Commentary: Why consensus-building matters to pension review board

A little more than two years ago, when then-newly elected Gov. Greg Abbott made his appointments to the Pension Review Board, there was considerable angst and concern among the pension fund systems for police, firefighters, teachers, and municipal and state employees who would be monitored by that state agency. Would the board advocate for a radical hard turn away from traditional defined benefit plans that secure retirement for comparatively low-paid public employees?

While the answer, in retrospect, appears to be “no,” the pension fund systems have reason for continuing concern. Some previous board members in the early 2000s wasted time and effort cheerleading for wholesale conversion of pension systems to the 401(k)s used by private sector companies to reduce their commitments to the long-term well-being of their employees. If it’s good for business, they said, it should be good for government employees.

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Nothing is further from the truth. Businesses function differently from city and state governments. Businesses have been responding to the ultra-competitive global economy that forces business models to change frequently and employees to seek advancement through new jobs at other companies. By adopting more portable 401(k) retirement accounts, businesses shifted money management risks to employees, making everyone responsible for becoming de facto portfolio managers. The results of that change have created a retirement crisis that we are only now beginning to fully appreciate.

By contrast, state and local governments do not go out of business — and their employees tend to stay on the job for decades. They function under completely different laws and operating models than businesses. The pension systems generate 60 to 75 percent of employees’ earned benefits from investment returns. Those benefits, for tens of thousands of former government employees, reliably contribute more than $11 billion to the Texas economy each year. That’s comparable to the agriculture and high-tech sectors. The earned benefits keep public sector retirees off other safety net systems. The private sector can’t say the same of their retirees.

CONTINUING COVERAGE: Retired teachers say Texas lawmakers broke their promise on health care.

After watching 14 board meetings the last two years, it has become clear that they want state and local governments to keep the promises made to their employees. The board has focused on the problem of the inadequate funding of pension systems by city councils and the Texas Legislature. That has always been, at least 95 percent of the time, where difficulties begin.

It’s been helpful that the Abbott-appointed board members have listened to two appointees from previous governors who have decades of combined experience in the real underlying dynamics of pension systems. Their input, combined with the board chairman’s leadership, has caused several reports to be changed, making them more instructive and informative. The new statistical analyses point to overall trend improvements by most Texas pension systems the last eight years. They also show how pension systems have lowered their targets for future investment returns while balancing benefits with real returns. The reports confirm that pension fund managers are doing their job well.

No one can doubt the value of a strong civil service workforce to Texas after seeing the massive response by public employees from around the state to areas devastated by Hurricane Harvey. Traditional, conservative defined benefit plans helped to inspire that dedication to duty. The Pension Review Board, through its dialogue and attention to facts – not ideology – has shown that issues can be resolved through process and consensus-building. If the board stays on this course and avoids radical ideological pursuits, continuing improvements can be made.

POLITICS: Comptroller Glenn Hegar suggests reforming rainy day fund to tackle pension issue.

Patterson is executive director the Texas Association of Public Employees’ Retirement Systems.

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