Unions Defend Traditional Pensions for Texas Public Employees

Testimony on Texas Public Employee Pensions
Before the House Committee on Pensions, Investments and Financial Services
By René Lara, Legislative Director, Texas AFL-CIO
September 12, 2012

  Chairman Truitt, committee members, the public pension systems for teachers, state employees and other public workers in Texas are sound. While our states’ pension funds are healthy, the benefits they provide our retired public employees are inadequate, largely due to the low employer contribution rate. Raising the employer matching rate a little, along with the existing employee contribution, plus the strong investment returns enjoyed by these funds, will ensure our public servants’ retirement security. 

  Millions of people and thousands of communities across the State of Texas benefit from the economic mulitiplier effect of hundreds of millions of dollars generated by the spending of public employee retirees. Through their pension funds, teachers, firefighters and other public employees are able to invest in and provide capital for private-sector companies. In fact, collectively, pension funds are able to invest in much the same way as very wealthy individuals and endowments--through the purchase of stocks, bonds, real estate and other investments by professional fund managers.

  Unfortunately, groups such as the American Legislative Exchange Council (ALEC) and the John Arnold Foundation want to take our members’ access to low-cost, professional money managers. These and other critics are calling public pension funds “unsustainable,” while recommending the creation of individual retirement accounts. They claim that our public pension funds are facing imminent danger. Not true, not in Texas.

  We believe that Texas voters envisioned a defined-benefit plan when they approved the teachers’ and state employees’ pension systems in our states’ constitution. Since then, these pension systems and the many local pension plans have survived the worst downturns in our economy. 

  The Teacher Retirement System (TRS), for example, after the worst recession ever, had a funding ratio of 82.7 percent last year. Any funding ratio above 80 percent is considered healthy. This is analogous to a homeowner having enough money in their savings account to pay off over 80 percent of his or her mortgage instantly on top of making timely monthly payments. Would we say that such a person is in imminent danger of becoming a credit risk? Raising the state’s employer contribution levels back to the levels of the early 1990s will not bankrupt the State of Texas. But turning public pension funds into 401K –type of accounts will certainly bankrupt most public employees in their old age. Keep in mind that many public employees, such as teachers, do not qualify for Social Security. That is why they rely on their pension fund as their safety net. 

  Finally, as you develop your recommendations to the entire Texas House of Representatives, we ask that you keep in mind the economic value of our state pension systems to our neighbors, friends, family members and the communities in which they spend their retirement income.

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