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    Historical Texas pension information

    From Ballotpedia - Reading time: 24 min
    Public Policy Logo-one line.pngin Texas

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    The historical Texas pension information below applies to prior calendar years. The tabs below may contain information from several different fiscal years; for example, the tab labeled "As published 2015" contains information from fiscal years 2013 and 2012 (the most recent data available at the time of initial publication). For more current information regarding Texas' pension system, click here.

    As published 2016[edit]

    Pension Policy Logo on Ballotpedia.png
    Texas information (2015)
    Total contributions:
    $9,653,886,000
    Employee contributions:
    $3,981,279,000
    Government contributions:
    $5,672,607,000
    Total payments:
    $15,721,861,000
    Total cash and investment holdings:
    $234,177,213,000
    Number of state and local pension systems:
    142
    Active membership:
    1,477,698
    Inactive membership:
    323,061

    Public Policy Logo-one line.png

    Key terms
    Actuarial value of assets (AVA) • Unfunded actuarial accrued liability (UAAL) • Annual required contribution (ARC) • Discount rate • Funded ratio • Rate of return • Active member • Inactive member • OPEB
    Hover over the above
    terms for definitions.
    Note: This page utilizes information from a variety of sources. The information presented on this page reflects the most recent data available as of August 2016.

    Texas public pensions are the state mechanism by which state and many local government employees in Texas receive retirement benefits.

    According to the United States Census Bureau, there were 142 public pension systems in Texas as of 2015. Of these, seven were state-level programs, while the remaining 135 were administered at the local level. As of fiscal year 2015, membership in Texas' various pension systems totaled 1,800,760. Of these, 1,477,698 were active members.[1]

    HIGHLIGHTS
  • In fiscal year 2015, the most recent year for which information is available, total contributions of $9.7 billion were made to Texas' state and local pension systems. Of this amount, $4.0 billion came from employees.
  • In fiscal year 2015, Texas' state and local pension systems made payments totaling $15.7 billion.
  • As of fiscal year 2015, Texas' state and local pension systems held $234.2 billion in total cash and investment holdings.

    • According to a 2013 report by Morningstar, an independent financial research group, most states' pension plans continued to be funded below the 80 percent level considered necessary for a healthy fund. Decreased funding and increasing liabilities since the 2008 recession continued to put pressure on local and state budgets, in some cases leading to bankruptcy. Higher pension costs can have the following consequences:[2]

    • higher taxes
    • less intergovernmental aid for services
    • lower credit ratings
    • higher interest rates on state borrowing

    State pension systems can vary in their organization, management, and accounting principles, making them difficult to compare. The basic information on this page comes from the U.S. Census Bureau, as reported by the states and pension funds themselves for fiscal year 2015.

    General information[edit]

    See also: Pension data, U.S. Census

    According to the U.S. Census Bureau, Texas had seven state pension plans as of 2015:

    1. Texas Employees Retirement System
    2. Texas Firefighters' Pension Plan
    3. Texas Teachers Retirement System
    4. Texas Municipal Retirement System
    5. Texas County and District Retirement System
    6. Texas Physicians Referral Service Retirement Benefit Plan
    7. Texas Judicial Retirement System (Plan 2)

    In addition to the aforementioned state-level pension systems, there were 135 locally administered pension systems in Texas.[1]

    The table below provides general pension system information for Texas and surrounding states.

    General pension system information, 2015
    State Systems Total members Active members Inactive members
    State Local Members Percent of total Members Percent of total
    Texas 7 135 1,800,760 1,477,698 82.06% 323,061 17.94%
    Louisiana 14 18 298,986 200,171 66.95% 98,815 33.05%
    New Mexico 5 0 171,888 118,510 68.95% 53,378 31.05%
    Oklahoma 7 14 189,703 160,292 84.50% 29,411 15.50%
    Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

    Contributions[edit]

    See also: Pension contribution and payment data, U.S. Census

    Pension contributions are the funds paid into pension systems. These contributions come from the employer (in the case of public pensions, the government) and employees. Investment earnings are the main source of increases in the fund and are listed separately in the rightmost column in the below table.

    In fiscal year 2015, the most recent year for which information is available, total contributions of $9.7 billion were made to Texas' state and local pension systems. Of this amount, $4.0 billion came from employees. The remainder came from state and local governments. The table below provides information about pension contributions in Texas and surrounding states in fiscal year 2015.[1]

    Pension contributions, fiscal year 2015 (dollars in thousands)
    State Total contributions from employees and employers Employee contributions Government contributions Earnings on investments
    Contributions Percentage of total Contributions Percentage of total
    Texas $9,653,886 $3,981,279 41.24% $5,672,607 58.76% $4,688,881
    Louisiana $3,790,158 $735,074 19.39% $3,055,085 80.61% $2,688,345
    New Mexico $1,261,974 $546,091 43.27% $715,883 56.73% $713,324
    Oklahoma $1,768,454 $473,684 26.79% $1,294,770 73.21% $1,019,033
    Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

    Payments[edit]

    See also: Pension contribution and payment data, U.S. Census

    Payments are the amounts paid to pension recipients by their pension plans. Pension payments include benefits and withdrawals. Benefits are the regular payments made by a pension plan to the plan's recipients. Pension beneficiaries may also withdraw funds before they are due to receive regular benefits.

    In fiscal year 2015, Texas' state and local pension systems made payments totaling $15.7 billion. The table below provides pension payment information for Texas and surrounding states in fiscal year 2015. The columns labeled "Benefits," "Withdrawals," and "Other" are subsets of total payments. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).[1]

    Pension payments, fiscal year 2015 (dollars in thousands)
    State Total payments Benefits Withdrawals Other
    Texas $15,721,861 $14,370,409 $819,971 $531,482
    Louisiana $4,425,517 $4,188,444 $78,722 $158,353
    New Mexico $2,052,738 $1,903,109 $82,483 $67,147
    Oklahoma $2,304,808 $2,172,346 $56,459 $76,004
    Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

    Other post-employment benefits[edit]

    See also: Other post-employment benefits, data

    In addition to standard pension payments, some plans may offer pensioners additional benefits. These benefits, sometimes referred to as "other post-employment benefits," or "OPEBs," consist of health insurance, life insurance or other benefits that the pensioner may have received while employed. The cost of these benefits can prove complicated for actuaries to calculate because of the changes in fields like medicine. This, coupled with the normal challenges in calculating and meeting pension requirements, can result in funding shortages for pension plans.

    Unfunded liabilities totaled nearly $500 billion throughout the country for OPEBs. Texas was reported to have about $52.3 billion in unfunded liabilities for OPEBs. This was equal to about 10.51 percent of the country's total unfunded liabilities for these other services.

    The chart below displays the unfunded liabilities for Texas and its surrounding states. All dollar amounts displayed should be multiplied by 1,000,000. For instance, $300 translates to $300,000,000.

    Unfunded actuarial accrued liabilities for other post-employment benefits, fiscal year 2013 (dollars in millions)
    State Unfunded liabilities Percent of total
    Texas $52,314 10.51%
    Louisiana $8,543 1.72%
    New Mexico $3,687 0.74%
    Oklahoma $4 0.%
    U.S. total $497,693 100%
    Source: National Association of State Retirement Administrators, "Retiree Health Care Benefits for State and Local Employees in 2014," accessed April 30, 2015. Note: Although this article was dated for 2014, all figures were reported to have come from fiscal year 2013 reports.

    Cash and investment holdings[edit]

    See also: Pension data, U.S. Census

    Investments are a crucial part of the pension process. The goal is that, by investing pension contributions, the pensioner will receive more money when he or she retires than he or she and the employer were able to contribute. These investments can come in the form of cash investments, short-term investments, securities, or other investments. Cash investments are usually low-risk, short-term investments that have a lower rate of return than other types of investments. Other short-term investments are riskier than cash investments, but have the potential for greater returns. Securities can refer to stocks, bonds, or other types of financial certificates that hold some sort of financial value. As the values of these securities change, they can be traded to make a profit. While there are other applications of securities investments, this represents one of the most common practices.[3][4][5]

    As of fiscal year 2015, Texas' state and local pension systems held $234.2 billion in total cash and investment holdings. The table below summarizes pension system cash and investment holdings for Texas and surrounding states. The columns labeled "Total cash and short-term investments," "Total securities," and "Total other investments" are subsets of the grand total. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).[1]

    Total cash and investment holdings, fiscal year 2015 (dollars in thousands)
    State Grand total Total cash and short-term investments Total securities Total other investments
    Texas $234,177,213 $8,470,210 $199,169,217 $26,537,787
    Louisiana $46,019,184 $2,401,542 $37,562,341 $6,055,301
    New Mexico $25,755,515 $1,081,577 $22,753,723 $1,920,215
    Oklahoma $30,936,744 $842,958 $28,435,116 $1,658,670
    Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015"

    Pension fund management fees[edit]

    See also: Public pension fund management fees

    In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012 South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year), and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets), and its five-year rate of return was 7.53 percent.[6]

    The table below presents the information collected by MPPI for Texas and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented. Compared to surrounding states, Texas had significantly higher total net assets and total management fees.

    Public pension fund management fees, 2011-2012
    State Fiscal year Total net assets at the beginning of the year Total net assets at the end of the year Total management fees Management fees as % of total net assets Five-year rate of return
    Texas 2012 $108,539,650,082 $112,475,732,435 $530,092,885 0.49% 2.98%
    Louisiana 2012 $24,280,707,222 $23,704,758,063 $127,141,733 0.52% 1.10%
    New Mexico 2012 $21,583,017,640 $21,088,985,158 $49,646,402 0.23% -0.28%
    Oklahoma 2012; 2011 $17,208,667,211 $18,979,092,225 $45,745,016 0.27% 2.75%
    1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[6]
    Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," accessed April 23, 2015. Note: To access this data, navigate to the list of links below the article and click "Exhibit A."

    As published 2015[edit]

    Public pensions in
    Texas
    Pension Policy Logo on Ballotpedia.png
    General information (2013)
    Total contributions:
    $8,637,943,000
    Employee contributions:
    $3,784,087,000
    Government contributions:
    $4,853,856,000
    Total payments:
    $14,947,404,000
    Total cash and investment holdings:
    $213,473,749,000
    Number of state and local pension systems:
    132 (7 state systems, 125 local systems)
    Active membership:
    1,419,900
    Inactive membership:
    282,110
    Pension health (2012)
    Assets:
    $143,785,554,000
    Actuarial accrued liability (AAL):
    $175,449,348,000
    Unfunded actuarial accrued liability (UAAL):
    $31,663,794,000
    Funded ratio:
    82%
    UAAL per capita:
    $1,302
    Public pensions
    in the states
    Alabama • Alaska • Arizona • Arkansas • California • Colorado • Connecticut • Delaware • Florida • Georgia • Hawaii • Idaho • Illinois • Indiana • Iowa • Kansas • Kentucky • Louisiana • Maine • Maryland • Massachusetts • Michigan • Minnesota • Mississippi • Missouri • Montana • Nebraska • Nevada • New Hampshire • New Jersey • New Mexico • New York • North Carolina • North Dakota • Ohio • Oklahoma • Oregon • Pennsylvania • Rhode Island • South Carolina • South Dakota • Tennessee • Texas • Utah • Vermont • Virginia • Washington • West Virginia • Wisconsin • Wyoming
    Public Policy Logo-one line.png
    Public pensions • State public pension plans • Texas state budget and finances
    Note: This page utilizes information from a variety of sources. As such, the currency of the information varies somewhat. The information presented on this page reflects the most recent data available as of March 2015.


    Texas public pensions are the state mechanism by which state and many local government employees in Texas receive retirement benefits.

    According to the United States Census Bureau, there were 132 public pension systems in Texas as of 2013. Of these, seven were state-level programs, while the remaining 125 were administered at the local level. As of 2013, membership in Texas' various pension systems totaled 1,702,010. Of these, 1,419,900 were active members.[1]

    According to a 2013 report by Morningstar, an independent financial research group, most states' pension plans continued to be funded below the 80 percent level considered necessary for a healthy fund. Decreased funding and increasing liabilities since the 2008 recession continued to put pressure on local and state budgets, in some cases leading to bankruptcy. Higher pension costs can have the following consequences:[2]

    • higher taxes
    • less intergovernmental aid for services
    • lower credit ratings
    • higher interest rates on state borrowing
    HIGHLIGHTS
  • Between fiscal years 2008 and 2012, the funded ratio of Texas' state-administered pension plans decreased from 90.7 percent to 82 percent. The state paid 69 percent of its annual required contribution, and for fiscal year 2012 the pension system's unfunded accrued liability totaled $31.6 billion. This amounted to $1,302 in unfunded liabilities per capita.[2][7]

    • Background[edit]

    The basic information on this page comes from the U.S. Census Bureau, as reported by the states and pension funds themselves for fiscal year 2013. Also included are comparative data from three different reports, which looked at the states' Comprehensive Annual Financial Reports (CAFRs).

    General information[edit]

    See also: Pension data, U.S. Census

    According to the U.S. Census, Texas had seven state pension plans as of 2013:

    1. Texas Employees Retirement System
    2. Texas Firefighters' Pension Plan
    3. Texas Teachers Retirement System
    4. Texas Municipal Retirement System
    5. Texas County and District Retirement System
    6. Texas Physicians Referral Service Retirement Benefit Plan
    7. Texas Judicial Retirement System (Plan 2)[8]

    In addition to the aforementioned state-level pension systems, there were 125 locally administered pension systems in Texas.[1]

    The table below provides general pension system information for Texas and surrounding states.

    General pension system information, 2013
    State Systems Total members Active members Inactive members
    State Local Members Percent of total Members Percent of total
    Texas 7 125 1,702,010 1,419,900 83.42% 282,110 16.58%
    Arizona 4 3 474,692 256,867 54.11% 217,825 45.89%
    New Mexico 5 0 161,731 117,848 72.87% 43,883 27.13%
    Oklahoma 6 6 176,034 158,289 89.92% 17,745 10.08%
    Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

    Contributions[edit]

    See also: Pension contribution and payment data, U.S. Census

    Pension contributions are the funds paid into pension systems. These contributions come from the employer (in the case of public pensions, the government) and employees. Investment earnings are the main source of increases in the fund and are listed separately in the rightmost column in the below table.

    In fiscal year 2013, total contributions of $8.6 billion were made to Texas' state and local pension systems. Of this amount, $3.8 billion came from employees. The remainder came from state and local governments. The table below provides information about pension contributions in Texas and surrounding states in fiscal year 2013.[1]

    Pension contributions, fiscal year 2013 (dollars in thousands)
    State Total contributions from employees and employers Employee contributions Government contributions Earnings on investments
    Contributions Percentage of total Contributions Percentage of total
    Texas $8,637,943 $3,784,087 43.81% $4,853,856 56.19% $17,841,976
    Arizona $2,830,767 $1,220,233 43.11% $1,610,534 56.89% $4,733,806
    New Mexico $1,067,026 $476,727 44.68% $590,299 55.32% $2,567,484
    Oklahoma $1,616,816 $445,367 27.55% $1,171,449 72.45% $3,347,687
    Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

    Payments[edit]

    See also: Pension contribution and payment data, U.S. Census

    Payments are the amounts paid to pension recipients by their pension plans. Pension payments include benefits and withdrawals. Benefits are the regular payments made by a pension plan to the plan's recipients. Pension beneficiaries may also withdraw funds before they are due to receive regular benefits.

    In fiscal year 2013, Texas' state and local pension systems made payments totaling $15 billion. The table below provides pension payment information for Texas and surrounding states in fiscal year 2013. The columns labeled "Benefits," "Withdrawals," and "Other" are subsets of total payments. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).

    Pension payments, fiscal year 2013 (dollars in thousands)
    State Total payments Benefits Withdrawals Other
    Texas $14,947,404 $13,787,743 $657,669 $501,993
    Arizona $3,833,492 $3,425,450 $269,208 $138,835
    New Mexico $1,838,336 $1,688,343 $86,830 $63,163
    Oklahoma $2,119,356 $1,953,360 $74,671 $91,325
    Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

    Cash and investment holdings[edit]

    See also: Pension data, U.S. Census

    As of fiscal year 2013, Texas' state and local pension systems held $213.5 billion in total cash and investment holdings. The table below summarizes pension system cash and investment holdings for Texas and surrounding states. The columns labeled "Total cash and short-term investments," "Total securities," and "Total other investments" are subsets of the grand total. All dollar amounts displayed should be multiplied by 1,000 ($240,000 is equal to $240,000,000).[1]

    Total cash and investment holdings, fiscal year 2013 (dollars in thousands)
    State Grand total Total cash and short-term investments Total securities Total other investments
    Texas $213,473,749 $7,949,156 $162,045,844 $43,478,749
    Arizona $41,443,164 $2,062,350 $32,404,940 $6,975,874
    New Mexico $23,139,872 $1,285,880 $17,164,904 $4,689,088
    Oklahoma $26,611,420 $1,275,900 $23,945,848 $1,389,672
    Source: United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2013"

    Pension health[edit]

    Pension health is a term used to describe the overall state of pension systems. It can be difficult to gauge pension health in each state, but many studies use calculations to determine the average liabilities, unfunded liabilities, funded ratio and other data. Most experts believe that pension systems need to be funded at least 80 percent to be considered healthy. This information is then used to provide a snapshot of the state's overall pension health. This section provides information from three studies regarding the health of pensions in Texas and neighboring states. They found the following:

    • According to the Pew Charitable Trusts, Texas paid 69 percent of its required contribution and its funded ratio was 82 percent in fiscal year 2012.
    • According to Morningstar, the state had a per capita pension debt of $1,302 and a funded ratio of 82 percent in fiscal year 2012.
    • According to State Budget Solutions, which assumed a lower rate of return, Texas had a per capita pension debt of $11,196 and a funded ratio of 39 percent in fiscal year 2013.

    Pew research[edit]

    See also: Pew Charitable Trusts pensions study, 2014

    According to a 2014 report by the Pew Charitable Trusts, “many states are seeing their pension debt continue to increase, despite reform efforts, because of missed contributions and the continued impact of investment losses.” The funding gap between what state pension systems have promised in benefits (liabilities) and current funding (assets) increased by $158 billion from 2010 to 2012 (14 percent), leaving state-run retirement systems with $915 billion in unfunded liabilities. Only 15 states made at least 95 percent of the annual required contributions (ARCs) for their pensions between 2010 and 2012; the aggregate shortfall in funding for all state plans was $21 billion. Data on these state pensions come from the Comprehensive Annual Financial Reports (CAFRs) that each state’s pension plan prepared for fiscal year 2012; these reports include actuarial valuations based on “the expected rate of return on investments and estimates of employee life spans, retirement ages, salary growth, retention rates, and other demographic characteristics.”[9]

    All dollar amounts displayed should be multiplied by 1,000,000 (e.g., $240,000 is equal to $240,000,000,000).

    Pension health metrics from the Pew Charitable Trusts report, 2010-2012 (dollars in millions)
    State 2012 Funded ratio Percent of ARC paid
    Liability Unfunded ARC 2010 2011 2012 2010 2011 2012
    Texas $175,470 $31,670 $3,557 83% 83% 82% 82% 81% 69%
    Arizona $51,244 $14,375 $1,224 75% 73% 72% 101% 101% 101%
    New Mexico $33,887 $12,489 $875 72% 67% 63% 88% 91% 83%
    Oklahoma $33,072 $11,602 $1,095 56% 67% 65% 70% 65% 104%
    Totals in the U.S. $3,298,643 $914,653 $87,213 75% 74% 72% 78% 77% 77%
    Source: The Pew Charitable Trusts, "The Fiscal Health of State Pension Plans: Funding Gap Continues to Grow"

    Morningstar report[edit]

    See also: Pension data, 2013 Morningstar report

    In 2013, independent investment research firm Morningstar released "The State of State Pension Plans 2013," a report detailing various metrics of pension system health in all 50 states. Morningstar found a $1.2 trillion gap in 2012 for the largest 100 U.S. public pension plans (according to the actuarial firm Milliman). Based on two key drivers in Morningstar’s analysis—the funded ratio and the unfunded actuarial accrued liability (UAAL) per capita—the fiscal solvency and management of these plans varied greatly. Overall, the firm found that "more than half of all states fall below Morningstar’s fiscally sound threshold of a 70 percent funded ratio" and all state plans combined were "72.6 percent funded with a UAAL per capita of roughly $2,600.”[2]

    According to Morningstar's research, Texas' state pension system was funded at a rate of 82 percent in fiscal year 2012. The table below provides state pension system health metrics for Texas and surrounding states in fiscal year 2012. Figures in the columns labeled "Assets," "AAL," and "UAAL" are rendered in thousands of dollars (for example, $2,400,000 translates to $2,400,000,000). Figures in the remaining columns have not been abbreviated. To view the full report, click here.

    Pension health metrics from the Morningstar report, fiscal year 2012
    State Assets Liabilities (AAL) Unfunded liabilities (UAAL) Funded ratio Unfunded liabilities
    per capita
    Texas $143,785,554 $175,449,348 $31,663,794 82% $1,302
    Arizona $30,716,216 $41,348,254 $10,632,038 74.3% $1,702
    New Mexico $21,342,119 $33,859,196 $12,517,077 63% $6,218
    Oklahoma $19,710,700 $30,186,093 $10,475,393 65.3% $2,850
    Totals in the U.S. $2,157,578,916 $2,979,267,860 $821,688,945 72.40% N/A
    Source: Morningstar, "The State of State Pension Plans 2013: A Deep Dive Into Shortfalls and Surpluses," accessed September 16, 2013

    State Budget Solutions report[edit]

    See also: Pension data, State Budget Solutions report

    State Budget Solutions is "a nonpartisan, nonprofit, national public policy organization with the mission to change the way state and local governments do business."[10] It should be noted that although the organization is technically nonpartisan, its ideology and mission have conservative leanings. In November 2014, the organization released a research report that used a fair market valuation based on a discount rate of 2.743 percent to determine the unfunded liabilities of public pension plans. The group concluded that "state public pension plans were underfunded by $4.7 trillion in 2014, up from $4.1 trillion in 2013. Overall, the combined plans' funded status ... dipped 3 percentage points to 36 percent. Split among all Americans, the unfunded liability [was] over $15,000 per person."[11][12]

    According to the State Budget Solutions report, Texas' pension plans were funded at a rate of 39 percent. To read the full report, click here.

    Note that all dollar amounts displayed (excluding those under the "Unfunded liability per capita" column) should be multiplied by 1,000 (e.g., $240,000 is equal to $240,000,000).

    Pension health metrics from the State Budget Solutions report, fiscal year 2013 (dollars in thousands)
    State Assets Market liability* Funding ratio Unfunded liability Unfunded liability per capita Unfunded liability as % of 2013 gross state product
    Texas $190,832,179 $486,932,011 39% $296,099,832 $11,196 19%
    Arizona $31,866,927 $90,652,039 35% $58,785,112 $8,871 21%
    New Mexico $22,459,639 $68,853,905 33% $46,394,266 $22,251 50%
    Oklahoma $22,608,163 $69,797,055 32% $47,188,892 $12,254 26%
    Totals in the U.S. $2,679,831,466 $7,416,319,293 36% $4,736,487,827 $15,052 29%
    Source: American Legislative Exchange Council, "Promises Made, Promises Broken 2014: Unfunded Liabilities Hit $4.7 Trillion"

    Other factors[edit]

    Rate of return[edit]

    According to a 2012 analysis by the Pew Center for the States, most state pension plans assumed an 8 percent rate of return on investments at that time. Proponents argued that an 8 percent rate of return would bear out over the long-term (15-30 years). Critics asserted that this assumption was unrealistic, citing changing market conditions and lower investment returns across the board in preceding years.[13][14]

    Assuming a lower rate of return to predict investment earnings increases current plan liabilities, thereby lowering the percent funded ratio and requiring increased employer contributions (ARCs). This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[15] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[16] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[17]

    Financial crisis[edit]

    In the wake of the 2008 recession, proponents of a lower assumed rate of return argued that the standard 8 percent assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Jeffrey Friedman, a senior market strategist at MF Global, said, "To target 8 percent means some aggressive trading. Ten-year Treasury [bonds] are yielding around 2 percent, economists say we are headed for a double-dip, and house prices aren't getting back to 2007 levels for the next decade, maybe.".[18][19][20][21][22]

    Advocates of the 8 percent return rate argued that the dip following the 2008 financial crisis did not prove that there was a long-term downward trend in investment returns. According to Chris Hoene, executive director of the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[23]

    The National Association of State Retirement Administrators researched the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20- and 25-year periods ending in 2013 and found it was 7.9 percent over the 20-year period, and exceeded 8 percent for the 1-, 3- and 25-year periods. It is important to note that the NASRA data reported the median returns, which means that median annualized returns of investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[24]

    Studies and reports[edit]

    Pension fund management fees[edit]

    See also: Public pension fund management fees

    In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012 South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year), and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets), and its five-year rate of return was 7.53 percent.[6]

    The table below presents the information collected by MPPI for Texas and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented. Compared to surrounding states, Texas had significantly higher total net assets and total management fees.

    Public pension fund management fees, 2011-2012
    State Fiscal year Total net assets at the beginning of the year Total net assets at the end of the year Total management fees Management fees as a percentage of total net assets Five-year rate of return
    Texas 2012 $108,539,650,082 $112,475,732,435 $530,092,885 0.49% 2.98%
    Arizona 2012 $28,314,807,000 $27,862,236,000 $137,905,000 0.49% 1.80%
    New Mexico 2012 $21,583,017,640 $21,088,985,158 $49,646,402 0.23% -0.28%
    Oklahoma 2012; 2011 $17,208,667,211 $18,979,092,225 $45,745,016 0.27% 2.75%
    1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[6]
    Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," accessed July 1, 2013

    Other post-employment benefits[edit]

    See also: Other post-employment benefits, data

    In addition to standard pension payments, some plans may offer pensioners additional benefits. These benefits, sometimes referred to as "other post-employment benefits," or "OPEBs," consist of health insurance, life insurance or other benefits that the pensioner may have received while employed. The cost of these benefits can prove complicated for actuaries to calculate because of the changes in fields like medicine. This, coupled with the normal challenges in calculating and meeting pension requirements, can result in funding shortages for pension plans.

    Unfunded liabilities totaled nearly $500 billion throughout the country for OPEBs. Texas was reported to have about $52.3 billion in unfunded liabilities for OPEBs. This was equal to about 10.51 percent of the country's total unfunded liabilities for these other services.

    The chart below displays the unfunded liabilities for Texas and its surrounding states. All dollar amounts displayed should be multiplied by 1,000,000. For instance, $300 translates to $300,000,000.

    Unfunded actuarial accrued liabilities for other post-employment benefits, fiscal year 2013 (dollars in millions)
    State Unfunded liabilities Percent of total
    Texas $52,314 10.51%
    Arizona $220 0.04%
    New Mexico $3,687 0.74%
    Oklahoma $4 0.%
    U.S. total $497,693 100%
    Source: National Association of State Retirement Administrators, "Retiree Health Care Benefits for State and Local Employees in 2014," accessed April 30, 2015. Note: Although this article was dated for 2014, all figures were reported to have come from fiscal year 2013 reports.

    Public pensions in 2012[edit]

    The funding ratio for Texas' pension system decreased from 88.75 percent in fiscal year 2008 to 83.14 percent in fiscal year 2012, a decrease of 5.61 percentage points, or 6.3 percent. Likewise, unfunded liabilities increased from nearly $20.9 billion in fiscal year 2008 to more than $37.2 billion in fiscal year 2012.[25][26][27][28][29]

    A 2012 report from the Pew Center on the States noted that Texas' pension system was funded at 83 percent at the close of fiscal year 2010, above the 80 percent funding level experts recommend. Consequently, Pew designated the state's pension system as a "solid performer."[30]

    In fiscal year 2012, according to the systems' Comprehensive Annual Financial Reports and Actuarial Valuation Reports, Texas had a total of 1,214,022 active members in its retirement plans. Membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries, and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[31]

    The following information was collected from the systems' Comprehensive Annual Financial Reports and Actuarial Valuation Reports. The "percentage funded" was calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rate of return used to calculate fund value varied by system in fiscal year 2012 (see "Rate of return" for more information). The Government Accountability Office (GAO) and Pew Research Centers cited a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggested that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[32][33] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis used a rate of return of 3.225 percent, which was based upon the 15-year Treasury bond yield. The organization called this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Beginning in 2006, all private sector corporate pension plans incorporated market costs into their funding schemes.[34]

    Basic pension plan information -- Texas
    Plans Current value Percentage funded Unfunded liabilities Membership
    State figure SBS figure[35] State figure SBS figure[35]
    Employees Retirement System[25] $24,272,514,000 82.6% N/A[36] $5,104,555,000 N/A[36] 132,669 active members
    Law Enforcement and Custodial Officer Supplemental Retirement Fund[25] $832,451,000 82.0% $183,217,000 37,404 active members
    Judicial Retirement System - Plan 1[25] $0 0% $232,922,000 17 active members
    Judicial Retirement System - Plan 2[25] $300,433,000 95.3% $14,766,000 541 active members
    Teacher Retirement System[26] $118,326,000,000 81.9% $26,101,000,000 815,155 active members
    Municipal Retirement System[27] $19,784,800,000 87.2% $2,899,000,000 101,827 active members
    County and District Retirement System[28] $20,250,300,000 88.2% $2,702,700,000 121,963 active members
    Emergency Services Retirement System[29] $67,987,487 66.7% $33,868,555 4,446 active members
    TOTALS $183,834,485,487 83.14% 43% $37,272,028,555 $244,164,239,000 1,214,022 active members

    Annual Required Contribution[edit]

    Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Texas paid 82 percent of its annual required contribution.[30][37]

    On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[38] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants were instructed to use an actuarially determined contribution or a statutory contribution for reporting purposes.[39]

    ARC historical data
    Fiscal year ERS LECOSRF JRS I JRS II
    Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
    2012 $704,853,684 49.2% $35,056,772 0% $21,424,293 123.5% $10,715,509 38.7%
    2011 $707,136,803 58.5% $36,445,951 66.5% $23,064,889 117.0% $11,400,109 104.7%
    2010 $630,326,400 63.4% $33,759,388 82.3% $23,451,818 116.4% $11,270,298 102.1%
    2009 $529,887,917 68.4% $33,189,075 62.2% $25,325,192 111.3% $11,080,453 102.5%
    2008 $378,236,402 90.3% $19,516,223 103.5%% $27,258,289 105.1% $11,021,954 101.1%
    ARC historical data
    Fiscal year MRS CDRS ESRS
    Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
    2012 $654,300,000 101.5% $550,900,000 106% $4,423,898 80%
    2011 $764,400,000 92.1% $523,100,000 109% $3,125,329 100%
    2010 $771,900,000 88.0% $537,800,000 102% $2,875,103 100%
    2009 $757,100,000 84.8% $488,700,000 104% $2,698,271 100%
    2008 $564,700,000 100.4% $451,500,000 102% $3,160,764 356%
    **For TRS, only contribution rates were included in the actuarial valuation report; exact ARC dollar amounts did not appear to be available.

    Pension fund management fees[edit]

    See also: Public pension fund management fees

    In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012, South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year) and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets) and its five-year rate of return was 7.53 percent.[6]

    The table below presents the information collected by MPPI for Texas and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented. Compared to surrounding states, Texas had significantly higher total net assets and total management fees.

    Public pension fund management fees, 2011-2012
    State Fiscal year Total net assets at the beginning of the year Total net assets at the end of the year Total management fees Management fees as % of total net assets Five-year rate of return
    Texas 2012 $108,539,650,082 $112,475,732,435 $530,092,885 0.49% 2.98%
    Arizona 2012 $28,314,807,000 $27,862,236,000 $137,905,000 0.49% 1.80%
    New Mexico 2012 $21,583,017,640 $21,088,985,158 $49,646,402 0.23% -0.28%
    Oklahoma 2012; 2011 $17,208,667,211 $18,979,092,225 $45,745,016 0.27% 2.75%
    1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[6]
    Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," accessed April 23, 2015. Note: To access this data, navigate to the list of links below the article and click "Exhibit A."

    Public pensions in 2011[edit]

    On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.21 percent for Texas) instead of the state-reported assumed rates of return (8.00 percent for Texas' largest plan as of August 31, 2011).[40]

    The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[40]

    The adjusted net pension liability for Texas in fiscal year 2011 was ranked the third highest in the nation.[40] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

    Adjusted net pension liabilities (ANPL) relative to key economic indicators - Texas
    Governmental revenue* Personal income State GDP Per capita
    State findings 92.5% 8.9% 7.0% $3,577
    National ranking 11th 19th 20th 18th
    *Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[40]

    Historical data[edit]

    Historical pension plan data - all systems
    Year Value of assets Accrued liability Unfunded liability Funded ratio
    2008 $164,824,805,157 $185,724,111,341 $20,898,306,184 88.75%
    2010 $170,847,692,803 $203,830,424,230 $32,983,731,427 83.82%
    Change from 2008-2010 $6,022,887,646 $18,106,312,889 $12,085,425,243 -4.93%

    Reforms[edit]

    2013[edit]

    A number of bills pertaining to the administration of the state's pension programs were passed during the 2013 session of the Texas Legislature, but none constituted substantial structural reforms to the existing system.[41]

    See also[edit]

    External links[edit]

    Footnotes[edit]

    1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 United States Census Bureau, "State- and Locally-Administered Defined Benefit Pension Systems - All Data by State and Level of Government: 2015," accessed August 26, 2016 Cite error: Invalid <ref> tag; name "census" defined multiple times with different content
    2. ↑ 2.0 2.1 2.2 2.3 Morningstar, "The State of State Pension Plans 2013: A Deep Dive Into Shortfalls and Surpluses," accessed September 16, 2013
    3. ↑ Investopedia, "Cash investment definition," accessed April 6, 2015
    4. ↑ Investopedia, "Short-term investments definition," accessed April 6, 2015
    5. ↑ Investopedia, "Securities," accessed April 6, 2015
    6. ↑ 6.0 6.1 6.2 6.3 6.4 6.5 Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," accessed July 1, 2013 Cite error: Invalid <ref> tag; name "report" defined multiple times with different content Cite error: Invalid <ref> tag; name "report" defined multiple times with different content Cite error: Invalid <ref> tag; name "report" defined multiple times with different content Cite error: Invalid <ref> tag; name "report" defined multiple times with different content Cite error: Invalid <ref> tag; name "report" defined multiple times with different content
    7. ↑ The Pew Charitable Trusts, “The Fiscal Health of State Pension Plans: Funding Gap Continues to Grow,” accessed April 16, 2015
    8. ↑ U.S. Census, "2013 Survey of Public Pensions: State Data," accessed April 16, 2015. Note: To access this data, navigate to the bottom of the page and click "Unit ID file."
    9. ↑ The Pew Charitable Trusts, “The Fiscal Health of State Pension Plans: Funding Gap Continues to Grow,” accessed April 16, 2015
    10. ↑ State Budget Solutions, "About SBS," accessed October 31, 2013
    11. ↑ State Budget Solutions, "Promises Made, Promises Broken 2014: Unfunded Liabilities Hit $4.7 Trillion," accessed November 12, 2014
    12. ↑ As of 2016, it appeared that State Budget Solutions had been absorbed by the American Legislative Exchange Council.
    13. ↑ The Widening Gap Update, "Pew Center on the States," accessed October 17, 2013
    14. ↑ The New York Times, "Public Pensions Faulted for Bets on Rosy Returns," accessed May 27, 2012
    15. ↑ Benefits Magazine, "Public Pension Funding 101: Key Terms and Concepts," accessed October 23, 2013
    16. ↑ Crain's Chicago Business, "State teachers pension board lowers expected rate of return," accessed September 21, 2013
    17. ↑ Huffington Post, "California Pension Funds Expect Lower Investment Return," accessed March 14, 2012
    18. ↑ The Washington Post, "Kansas’s pension funding gap just grew by $1 billion," accessed September 6, 2013
    19. ↑ Topeka Capital-Journal, "KPERS' unfunded liability rises to $10.2B," accessed September 4, 2013
    20. ↑ Wall Street Journal, "Pensions Wrestle With Return Rates," accessed October 10, 2011
    21. ↑ The Courant, "Promising Too Much On Public Pensions," accessed August 10, 2012
    22. ↑ Business Wire, "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," accessed October 22, 2013
    23. ↑ Governing, "Expert: Governments Are Masking Their Pension Liabilities," accessed October 25, 2013
    24. ↑ National Association of State Retirement Administrators, "Issue Brief: Public Pension Plan Investment Return Assumptions," accessed October 23, 2013
    25. ↑ 25.0 25.1 25.2 25.3 25.4 25.5 25.6 25.7 25.8 Employees Retirement System of Texas, "2012 Comprehensive Annual Financial Report," accessed November 20, 2013
    26. ↑ 26.0 26.1 26.2 Teacher Retirement System of Texas, "2013 Actuarial Valuation Report," accessed November 20, 2013
    27. ↑ 27.0 27.1 27.2 Texas Municipal Retirement System, "2012 Comprehensive Annual Financial Report," accessed November 20, 2013
    28. ↑ 28.0 28.1 28.2 Texas County and District Retirement System, "2012 Comprehensive Annual Financial Report," accessed November 20, 2013
    29. ↑ 29.0 29.1 29.2 Texas Emergency Services Retirement System, "2012 Actuarial Valuation," accessed November 20, 2013
    30. ↑ 30.0 30.1 Pew Center on the States, "Widening Gap Update: Texas," accessed June 18, 2012
    31. ↑ Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
    32. ↑ United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007, accessed October 23, 2013
    33. ↑ American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012, accessed October 23, 2013
    34. ↑ Governing Magazine, " Is There a Plot Against Pensions?" accessed October 14, 2013
    35. ↑ 35.0 35.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
    36. ↑ 36.0 36.1 Analysis only available for system totals and not individual funds.
    37. ↑ Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
    38. ↑ Reuters, "Little-known U.S. board stokes hot pension debate," accessed July 10, 2012
    39. ↑ State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," accessed June 5, 2013
    40. ↑ 40.0 40.1 40.2 40.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," accessed June 27, 2013
    41. ↑ National Conference of State Legislatures, "Pensions and Retirement State Legislation Database - Texas 2013," accessed November 20, 2013
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