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DEFINED BENEFIT

Texas governor signs Houston pension reform bill; firefighters fund sues city

Texas Gov. Greg Abbott
Texas Gov. Greg Abbott signed the legislation into law on Wednesday.

A pension reform bill for Houston's three pension funds was signed into law by Texas Gov. Greg Abbott on Wednesday, a day after the Houston Firefighters' Relief and Retirement Fund filed a lawsuit challenging the constitutionally of the bill's provisions.

The pension reform package, proposed by the city of Houston and passed the Texas Legislature on May 24, includes benefit reductions for participants in the $3.9 billion Houston Police Officers' Pension System, $3.8 billion firefighters' fund and $2.3 billion Houston Municipal Employees Pension System that would help reduce the plans' $8.2 billion in total unfunded liabilities.

The bill also requires Houston to make the full annual required contributions to the three plans, adopts a 30-year closed amortization schedule to pay off the remaining unfunded liabilities across the three pension funds and calls for the issuance of pension obligation bonds to further reduce liabilities.

The plan further reduces the pension funds' assumed rates of return to 7% from the current rates — which ranged between 8% and 8.5% when the bill passed the Legislature — and introduces a cost management mechanism, under which benefits would be reduced or employee contributions would increase if investments perform too far below established levels.

The firefighters' lawsuit, filed in Harris County District Court against the city of Houston on Tuesday, argues that the pension fund has “sole constitutional discretion” over determining the fund's actuarial assumptions, including its assumed rate or return, according to a news release from the pension fund Wednesday. On Tuesday, the pension fund board lowered its assumed rate of return to 7.25% from 8.5%.