Despite the fact that a number of Texas’ 93 state and local pension funds reduced their target rate below eight percent, a new report from the Texas Association of Public Employee Retirement Systems says that the funds combined in 2016–2017 to maintain positive trend performance in the key metric recommended by the Texas Pension Review Board.
The reduction in the target rate, the report finds, despite being a conservative move that, “mathematically, could have moved pension systems in undesirable directions,” did not interrupt the “steady trend data.”
According to the report, TEXPERS based its assessment on the PRB’s year-over-year comparisons of pension funds’ amortization periods—the number of years needed to pay off all present and future projected benefits to employees.
The PRB says that amortization periods are the single “most appropriate” measure of public retirement systems’ health.
Two pension systems that moved out of the infinite category and the >40<infinite category into the >25<40 year category showed the most substantial improvements in the 2016–17 period, the report finds.
It adds that two more systems now are in the PRB’s recommended category, the greater than zero, less than 15-year category.
The TEXPERS report indicates that a significant number of systems have reduced the rate of return they seek, with just 24 systems now aiming for average rates of return of 8 percent or more. In the last PRB report, 35 systems sought an average rate of return of 8 percent.
Most systems—42 altogether—now target an average yearly return of 7.50–7.99 percent, compared with 31 in the prior report. The targets, the report says, are a major factor in calculating the contribution rate needed from employees and their city sponsor.
“The Pension Review Board recognizes that amortization period trends matter more than accountants’ moment-in-time snapshots of unfunded liabilities when assessing pension fund health,” TEXPERS executive director Max Patterson said in a statement, adding, “This high-level overview of pension systems’ health continues to warrant the trust which lawmakers place in local pension boards to deliver reasonable earned benefits to police, firefighters and municipal employees at minimal contribution from taxpayers.”
The full report and charts are available via TEXPERS.
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