The City Council of Austin (Texas) is evaluating the funded status of two of its public employee pension systems — the $826 million Austin Police Retirement System and the $2.8 billion City of Austin Employees' Retirement System — and aims to introduce legislation to enable changes to be made to the two plans.
During a June 3 meeting, members of the council's Audit and Finance Committee voted to act as the legislative working group to provide policy direction and guide the legislative process, confirmed David Green, media relations manager for the city of Austin in an email.
Under Texas civic statute, Texas legislature must approve changes to funding methods and plan design. The legislature's next biennial session begins in January.
The pension fund restructuring is part of City Manager Spencer Cronk's 2020 initiative to "work closely with our partners at the police and employees' retirement systems to develop long-term strategies and options for ensuring their financial health," a committee report from Austin city staff presented during the June 3 meeting showed.
In a pension analysis report to the committee, PFM Group Consulting, which works with public sector entities, noted that the funded ratio of COAERS' defined benefit plan was 67.6% as of Dec. 31, 2018 and 58.1% for APRS.
The combined unfunded liability of the two plans is $1.9 billion.
PFM attributed the underfunding of the plans to investment returns below actuarial assumptions and the use of fixed annual contributions rather than actuarially determined contributions.
"The COAERS Board of Trustees has been working proactively to address the system's unfunded liability and shape its long-term sustainability," Christopher Hanson, COAERS' executive director, said in a statement obtained by Pensions & Investments. "The city council's Audit and Finance Committee embraced the board's policy recommendations to enact a more flexible contribution policy to manage the system's risks and fund the unfunded liability, amend benefit policies to ensure that the system's obligations are met, and utilize appropriate risk-sharing measures."
In a letter to Mr. Cronk obtained by P&I, Pattie Featherston, executive director of the Austin policemen's system, said her board "supports a tiered system with benefit changes applicable to new hires plus increased contributions from both (system) members and the city. However, to keep the city of Austin competitive with other cities and in an effort to not hinder police recruiting, it is the board's perspective that the financial impact to members should be moderate, thus carefully limiting member contribution increases now and into the future."