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By Robert Elder Jr.
AMERICAN-STATESMAN STAFF
Thursday, April 07, 2005
Pension program shortfall shrinks
The financial picture of the retirement plan for state employees improved in the first half of its fiscal year, but not enough to give retirees hope for an increase in benefits.
Through Feb. 28, the Employees Retirement System of Texas had $430.2 million less than it needs to pay the plan's promised benefits, according to an actuarial analysis that the ERS sent to the Capitol on Tuesday.
That's a relatively slight shortfall considering that the ERS is a $20 billion pension fund. Last year, the fund paid about $1.3 billion in benefits.
And the current $430.2 million funding gap is an improvement from the $555.2 million shortfall on Sept. 1, the beginning of the state fiscal year. But it is still big enough to prevent lawmakers from granting increases in retirement benefits to state employees. The last such increase came in 2001.
State budget writers have proposed that Texas kick in an additional $41.8 million for the next two-year budget cycle, which begins Sept. 1. The House was expected to address the issue when it considered the budget bill Wednesday.
Under a plan by Sen. Tommy Williams, R-The Woodlands, the state's contribution to the ERS plan would rise to 6.45 percent of employee pay from the current 6 percent.
State employees would still put in 6 percent of pay.
The increased state contribution would narrow the shortfall, but it would take more money to close it completely.
"We need to do the right thing" and move toward "funding the normal cost of the system," Williams said.
The state would have to raise its share to 7.13 percent of employee pay to close the gap, which would cost $104.5 million for the next biennium, according to a report last month by the ERS.
That amount isn't likely to win approval this session.
But, Williams said, "We're doing the best we can. The system is financially sound."
By itself, a funding shortfall isn't a big problem; most major pension funds have an "unfunded liability," or gap between the value of the fund and amount of benefits it has promised to pay.
In Texas , though, lawmakers cannot increase retirement benefits unless that liability can be amortized in 31 years or less. That's not possible for the ERS, given the current contributions to the pension fund and its own projections of investment returns.
As recently as 1990, the state contributed 7.4 percent of employee pay to the ERS. That figure slid to 6.45 percent in 1995 and down to 6 percent, the current level, in 1996.
That's when the bull market seemed endless, prompting lawmakers to lower the state's cost while counting on soaring investment returns. Since then, Williams noted, "we've learned that the market doesn't always go straight up."