Bill Analysis
Regarding general provisions, HB 43 would:
- set requirements on the qualifications for the Municipal Fund actuary for all three funds
- require each fund actuary and municipal actuary of each pension to separately produce a risk sharing valuation study (RSVS) to calculate the unfunded actuarial accrued liability and estimate the municipal contribution rate
- set the minimum and maximum contribution rate for the municipality i.e. the corridor midpoint using the initial RSVS, and set the municipal contribution rate using the final RSVS
- set the process if the municipal and fund actuary contribution rate varies by more than two percent
- require the fund actuary to conduct an Actuarial Experience Study (AES), no later than September 30, at least once every four years
- require the municipality, as of the 2017 effective date, to contribute at least biweekly to the funds an amount equal to the municipal contribution rate multiplied by the pensionable payroll for the fiscal year
- require the municipal contribution rate to not exceed the maximum contribution rate or be less than the minimum contribution rate
- require the board of each pension system to hire an independent investment consultant to produce a financial report once every three year
Regarding the Firefighter Pension system, HB 43 would:
- allow the board of the fund and the municipality to alter benefit types or amounts, the means of determining contribution rates, or the contribution rates
- prohibit the board from increasing the assumed rate of return to be more than 7 percent per year, extending the amortization period of the liability greater than 30 years, or allowing the municipality's contributions to be less than the minimum or greater than the maximum municipal contribution rate
- limit the number of years a Deferred Retirement Option Plan (DROP) participant, who has 20 years of service, to 13 years
- change the active member's contribution rate from 8.35 percent of the member's salary to 10.5 percent after the year 2017 effective date
Regarding the Police Pension system, HB 43 would:
- change the active member's monthly contribution rate from 8.75 percent to 10.5 percent of the participant's pay
- limit the maximum number of years an active member may participate in DROP to 20 years, after the member receives the hypothetical earning rate
- change the status of members in military service from being entitled to being eligible for counting uniformed service towards years of service
- prohibit the board from increasing the assumed rate of return to be more than 7 percent per year, extending the amortization period of the liability greater than 30 years, or allowing the municipality's contributions to be less than the minimum or greater than the maximum municipal contribution rate
Regarding the Municipal Pension system, HB 43 would:
- modify an employee's retirement grouping to groups A, B, and D based on date of hire
- establish member contributions rate on or after the 2017 effective date, and the municipal contribution rate on or after July 1, 2018 based on the member groupings
- modify the requirements for DROP participation unless the member met the eligibility requirements before January 1, 2005
- require the board, beginning 2018, to establish an interest rate for DROP accounts that is not less than 2.5 percent and not greater than 7.5 percent
- require DROP participants to pay contributions to the pension system for all of the participant's time in DROP that would constitute service in order receive credit to the DROP account
Vote Recommendation Notes
Texas Action supports the goal of this bill which is to bring a troubled system closer to actuarial soundness. Provisions to constantly monitor and analyze the financial health of these pension systems to provide a higher level of accountability are positive steps. While we agree with certain portions of the bill we oppose the continuation of local pensions relying on state legislators to reform their broken systems. We also oppose the continuation of a defined benefit system rather than a defined contribution system.
The tedious nature of passing state-level laws is time-consuming and inflexible for addressing local problems that require immediate resolutions. The act of local pensions codifying their policies in state statutes to insulate their members’ benefits from local reform has conceivably backfired, creating a $10 billion problem for the City of Houston.
We recommend this bill be amended to include a provision to reestablish local control over these pension systems, which would return powers back the city and municipalities, create a larger degree of flexibility to handle these problems, and discontinue a cycle of perpetuating the encroachment of state government in issues they should have little to no engagement in. HB 43 upholds and violates our principle of limited government, for this reason we will remain neutral.
