Texas Government Employers Face Pension Funding Hike

January 28, 2008 (PLANSPONSOR.com) - Under an actuarial change calling for member government agencies of the Texas Municipal Retirement System (TMRS) to pre-fund their retiree cost-of-living increases, the system's funding shortfall is expected to be $1.7 billion.

The Dallas Morning News said the TMRS was 82% funded under the old actuarial method but just 74% funded under the new one at the end of 2006.  The funding change is expected to produce a double-digit hike in contribution rates for many member municipalities among t he TMRS roster of more than 820 Lone Star State cities.  

The TMRS covers more than 130,000 statewide.   Government workers contribute 5% to 7% of their salaries – and their cities match or exceed that amount.

According to the Morning News, the impact of the changes will depend on factors such as payroll growth, the size and age of the workforce, benefits, and length of service of workers of a particular member city.

One alternative to raising taxes may be cutting future benefits. “What this is forcing is a very difficult discussion between employers and employees about what are appropriate benefits and what are acceptable costs,” TMRS executive director Eric Henry told the newspaper. “Our role is to make sure that the benefits that have been promised are soundly funded.”

TMRS will offer cities some help adjusting to the changes, according to the news report. The fund recently approved moving 12% of its holdings into equities, which could increase earnings and reduce cities’ contributions (See Texas Public Fund Enters Equity Realm ). TMRS also plans to allow cities that face contribution increases of more than 0.5% to pay their additional liability over 30 years instead of the standard 25.


Fort Worth Woes

The pension plan for one Texas city, Fort Worth, is having its own severe funding problems even though it is not part of the TMRS, the News reported.

The city’s Employees’ Retirement Fund has faced a shortfall of more than $400 million, fueled partly by out-of-control employee overtime costs, leading to Fort Worth being placed on the state pension board’s watch list, the newspaper said.

Fort Worth city officials said there has been a problem with some employees working excessive overtime as they near retirement to “spike” their three highest annual salaries, the basis for their pensions.

In October, the Fort Worth City Council approved changes to its retirement formula to prevent the spiking.