Safeguarding the ERS pension fund

The details on HB 9

As every state employee knows, the promise of a defined benefit pension is one of the greatest attractions to state employment and an excellent retention tool. The creation of the Employees Retirement System pension fund in the late 1940s (the very issue that inspired state employees to found TPEA in 1946) was in recognition of the unique nature of public service. A stable workforce is critical to the State’s ability to carry out its mission, and a pension is a commitment made to public servants for their years of service. Lawmakers once again stated their commitment to maintaining a stable and efficient workforce by passing TPEA-supported House Bill 9, which preserves the ERS pension fund with increased state and employee contribution levels.

Before the session began, much discussion took place among legislators and ERS leadership and in the media regarding the need to address the ERS pension fund’s unfunded liability, which was growing at the rate of half a billion dollars each year. Moody’s Investors Services warned of a possible downgrade to the state’s credit rating should lawmakers not address the unfunded liability.

Shortly after the session began, the Texas Public Policy Foundation—a think tank aligned with the most conservative members of the Republican Party—published an op-ed in the Austin American-Statesman calling for converting public employee pension funds to 401(k)-type defined contribution plans. TPEA quickly responded in the press, refocusing the conversation on the need to shore up the pension fund by infusing the system with additional funds. Our lobby team worked with key legislators preparing the plan, sharing our survey results showing that more than two-thirds of state employees supported increasing their own contribution to the pension fund when that increase was coupled with an offsetting pay increase.

A bipartisan team of lawmakers led by House Appropriations Chair John Otto (R–Dayton) prepared a plan, the key provisions of which were contained in HB 9, a bill referred to the House Pensions Committee chaired by Rep. Dan Flynn (R–Van), and HB 1, the House Appropriations bill. The plan:

  • Sets the state’s ERS pension fund contribution rate at 9.5 percent (previously set in statute as 7.5 percent for FY 2016).
  • Maintains the agency contribution rate of 0.5 percent.
  • Sets the employee contribution rate at 9.5 percent (previously set in statute at 7.2 percent in FY 2016 and 7.5 percent rate in FY 2017).
  • Includes a 2.5 percent across-the-board pay raise to offset the increased employee pension contribution.

Under the leadership of Otto and Flynn, along with Appropriations Committee Vice Chair Sylvester Turner (D–Houston) and Pensions Committee Vice Chair Roberto Alonzo (D–Dallas), the plan to shore up the ERS pension fund (HB 9) passed the House 146-0 on April 14.

HB 9 was then referred to the Senate State Affairs Committee chaired by Sen. Joan Huffman (R–Houston), the bill’s Senate sponsor. TPEA lobbyist Ray Hymel testified before State Affairs in support of the bill, as he had also done before the House Pensions Committee. Huffman added a positive amendment to the bill in the Senate by eliminating the 90-day waiting period for new employees to participate in the ERS pension fund. Not only does this change decrease the amortization period for the pension fund’s actuarial liability (the period of time in which the fund could pay off its debts), but also it gives new employees a clear picture of their take-home pay from their first day of state service. The Senate passed the bill 31-0 on May 22, and the House concurred with the Senate’s amended version 146-0 on May 26.

While HB 9 moved through the legislative process, so did the budget, which contained the funding necessary for the ERS pension fix and the 2.5 percent pay raise to offset the increased employee contribution rate. After an all-night debate, the House passed its version April 1. The Senate passed its budget April 14, and a conference committee led by Chairman Otto and Senate Finance Committee Chair Jane Nelson (R–Flower Mound) was appointed to work out the differences.

The budget conference committee released its finalized budget proposal May 21 containing the following appropriations of particular interest to state employees and retirees:

The Senate signed off on the conference committee report May 29 on a 30-1 vote. The House did so as well on a 115-33 vote. Gov. Greg Abbott has the authority to veto line-items on the budget bill.