Texas’ public pension problems got a little worse last month.
According to the Pension Review Board’s newest actuarial valuations report, unfunded liabilities among all state and local systems totaled $60.7 billion in May 2016, up from $60.2 billion just three months prior. Unfunded liabilities refers to the difference between what’s been promised to current and future retirees and what’s actually on hand to provide for those pension benefits.
What’s more, the average funded ratio for all plans—which provides a measure of a plan’s current assets as a share of its liabilities—dipped below 80 percent, an important threshold that “may be a sign that a plan [or group of plans] is fiscally unsound,” according to the Texas Comptroller’s report Your Money and Pension Obligations. The funded ratio among all plans dropped to 79.99 percent in May, down from 80.11 percent in Feb.
As I wrote in Forbes last month, much of this continued fiscal deterioration is to be expected given that Texas governments still cling to a flawed retirement system, e.g. the defined benefit model (to read more on the system’s shortcomings, click here). Hence, the key to solving Texas’ pension problems hinge on eliminating this outdated, unworkable system and transitioning to a defined contribution model, a type of retirement program that is both sustainable and reliable for all involved.
Source: Texas Pension Review Board