Former Texas Comptroller Susan Combs released her last report “Path to Stability: ERS at the Crossroads” before leaving office. This report provides valuable information on the Employees Retirement System of Texas (ERS), the pension fund for state employees, that includes the following highlights: 

  • “Based on ERS’ fiscal 2014 actuarial valuation, if current assumptions hold, the trust fund will be insolvent by 2063.”
  • “With every year that passes without additional reforms, the ERS trust fund’s slide toward insolvency becomes more expensive to reverse.”
  • “The plan’s unfunded liability is projected to increase by approximately $500 million each year, while the actuarially sound contribution (ASC) rate is projected to increase by more than 0.1 percent annually.”
  • As noted in the table below, the ERS funded ratio in fiscal year 2014 is only 77.2%, which is below the 80% threshold considered actuarially sound, and remains below 80 percent through at least 2019 unless the contribution rate is 19.05 percent in 2015 and so forth.

 

  • “In its fiscal 2014 Comprehensive Annual Financial Report, ERS states that its net pension liability is $14.5 billion, almost double its unfunded actuarial accrued liability” (of $7.5 billion).
  • “As with many state pension systems, the Great Recession resulted in lower-than-expected investment returns. ERS’ investment returns were below its 8 percent target for three years, although returns have exceeded the target each year since 2011.”
  • “To preserve Texas’ long-term fiscal health, inaction is not an option. The problems facing ERS will continue to grow if we do not pursue additional reforms immediately.”

 

The Texas Public Policy Foundation recommends that the Texas Legislature make all Texas pension plans solvent by:

  • Freezing enrollment in the current defined benefit system and enroll newly hired or unvested employees in a 401(k)-style defined contribution pension plan.
  • Implementing either a hard or soft freeze of the system for vested employees.
  • Replacing current employee health care plans with Health Savings Accounts.

 

Moving Texas’ public pension systems away from the defined benefit system and into a defined contribution model would go a long way to restoring sustainability in the system, benefitting both the taxpayers and state employees.