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Legislators looking at troubled state pension plans

Almost $42 billion in unfunded liabilities are plaguing Texas public employee retirement funds as state lawmakers prepare to debate new accountability measures.

Legislative leaders are signaling that discussions could hit some sacred cows: ending traditional pension plans for future state employees, imposing fees on pension funds to help pay for state oversight and calling attention to retirement funds that fit an "at-risk" profile.

"Some [pensions] have significant issues; several of these are in trouble for granting additional benefits when they should not have," state Rep. Vicki Truitt, R-Southlake, said Monday.

Truitt, who is on the Texas Pension Review Board, says she's open to discussions about overhauling the structure of retirement plans for future public school teachers and state employees. She and other lawmakers are also urging Texas municipalities to deal locally with their pension underfunding issues.

"Unfortunately in years past, the Legislature was compliant in allowing this to happen. ... The Legislature should have recognized what was going to happen to the funds down the road," she said. "Ideally, the local parties will recognize the need and muster the political will to take corrective action. I hope the PRB's intervention is not necessary."

The pension board is expecting to unveil a system to identify risk factors for a public pension plan. Although the board has no enforcement power, by pointing out problems it could increase pressure for reforms.

"We don't see anybody immediately going bankrupt," board Executive Director Chris Hanson said Friday. "But we felt this was a good time to get this done."

Another idea that is already drawing heavy opposition from some employee groups is a proposal to assess what some call a tax -- perhaps of 50 cents per participant -- on retirement plans to support the review board budget.

The idea was introduced as a way to help shrink the state's multibillion-dollar budget deficit, said Max Patterson, executive director of the Texas Association of Public Employee Retirement Systems, which represents more than 420,000 active and retired municipal government workers.

"That's the big one on the radar screen," Patterson said. "You can't take money out of a trust unless it benefits the trust. It's a legal issue."

Texas has more than 90 public retirement systems that support 1.3 million active members, as well as plan members who are retired and receive monthly pensions.

Truitt says discussions will be open-minded and direct.

"There are organizations and individuals who believe we should abandon the defined-benefit method of pensions and move to a defined contribution," Truitt said. "I'm receptive to the debate ... but there are costs associated with all of that."

The review board has begun work on a policy to identify risky practices that could debilitate a pension. With lawmakers' consent, the board would then work with managers of troubled pensions to get them back on track.

A potential risk factor could be, for example, an assumed rate of investment return that exceeds industry standards. Some pension managers have based their financial outlook on projections of a sustained annual 8.5 percent rate of return. In times of economic stress and a bear market, that is considered "aggressive" by industry standards.

Other risk factors could be inadequate pension contribution rates, or mortality tables that underestimate retiree life spans.

There is no single red flag, Hanson said.

"You've got to drill much deeper to see what's causing the issues," he said.

Although public pension shortfalls are pushing some states to the brink of bankruptcy, Texas is not in such dire shape, officials say. But it has 20 plans that are not considered sound because the payoff period for their unfunded liabilities exceeds 40 years. Those plans have more than 1 million active members.

Eight of the Texas plans will never eliminate their unfunded liability at current funding levels, board records show. At the top of the list is the state's largest pension fund, the Teacher Retirement System of Texas. It accounts for about half of the $42 billion shortage, according to board records. TRS managers, however, since late 2009 have chopped in half its unfunded liability to about $23 billion.

A dozen other plans, including the Fort Worth Employees Retirement Fund, have payoff periods for their unfunded liability that exceed 40 years, according to the most recent board information.

Some plan managers have not filed updated information with the board.

Hanson expects pension fund finances to improve if the stock market continues its uptick.

Most likely, the board's scrutiny will not be on plans that were in good condition before the 2008 economic meltdown but on those that were troubled before it, he said.

It has been a decade since the pension board reviewed its policy for monitoring, identifying and working with troubled plans, Hanson said.

Staff writer Aman Batheja contributed to this report.

Yamil Berard,

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