If you belong to a public pension system here in the state of Texas, we hope you are aware of what is taking place. A group of Houston corporate executives want to completely eliminate public pensions for state and local government workers including teachers, police officers, and firefighters. They are being led by a Bill King, whom is an investor and heads several large companies including Global FBO Holding Inc. and Politicalendar LLC and EmLogis. He has been quoted as saying "that public pensions are too risky for taxpayers."
The group that Mr. King is heading is called Texans For Public Pension Reform. Now this group is just not some fly by night group, they have a financial bankroll (approx. 1.5 trillion dollars in assets) and political friends to make some major noise against public pensions.
This group, Texans For Public Pension Reform, is planning a public relations campaign to build support and even more financial backing, to put and end to public defined benefit pension systems. These types of plans and systems guarantee retirement security for those enrolled in them. Mr King and his group want them replaced with defined contribution plans like 401(k) plans, which have their value depending on the ups and downs of the stock market.
If the Texans For Public Pension Reform and Bill King succeed, the state of Texas and it's taxpayers would be the big losers. Something that Mr. King and his group are over looking is that public pension funds provide billions of dollars into local economies. There is a economic and financial group in Waco, Texas named The Perryman Group. They reported that in 2005 pension payments to members of the Texas Teachers Retirement System are a notable economic stimulus to communities across Texas, generating 18 billion dollars a year in business activity, approximately 87,000 jobs, and 8.5 billion in state and local tax revenue.
There are other public pensions like the Texas Employee Retirement System for state workers and many local government pension plans, while they may not be as large as the Teachers' Pension System, that provide billions of dollars into cities and counties across the state of Texas.
What the Texans For Public Pension Reform, as well as Mr. King, have missed is that maintaining public pensions is actually very good for taxpayers. The promise of a secure pension helps local and state governments attract and RETAIN qualified individuals to teach our children, to provide the dangerous jobs of public safety, as well as other essential services. The benefit of a secure pension helps offset the low pay these public service workers receive. It was estimated by the Center For State and Local Government Excellence that public services wages in the state of Texas are anywhere from 15 to 17 percent lower then pay for comparable work in the private sector.
Mr. King and his group have stated multiple times that these public pensions are a liability and are risky. We actually disagree with them. According to the National Association of State Retirement Administrators public pension contributions make up only 1.9% of state and local government budgets in the state of Texas. It was reported that public pensions in the state of Texas are actually very low risk to the taxpayers due to the fact that they are over 80% funded right now to pay their future obligations.
An unfunded liability is the difference between a pension fund's total assets and it's liabilities estimated over a 30 year period. A fund with an unfunded liability of 80% is considered to be sound.
Another major point that the Texans For Public Pension Reform are over looking is cost. It will cost quite a bit to get rid of public pension and replace them with the 401(k) style plans. In the last session of the Texas Legislature a bill called HB 2506, which Rep. Warren Chisum sponsored, attempted to convert teachers' and state employees' pension plans to defined contribution plans. the Legislative Budget Board estimated that doing this would cost Texas taxpayers over 3.1 billion dollars over a 2 year period.
So as you can see, Mr. Bill King and the Texans For Public Pension Reform say that public pension plans are a liability and a risk to taxpayers. We here have shown you that not only are they not a risk or liability, but traditional public pension plans are actually better for the economy and the taxpayers of the state, as well as the state of Texas in general.
If you don't believe us, just ask the states of West Virginia and Nebraska.
In 1991 the state of West Virginia forced all newly hired teachers into a defined contribution pension plan, instead of the teachers traditional (defined benefit) pension plan. By the 2003, West Virginia reconsidered its decision because those enrolled in the defined contribution achieved much lower rate of return then projected, making retiring nearly impossible.
West Virginia had hoped that by switching from the defined benefit to the defined contribution plan it would improve its unfunded liability. That never happened. The state of West Virginia projected it would save 1.2 billion dollars over 30 years by switching pension plans for the newly hired teachers. These savings never happened either.
In 2008 teachers in West Virginia that were in the defined contribution plan were actually given the choice to switch back to the initial traditional defined benefit pension plan. 80% of those teachers chose to switch, including 76% of the young teachers who were thought to prefer the defined contribution plan. Hmm guess not.
In 1963 the state of Nebraska and it's local government employees were moved into a defined contribution plan. It should be noted here that Nebraskas' teachers remained in a traditional defined benefit plan.
From 1982 to 2002 the average rate of return for the defined benefit participant (teachers) was 11%. In that same time the average rate of return for the defined contribution participant was anywhere from 6% to 7%.
So those enrolled in the defined contribution plan could expect to receive only 30% pre-retirement income, which is far below the 50 to 60% that was projected to them. As of 2003 Nebraska has decided to enroll all new hires in a traditional cash balance pension plan and no longer the defined contribution plan.
The question now becomes why is Mr. King and his group Texans For Public Pension Reform actually coming after public service employees and their retirements? What do they stand to gain by have this switch made? Is this the first step in a attempt to take union power away here in the state of Texas?
We are not sure of the all of the answers to those questions just yet, but we will not stop trying to find them. Taking away from the middle class, the class that is the backbone of this country, just to give it back to the rich is wrong and that is essentially what this group is asking public pension participates to do.
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