Texas Handcuffed on Pension Funding?

A hearing this week in Texas’ House Appropriations Committee shed some light onto the state’s pension funding situation – and the funding limitations that are baked into state law.

Keith Brainard of the National Association of State Retirement Administrators (NASRA) testified that the lower and upper bounds of Texas’ annual pension contributed are defined by law.

From the Houston Chronicle:

Texas — unlike Arizona, Louisiana, Maine and Montana – has set constitutional limits on how much the state will contribute to pension plans: no less than 6 percent and no more than 10 percent of the plan’s cost.

“Texas is the only state in which the constitution limits the state’s ability, the employer’s ability to adequately fund its pension plan,” Brainard said.

That point is critical because of the mounting obligations of the four current pension plans for state employees, of which only one is a pay-as-you-go plan. According to the Employee Retirement System, the debt obligation is $8 billion and growing.

Two rounds of benefit adjustments and an infusion of state cash last session under House Bill 9 have only slowed the growing obligation. Outgoing Appropriations Chair Rep. John Otto, R-Dayton, has pressed hard on the issue of a lump sum appropriation, or increased contribution, to defray the cost of current obligations: The Legislative Budget Board has said no while ERS has said yes.

What is not in doubt is the heavy blow long-term financing will be. Porter Wilson, the new executive director of ERS, noted the current trajectory of funding would pay off current obligations in 2048, at a cost of $29.1 billion. Pump in $1 billion and that obligation drops to $20.7 billion; $4 billion will be $11.7 billion; and an $8 billion infusion would cost $9.5 billion and actuarial soundness in 2018.

View the hearing presentations here.

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