Texas won't follow R.I. lead on pension reform

Posted 9/5/12

AUSTIN - Texas public pensions said moving away from traditional defined-benefit plans wouldn’t shrink their unfunded liabilities, in contrast to money-saving steps to end lifetime guarantees by states from Rhode Island to Kansas.

The state’s $110.3 billion Teacher Retirement System released a study saying that switching to a 401(k)-style defined-savings plan may cut payments to retirees. The fifth- largest U.S. public pension by assets said Aug. 31 that the change also would widen a $24 billion gap between promised benefits and projected assets to $36 billion.

The teacher plan’s report and a second study issued yesterday by the $22.1 billion Employee Retirement System of Texas contrast with projected savings and unfunded liability cuts for pensions in Rhode Island, Kansas and Louisiana, which made such changes. All three place in the top 10 among states with the highest gaps between assets and future obligations, according to a Bloomberg Rankings study of 2010 data.

“There’s a lot of visibility on this issue nationally, and there’s a push for change in Texas,” said state Representative Vicki Truitt, a Southlake Republican who leads the House Pensions and Investments Committee. The reports set the stage for a debate by Lone Star State legislators next year.

“This is going to be a hot issue” when lawmakers convene in January, Truitt said. Her panel will take up the reports Sept. 12.

Studies ordered

The Legislature in the second-biggest U.S. state by population ordered the pensions to study alternative ways to meet their obligations. Moving away from the current system, which guarantees retirees set monthly payments for life, would be the biggest change in the two plans, which cover 1.5 million beneficiaries combined.

Rhode Island, seen as one model for taking steps to lower costs, last year mandated a 401(k)-style plan for newly hired workers and suspended cost-of-living increases for current retirees, moves projected to help save about $3 billion a year. Kansas adopted a similar approach, mandating cash-balance plans for workers hired after December 2014, according to the National Conference of State Legislatures.

Louisiana will switch all employees to defined-savings plans, the group said. New York will offer a defined-savings program to nonunion workers who earn at least $75,000.

Retiree benefits “are really a form of deferred compensation that shift the risk from workers to the taxpayers, and as we’ve seen with pension systems across the country, sometimes taxpayers end up with a pretty steep bill,” said Chuck DeVore, a spokesman for the Texas Public Policy Foundation, a research and lobbying group in Austin.

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