will be a million ways to come up with reasonably accurate estimates – new Obamacare enrollments will be one data point – and we’ll have Census data soon enough.

Teacher health insurance costs

Another thing on the list of things the Legislature needs to deal with but won’t.

Health care insurance costs for hundreds of thousands of Texas teachers and other public school employees are scheduled to go up again this fall, prompting renewed calls from educator groups for the state to pick up more of the cost of employee premiums.

The biggest increase will be experienced by those seeking basic coverage for themselves and family members. Their monthly premiums will jump $85 to a high of $1,145 a month, nearly two and a half times the national average of $472 a month. Similar coverage in the private sector would cost around $407 a month, according to a recent Bush Institute study on teacher health care costs.

“The current policy of imposing ever-greater costs on employees is not sustainable,” said Ted Melina Raab, spokesman for the Texas chapter of the American Federation of Teachers. “It is putting decent, affordable coverage out of reach for growing numbers of school personnel.”

More than 280,000 public school employees – roughly three in four teachers, principals, administrators and other staff – receive health insurance through the Teacher Retirement System of Texas. The insurance program, called TRS-ActiveCare, was created to provide a health care option to working teachers whose districts did not offer their own plans.

Last Friday, the TRS board agreed to increase monthly premiums across most TRS-ActiveCare plans.

Since 2002, the state’s share of premiums has remained at $75 a month. During that same period, some educators seeking coverage for just themselves have seen their premiums increase 238 percent.

Even with the state’s monthly contribution of $75 and a $150 base contribution required from school districts, some employees still will pay upwards of $920 a month for basic family coverage.

“These increases amount to pay cuts,” Clay Robison of the Texas State Teachers Association said, noting the average teacher in the Lone Star State makes under $50,000 a year. “It really has become a burden for some of these teachers.”

This is a feature and a bug of the employer-subsidized insurance model. As we know, employers that provide health insurance plans for their employees pay a significant fraction of the cost of the premiums. This makes health insurance a lot more affordable for many people, but it means many of them have no idea how much their insurance really costs, and it means that an ever-increasing percentage of their total compensation is going to health insurance and not to, you know, salary. But that’s the world we live in, and Robison is exactly right – if the state is not upping its share of the payments, then it is like a pay cut for the teachers, since they’re bearing the full brunt of it. That’s just not right.

The solution, educator groups and districts agree, lies with the legislature. Teacher groups point to the fact that lawmakers and other state employees are covered by the Employees Retirement System of Texas health insurance plan, which pays 100 percent of monthly premiums for individuals and half of dependent coverage.

“School district employees are conveniently thought of as state employees for some things, not thought of as state employees for other things,” said Texas AFT President Linda Bridges, citing increasing performance benchmarks placed on public teachers by state officials. “We think school employees should have health care as good as the governor.”

[…]

State Rep. Mike Villarreal, D-San Antonio, said state lawmakers have a clear role to play in reducing health care costs for teachers.

“Here is an area where clearly the state has a role to play,” said Villarreal. “Clearly, the legislature can take actions to reduce the costs for our teachers in a way that doesn’t interfere with the authority of superintendents and principals.”

State Sen. Bob Deuell, the Greenville Republican ousted by tea party candidate Bob Hall, thinks this will be a hard sell in a legislature keen on budget cuts.

“If you increase the premiums, you have essentially cut the salaries of teachers at a time when they’re not being paid enough already,” said Deuell. “I doubt very seriously the teachers are successful in getting this issue – or any other issue – through next year.”

This is where I point out that Texas’ revenue collections are going gangbusters, meaning the Legislature will have plenty of money to work with. The combination we have of unmet needs, neglected infrastructure, and available cash is one you’d think would be amenable to actually finding solutions to the problems we face. Unfortunately, that requires a level of rationality in the Legislature that doesn’t exist. Can’t do much about the Legislature but we can change direction at the top of the state. It’s the best hope we have.

Modified teacher retirement bill passes Senate

Modified again, this time enough to garner support from the teachers.

Teachers, the state of Texas and school districts all would pay more to help support the Teacher Retirement System of Texas under a bill passed by the Texas Senate Wednesday.

Under Senate Bill 1458, the $117 billion TRS fund would get a boost from members, whose contributions would increase from 6.4 percent of their salaries to 7.7 percent over four years. Meanwhile, the state’s contribution would increase from 6.4 percent to 6.8 percent, and school districts that do not pay into Social Security would contribute 1.5 percent. Additionally, about 102,000 teachers who have retired since 1999 would receive a 3 percent cost of living adjustment under the new bill.

See here and here for the background. The main points of objection from the teachers had to do with the size of the state’s contribution, and with increasing the teachers’ contribution all at once instead of phasing it in. While this story has no details, the Texas AFT spells out the changes since the last time:

The combination of grass-roots pressure and hard negotiating by our legislative allies has led to this substantial improvement in the TRS bill. Sens. Kirk Watson (D-Austin), Wendy Davis (D-Fort Worth), and Royce West (D-Dallas) played crucial roles in winning the Senate-passed improvements. Sen. Robert Duncan (R-Lubbock) too gets credit for leaving his door open to negotiations to modify his bill.

As this legislation now moves over to the House and ultimately to a House-Senate conference committee, the same combination of grass-roots communication and tough negotiations in the capitol could bring further improvements sought by Texas AFT for retired and active school employees, such as an immediate benefit increase for all rather than just one-third of retirees, as well as prospective-only application of a new minimum retirement age for full pension benefits. (As it now stands under SB 1458, school employees who do not have five years of service credit by September 1, 2014, would be subject to the new minimum age of 62 for full, unreduced retirement benefits). So be prepared to launch another wave of messages to members of the Texas House!

To review: Under SB 1458 as amended on the Senate floor today, employee contributions would remain at 6.4 percent in fiscal 2014 (starting September 2013), while the state contribution would rise to 6.8 percent. In fiscal 2015, the employee contribution would be 6.7 percent, while the state continues to contribute 6.8 percent, plus school districts that do not contribute to Social Security would kick in another 1.5 percent. In fiscal 2016, the employee contribution would go to 7.2 percent, while the state and district contributions would hold at 6.8 percent and 1.5 percent; in fiscal 2017, the employee contribution would rise to 7.7 percent, which still would be less than the combined state/district total of 8.3 percent.

If the state were to reduce its contribution below 6.8 percent, employee and district contributions would fall by an equal percentage.

They released a statement thanking Sen. Duncan and the Democrats that worked to improve the bill and called on their members to support it. There are still issues to be settled, so don’t file this one away just yet. The Morning News has more.

On a related note, things were happening for the bill to modify the Employee Retirement System, but it didn’t get to a vote in time on Thursday, so whatever happens there will come from the Senate bill. At last report, labor had dropped its opposition to the ERS bill after some changes had been made. We’ll see what happens from here.

Modified teacher retirement bill put forth

Sounds like progress, though we’ll have to see how it goes from here.

Members of the Teacher Retirement System of Texas objected strongly last week to a legislative proposal that would have required about half of current employees to work until age 62 to receive full retirement benefits. They now have no minimum retirement age but must achieve the “Rule of 80,” in which their years of service and age equal 80.

The latest counteroffer, released Thursday by state Sen. Robert Duncan, R-Lubbock, would apply the higher retirement age only to employees with less than five years on the job, about 20 percent of Teacher Retirement System members. They were hired under a different set of rules and already have a minimum retirement age of 60.

But everyone, in turn, would have to contribute more from their paychecks: 7.7 percent beginning in 2015, up from the current 6.4 percent. And school districts, most of which aren’t part of Social Security, for the first time would have to chip in 1.5 percent for their workers’ retirement to supplement the state’s 6.8 percent contribution.

The compromise addresses concerns that the state was changing the retirement rules in the middle of the game, said Duncan, who chairs the State Affairs Committee and authored Senate Bill 1458. And it provides long-term funding sources that don’t depend on the vagaries of the investment markets or the Legislature, which have taken their toll on the pension funds over the years.

The combined effect would significantly improve the financial health of the $112 billion pension fund and allow a 3 percent cost-of-living adjustment this year for members who have been retired for at least 15 years, about 102,000 people.

See here for the background. Reaction from teacher groups was mixed but more positive than negative, but there were no quotes from any school district superintendents about the proposed contribution from them. They may make the loudest objections, since that could be a significant hit to their budgets. The state is upping its contribution from 6.4% to 6.8%, and one could reasonably argue that it could do a little bit more. There is a cost of living increase built in for existing retirees, the first in a number of years, and this bill ought to help keep the jackals that want to do away with the defined benefit plan and convert it all to a 401(k) plan, so there is definitely reason to keep working on this. Time is running short, though, so it needs to happen soon. Texas Politics has more.

Senate examines pensions

This sort of thing always makes me nervous.

Legislative proposals to shore up Texas’ two largest public pension funds could require teachers and state employees to work years longer than they must today to get full retirement benefits.

For example, a teacher who started in the classroom at age 23 may now take full retirement at age 52; that would increase to age 62 under House and Senate bills that are set for committee votes Monday.

Workers nearing retirement, such as those 50 or older, would not be subject to the new rules. But the changes would apply to about half of the active school employees, including everyone from cafeteria workers to superintendents, and about 64 percent of state employees.

Such major changes are necessary to protect the pension funds for the long term, given rumblings that taxpayers can no longer afford them, said Senate State Affairs Committee Chairman Robert Duncan, R-Lubbock.

Under Texas’ pension plans, the state and active members contribute a portion of pay to the funds, the Teacher Retirement System of Texas and the Employees Retirement System of Texas. That money is invested over time and guarantees a monthly check to a retiree until death.

“There is real hostility toward pensions. Even though we’ve done a better job in Texas, other states haven’t,” Duncan said, and that is fueling a national effort to convert public pensions to 401(k)-type retirement plans in which the employee bears all the risk of saving enough money for retirement.

New accounting rules could soon make the pensions’ funding gaps look a lot bigger, which, in turn, would expose the pensions to the political attacks that so far haven’t gotten traction in Texas.

“We can survive this if we make fundamental changes,” said Duncan, who has been an ally of public employees and carries a lot of weight on pension issues in the Capitol. “You just can’t throw money at it. You’ve got to make fundamental changes.”

But people who would be affected by those changes say the state is reneging on its promise to public servants.

“There is no excuse for defaulting on the framework of expectations that we have been working under for all these years,” said Hart Murphy, a high school social studies teacher in Austin.

Sen. Duncan’s bill is SB13. It has changed since that story was written. The TCTA has an update:

The TRS bills imposing a minimum age of 62 for full retirement on about half of current school employees passed out of committee Monday. SB 1458 passed the Senate State Affairs Committee on a vote of 6-3, and HB 1884 passed out of House Pensions on a 5-2 vote.

Both bills continue to include these major provisions:

  • a new minimum age of 62 for full retirement benefits for those not meeting the grandfather provision
  • a grandfather provision that exempts employees who, as of Aug. 31, 2014, are at least age 50, or meet a Rule of 70, or have at least 25 years of experience
  • a requirement that the employee meet the Rule of 80/age 62 criteria in order to be eligible for levels 2 or 3 of TRS-Care health insurance (A retiree under age 62 would be eligible only for the catastrophic coverage of level 1.)
  • an increase in active member contributions to TRS to match an increased state contribution
  • a benefit increase of 3 percent for retirees who retired prior to Sept. 1, 1994, capped at $100 per month

The bills were both amended to reduce the penalty for retiring under age 62 from 5 percent per year to 2 percent. This change would apply to employees who have at least five years in the system as of Aug. 31, 2014; anyone with fewer years, and future hires, would still be subject to the 5 percent reduction.

So, for example, a person not included in the grandfather provision, but who has at least five years of service credit by Aug. 31, 2014, who met the Rule of 80 but was only age 57 at retirement, would have had their benefit reduced by 25 percent (five years times 5 percent) under the previous version; under the new version, the penalty would be 10 percent (five years times 2 percent).

The minimum age of 62 is favored by some because of the large positive actuarial impact it has on the TRS pension fund. TCTA and other groups have met extensively with the bill authors (committee chairs Robert Duncan and Bill Callegari) and other legislators, and we can report that these lawmakers are working with members of the budget conference committee to try to get a higher state TRS contribution, which would help further improve the bill (such as extending the grandfather and/or providing an increase to more retirees).

At the very least, the state can kick in more to TRS. If the employees are being asked to sacrifice, the state can give up something as well, to minimize the impact. It’s only fair. The state made a promise and it needs to do everything it can to keep that promise.

Texas’ public pension funds are solvent through 2075

There was a hearing in the Lege this week about the state’s pension plans, and the good news is that they’re in pretty good shape. The better news is that the members of the Lege’s pension committee recognize that fact.

State Rep. Rob Orr, R-Burleson, who is said to be in the running to be chairman of the committee in the next legislative session, said state pension funds are in good financial shape and should not be lumped into the discussion about poorly run plans. Both plans have more than 80 percent of the assets they need to cover long-term benefits, which experts deem a critical threshold.

“It appears to me that the state is doing a superior job compared to a lot of the other pension plans, and the focus should be on the plans that are in trouble,” Orr said, adding that some of the municipal plans, in particular, are out of whack.

[…]

“Here in the Austin echo chamber you’re starting to hear it’s going to be a priority,” said state Rep. Rafael Anchía, D-Dallas, who is a member of the committee and opposes doing away with the guaranteed pensions.

Committee Chairwoman Vicki Truitt, R-Keller, who lost her bid for re-election in the primary, urged her returning colleagues not to get caught up in the national tumult around public pensions and instead keep the focus on Texas, where the statewide funds are in good financial shape.

“That is who we need to keep in mind the taxpaying public and the state employees and the welfare of the state in general,” Truitt said during a two-day hearing last week on pensions.

The state has avoided the mistakes that other pension plans have made because of constitutional and statutory provisions that require annual contributions from both the state and the members and that limit benefit increases. Members of both the teacher and employee retirement systems in Texas have not received an ongoing cost-of-living boost since 2001.

Even so, there is a lot of chatter that some powerful political forces will push the issue.

Forrest Wilder wrote about the plans and the reports that documented their good condition a couple of weeks ago.

You may recall that there is a campaign afoot to “reform” (i.e. radically change) Texas’ public pensions for teachers and other public employees. Basically, the reformers want to abandon the defined-benefit model, which guarantees certain retirement benefits, and replace it with a defined-contribution system built potentially on self-managed accounts such as 401(k)s. There’s also talk of raising the retirement age and other cuts to benefits.

The problem, though, is that Texas’ public pension systems are in pretty good shape, popular with workers and the alternative is risky. Still, the interests pushing for change are powerful and persistent. So, the Legislature ordered the Teacher Retirement System and the Employees Retirement System to take a closer look at their funds. The TRS report was released this week.

The study found that switching to a defined-contribution model would be more expensive, result in reduced benefits to retirees and is unnecessary.

As it is, the pension fund is solvent through 2075—a good sight better than, say, Social Security—and could be solvent indefinitely if the state would modestly increase its share from the current 6.4 percent to 8 percent, comparable to other states. Teachers could pay a slightly larger share too to help solve the problem.

If teachers were to invest their retirement benefits, TRS estimates that 92 percent would do worse than the current system. A typical 62-year-old retiree who made his or her own investments could expect to have income of just 28 percent of their teacher salary, about $12,500 a year. The federal poverty level for a household of one is $11,700.

The reason is simple: Professionally-managed investment pools perform significantly better than individual investors—8.6 percent vs. 5.3 percent, according to the TRS report.

2075 is a long way off. I’ll be 109 years old in 2075 if I live that long. Do we not have some more immediate priorities to talk about in this state? I mean seriously, TxDOT will run out of money in 2014 for new road construction. Texas’ long term water needs are woefully under-addressed. By comparison, the pension fund is the Rock of Gibraltor. Yet that’s what we’re talking about because the ideological visigoths that are calling the shots don’t like the pension fund and don’t like teachers. When I talk about a matter of priorities, this is the sort of thing I’m talking about. We’re never going to deal with the real problems of this state as long as the current crew is in charge.

UPDATE: The Statesman urges the Lege to leave the public pension plans alone.

Double dippin’

How do you know when you’re on really shaky ground when trying to justify what appears to anyone with a lick of common sense to be a craven and shameful maneuver in one’s own naked self-interest?

Gov. Rick Perry has sparked a wave of criticism, and some unanswered questions, after filing paperwork this week revealing that he is collecting both a salary and a pension from the state of Texas.

The Republican presidential candidate, who is trying to pull off an electoral surprise in Iowa, disclosed to the Federal Election Commission Thursday that he was earning a gross monthly retirement annuity of $7,698, or about $92,000 a year. Aides said the governor officially retired as a state employee in January but continues to draw his $150,000-a-year salary, and he expects to retire again with a higher pension as a member of the “elected class” when he leaves office.

Aides cited an obscure provision of the Texas Government Code, chapter 813.503, that they say allows him to legally draw full-time pay and then retire twice.

But critics are crying foul.

“We’ve never heard of this,” said Craig McDonald, director of Texans for Public Justice, a liberal watchdog group in Austin. “It’s a total shock that the governor is collecting a retirement while he’s making his big old gubernatorial salary.”

McDonald said the arrangement undermined Perry’s core campaign message about career politicians who profit from public service.

“He raises questions about excessive perks and the revolving door lobby and says he wants to cut Congressional salaries. This guy needs to look at his own front porch and clean it up before he goes after Washington,” McDonald said.

Citing obscure provisions – which is to say, claiming a loophole – is a pretty good clue that you’re deep into weasel territory. Did you notice that he’s been double dipping since January but the only reason anyone now knows about it is because of the more stringent federal financial disclosure requirements? Who knows when the public might have found out about this if Perry hadn’t let his ego get the best of him by pursuing the Presidency. You’d think if there were nothing dishonorable or unusual about this that Rick Perry might have informed us about it before he was compelled to do so.

There’s a case to be made that Perry has broken the law, or at the very least that he has in fact vacated the office of Governor, by his actions. I trust someone will pursue those lines of inquiry. Be that as it may, my fellow Democrats and I have long since lost our ability to be surprised by anything Perry does. We’re just wondering when the rest of you will catch up to us.

On targeting public pension plans

I have three things to say about this.

Texas could be gearing up for its own Wisconsin-style grudge match over public employee benefits.

A group of high-powered Houston business leaders is starting a statewide campaign to overhaul retirement for future teachers, firefighters, police officers, judges and other state and local government workers.

“I think the state needs to get the hell out of this (pension) business completely,” said lawyer Bill King, who is forming Texans for Public Pension Reform with others from the Greater Houston Partnership, an über-chamber of commerce with business members representing $1.5 trillion in assets.

Taxpayers bear too much risk on behalf of public employees by providing them a guaranteed retirement that most private sector workers don’t get, King said.

But advocates of the public pension system say there are ways to eliminate or reduce risk without doing away with the program.

“They don’t have to destroy a system that works,” said Keith Brainard, research director of the National Association of State Retirement Administrators.

He said government pensions provide retirement security for millions of Texans in a cost-effective manner for taxpayers. Research by the Center for Retirement Research at Boston College shows that professionally managed pension funds produce better investment returns than 401(k)s and cost less to administer.

King said the campaign is in its infancy, and its specific goals are still being developed. It’s not clear how the campaign will get involved in next year’s elections or the 2013 legislative session, but King said he is confident the campaign will soon make pensions an issue for lawmakers.

King said he would support a constitutional amendment eliminating public pensions in the state and moving all government employees to retirement accounts akin to 401(k)s. Legislators would have to approve such an amendment on the ballot when they convene in 2013.

[…]

King, the son of a union pipefitter, said he was disappointed with the anti-worker tenor of the Wisconsin battle over collective bargaining rights. This campaign, he added, is not intended to bully public employees.

Well, that’s nice to hear, and I don’t have any particular reason to doubt King’s sincerity on this, but let’s be honest: It’s highly likely that if this campaign gains any traction, it will pick up support from people who will be happy to demonize and bully public employees. To think that won’t happen is naive. It’s also the case that no matter how good King believes his own intentions are, once the employees whose pensions are threatened by this become engaged, they’re likely to play rough, too. It will be easy to blame them for any shift in rhetoric that King’s campaign will feel the need to make down the line.

Both the Employee Retirement System of Texas and the Teacher Retirement System of Texas have more than 80 cents for every dollar needed to pay their long-term obligations, a level considered to be a benchmark of a strong fund. The state funds also have tight restrictions on contributions and benefits.

There are about 1,800 public retirement systems in Texas, the vast majority of which are small cities and counties that pool their resources for investment purposes. The big cities, however, have mostly set up shop on their own and have separate plans for police, firefighters and other municipal workers.

Given the large number of plans in Texas, Brainard said, the state “has been striking in the relative absence of abuse and pension problems.”

Where there have been problems, Brainard said, they have been in the big-city pensions. Those plans have fewer constraints on increasing benefits than do the state systems.

The sentiment that pensions are unsustainable gained traction across the country after the 2008 financial market collapse sank the value of funds everywhere. State and local governments failed to cover $660 billion of their $2.94 trillion in pension liabilities last year, according to the Pew Center on the States.

There’s nothing in this story to indicate how big a problem King is talking about. We know Houston has some pension issues, and the story gets into that, but its problems mostly stem from a change to pension benefits that was made a few years ago. If the state or other cities have similar issues, you wouldn’t know it from this story. How much money are we talking about, and how much of it is attributable to the economic downturn? If you’re going to claim there’s a crisis, then show me some numbers.

By the way, on the matter of Houston’s pension problems, one of the issues the city faces is that its options for taking action to deal with it are constrained by state laws. If King and the Greater Houston Partnership have done anything to help persuade the Legislature to give Houston more tools for taking care of this, I am not aware of it and the story does not discuss it.

The problem is that states can’t save money anytime soon by doing away with pensions.

In fact, it costs more in the midterm because taxpayers must contribute more to cover the benefits accrued by retirees and current workers because new workers would no longer be chipping in to the pension, [Stephen Fehr, a researcher with the Pew Center on the States] said.

When a Texas Senate committee looked in 2008 at a similar pension conversion, the committee found no compelling reason to do so.

The state’s Pension Review Board at the time estimated the combined contribution from the state and employees to the Employees Retirement System of Texas would have to rise from around 17 percent of payroll to as much as 30 percent if the pension were closed to new people.

In 30 years, the contribution rate would climb beyond 80 percent .

Nevertheless, King argues that finally wiping clean the public pension liabilities is worth the higher costs now.

“It will require sacrifices in city services and higher taxes than would otherwise be necessary,” King wrote. “But at least the number will be finite, unlike in our current predicament.”

Again, if you believe in this environment that there would be any kind of tax increase to help cover the cost of shifting to a 401(k) plan, you are naive in the extreme. The cost would be covered by general revenue, which would either mean further cuts to things like public education, or more budgetary flimflam like what we saw this session with deliberately underfunding Medicaid. That’s not acceptable, especially for a problem whose scope is not clear, but it’s what we’ll get for as long as we have a Lege that resembles the current one. When we get these mostly Republican-created problems that are affecting us right now under control – that is to say, when we get a different Legislature, one that really is fiscally responsible – then maybe we can talk about this. Texans for Public Pension Reform, you let me know when you’re willing to help with that effort. EoW has more.

From the “Be careful what you wish for” department

The state wants to reduce its workforce as part of the cost savings needed to balance the budget. But what it saves now it may pay for later.

Ann Fuelberg, executive director of the Employees Retirement System of Texas, warned lawmakers on Monday that they must consider how their decisions to trim the state’s workforce next year could ripple through the pension fund.

Some 18,000 state employees — 13 percent of the workforce — are already eligible for retirement, Fuelberg said.

And they might choose to retire en masse if lawmakers institute employee furloughs, significantly increase health care costs or provide some retirement incentive.

“They’re going to do what is in their best interest,” Fuelberg said.

Those policy changes might reduce payroll costs in the short-term as the state grapples with a looming shortfall of $24 billion or more. But they would have a “double negative” impact on the pension fund because there would a resulting spike in new retirees and a drop in contributions to the fund, Fuelberg explained.

I don’t know how much this is going to bother anybody in our Republican leadership. They have amply demonstrated that they don’t really care about how much their actions will cost later as long as it achieves their short term goals. But at least we can say we were warned.