U.S.

PUBLIC FINANCE

SECTOR IN-DEPTH
20 JANUARY 2015

Moody's Public Pension Landscape Series

Cost Deferrals Drive Rising Pension

Challenges for Texas and Some Locals
This is one of a series of reports analyzing state and local government pension risks across the
US states.

ANALYST CONTACTS
Thomas Aaron
312-706-9967
AVP-Analyst
thomas.aaron@moodys.com
Timothy Blake
212-553-4524
MD-Public Finance
timothy.blake@moodys.com

Texas (Aaa stable) and some of its local governments' record of contributions below

actuarial levels will drive rising pension costs for those entities. The state has greater
flexibility to address these challenges than most of its local governments, which face
greater legal constraints and procedural hurdles (see Exhibit 1).

Legal Framework and Reform Outcomes: The state has substantially more legal
flexibility to reduce benefits than its local governments. Unlike state pensions, a
constitutional protection extends to most local government pension plans in Texas.
The state has undertaken some reform efforts, such as increasing retirement ages
and employee contribution requirements. Following a 2013 victory by the city in
state court, litigation over the City of Fort Worths (Aa1 stable) pension benefit
changes is scheduled for trial in federal court in August 2015. The dispute centers
on whether the state constitutional protection of local pensions locks in benefit
formulas for the future service of current employees or alternatively allows for
prospective benefit reductions.

Distribution and Control of Plans: Pensions are widely disbursed among Texas
and its local governments, and the amount of local control varies considerably. For
some local plans, state statute guides benefits and contribution requirements, but
in other cases, local governments and/or local pension boards of trustees have more
control.

Cost Trends: The state and some local governments face rising pension costs driven
by years of contribution shortfalls. For example, the Employee Retirement System
(ERS) has requested a 59% increase in the states contribution rate for fiscals 2016
and 2017 in order to meaningfully reduce the growth rate of the plan's unfunded
liability. Some local governments, but not all, face similar rising cost and unfunded
liability challenges.

Plan Demographics: Statewide, the ratio of active employees to retirees tracks

well above national norms, although some plans are weighted more heavily toward
retirees. This mix provides an additional time cushion to build plan assets compared
to plans with older demographics, where accrued benefit payments will draw on plan
assets sooner.

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Exhibit 1

Texas and Some of its Local Governments Face Rising Pension Challenges

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on
www.moodys.com for the most updated credit rating action information and rating history.

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Legal framework and reform outcomes: The state has substantially more flexibility to reduce benefits
than local governments

Ability to adjust benefits: Ranges from very flexible (state) to moderately flexible (most local governments).

State and local government pensions in Texas historically received very little legal protection, stemming from a 1937 court
case, Dallas v. Trammell. The state's high court ruled that a more than 60% reduction in a retired police officers monthly
pension due to benefit changes enacted by the City of Dallas (Aa1 stable) were legally allowable. The court opined that the
citys legislative authority to amend benefit provisions exceeded the pensioners right to continue to receive accrued benefits, or
any whatsoever.1
The precedent set by Trammell was altered in 2003, when voters approved a state constitutional amendment that prohibited
the reduction or impairment of already accrued benefits for members of non-statewide retirement systems.2 As part of the
state constitutional amendment, local jurisdictions were given a one-time opportunity to opt-out with local voter approval.
The cities of Denison (A1), Galveston (Aa3 stable), Houston (Aa2 stable), Marshall (A1), McAllen, Paris (Aa3) and Port
Arthur (A1) opted out, preserving their flexibility.3 The constitutional amendment also excluded the City of San Antonios
(Aaa negative) police and fire plan because the state statute governing the citys plan already provided an explicit contractual
protection, limiting the city's flexibility.

Reforms and Litigation: Many state and local plans have implemented reforms that impact future employees, and increase
all employee contributions. The City of Fort Worths prospective benefit formula reforms that impacted current employees
were legally challenged, with a trial in federal court scheduled for 2015.

Reforms
The bulk of the states pension costs are associated with the ERS, for which the state is the only government plan sponsor,
and the Teachers Retirement System (TRS), where the state assumes responsibility for approximately three-quarters of plan
liabilities, including a substantial portion for local districts. The state implemented changes to TRS in 2005 that increased the
final average salary (FAS) for pension benefits, impacting employees more than five years from retirement eligibility. At the same
time, the state increased the minimum retirement age for unreduced benefits for future hires. In 2013, the state implemented
similar reforms, again increasing the minimum retirement age for future and certain non-vested, current employees.4
The state enacted similar changes to ERS benefits for future hires in 2009, when it raised the minimum retirement age,
increased the number of number of years considered in FAS for pension benefits, and increased the minimum age for an
unreduced retirement benefit. Then in 2013, the state again increased the number of years in FAS and increased the minimum
retirement age for new ERS participants. The state also phased-in employee contribution increases, raising the employee rate
to 7.5% from 6.5% of payroll incrementally from fiscal 2013-17. Despite these changes, the state will need to either increase
its contributions, enact additional benefit changes, or both in order to address plan funding challenges, according to plan
actuaries.5
At the local level, the City of Forth Worth enacted a number of benefit changes to the Forth Worth Retirement System in 2012
that were applied to future service of current employees, such as reduced service multipliers and an increased number of years
included in FAS. The changes were first recognized in the plans 2014 actuarial valuation, and reduced the reported unfunded
actuarial accrued liability (UAAL) by $68.2 million, or approximately 6%.6 The prospective changes were originally applied
only to general and police employees in the system because of an outstanding labor agreement with city firefighters. Following
the expiration of that agreement in October 2014, the city applied the same changes to firefighters as well.
Litigation
Given that the City of Fort Worths pension changes were enacted after the state constitutional amendment to protect accrued
pension benefits, the litigation surrounding the reforms centers on whether that protection extends to benefit formulas that
apply to the future service of current employees.

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The city preemptively sued its retirement system in order to obtain a determination related to its reforms compliance with
Article 16, Section 66 of the state constitution. In September 2013, a state lower court ruled that the citys changes did not
violate the state constitution. However, two police officers sued the city in federal court over the constitutionality of the changes,
and while the federal court stayed the proceedings until the state court case was completed, the trial is now scheduled for August
2015 and city firefighters have announced their intention to join the suit. While the legal arguments center on whether current
employees benefit formulas can be changed for future years of service, the plaintiffs also argue that the state court ruling should
not influence the federal court decision because the city sued itself seeking a nominal defendant and the citys retirement fund
did not fully and vigorously defend the impacted employees.7
In a separate case, the City of Houston filed a challenge to the state statute governing its firefighters' pension plan, seeking a
court decision declaring it unconstitutional. Among other items, the city asserted that the state law illegally delegates legislative
power to the pension fund and illegally regulates the affairs of a municipality because the city has little control over contribution
requirements and pension benefit levels for its firefighters.8 The citys effort was unsuccessful, as the lower court rejected its
petition in May 2014.

Distribution and control of plans: Pensions are widely dispersed among Texas and its local
governments, and the amount of local control varies considerably
Despite a large number of pension plans between the state and local governments in Texas, the bulk of Moodys Adjusted Net
Pension Liabilities (ANPLs) are concentrated in one of the states single-employer plans, ERS, the multi-employer cost-sharing
TRS, and individual employer accounts of two multi-employer agent plans, the Texas Municipal Retirement System (TMRS)
and the Texas County and District Retirement System (TCDRS) (see Exhibits 2 and 3).
State: The state participates in four single-employer plans, the largest of which is the ERS. The state is also responsible for the
largest statewide system, the TRS, where it covers a substantial portion of local school district, public university and community
college district pension costs. The fund's most recently available estimate, based on fiscal 2013 data, calculates that the state is
responsible for 77% of TRS plan Net Pension Liabilities under new GASB 67 accounting standards.
School Districts, Public Universities and Community Colleges: Entities from each of these sectors in Texas participate in
the TRS. Given the prevalence of state pension payments on behalf of local participants in TRS, local entities are only allocated
the portion of their ANPL, if any, corresponding to proportionate payment of contributions. In the case of community college
districts, the state reduced its support for TRS contributions in 2013 by passing Senate Bill 1812. The state capped its support
for community college district pension costs at half of total contributions for instructional and administrative personnel,
generating a budget savings for the state and increased costs for community college districts.
Cities: Cities have either one or more single-employer plans, and/or participate in the TMRS, a multi-employer agent plan.
Counties: Counties participate in the TCDRS, a multi-employer agent plan.

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Exhibit 2

Rated Texas State and Local Pension Participation Spread Among Many Plans
Each circle represents one plan. The size of the circle is proportionate to the number of participating issuers in each plan.

Exhibit 3

Despite Presence of Many Plans, Texas State and Local Government Adjusted Net Pension Liabilities (ANPLs) Concentrated in Only a Few
Each circle represents one plan. The size of a circle represents a plan's proportion of all ANPLs in Texas in Moody's database.

Exhibit 2 and 3 Note: Excludes entities that we do not rate. Some entities have more than one plan.
Exhibit 2 and 3 Source: Moody's pension database

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Control of large city plan benefits and contributions varies among state statute, pension boards and city legislative
authority

State statute governs state-only plans, TRS and the statewide multi-employer agent plans TMRS and TCDRS. Conversely,
control of benefits and contributions for local single-employer plans varies between state and local control. In some cases state
statute solely governs local single-employer plans, while in other cases state law delegates authority to a combination of local
governments and their pension boards. In this fashion, local control of a pension system does not necessarily mean that a local
government can enact benefit changes unilaterally. Instead, the local authority in some cases is granted to pension boards, or a
combination of a city and its pension board through periodically negotiated agreements.
For example, twelve relatively large local single-employer retirement systems called Title 109 plans have contribution rates,
benefits and the composition of their board set by state statute. However, the authority and procedures by which changes may
be enacted varies even amongst those twelve. The City of Houston, which has three Title 109 plans, negotiates meet & confer
agreements with two of its pension boards that govern employer and employee contributions, benefits and retirement eligibility.
In this fashion, the citys police and municipal employee plans are governed locally, but that control is split between the city and
pension board.
In contrast, benefits and contribution rates for Houstons firefighter pension fund or San Antonios fire and police fund cannot
be modified by local agreements, and are instead defined in state statute. Completely opposite, the ability of the City of Fort
Worth to procedurally reduce benefits with only a notice to its retirement system board of trustees is uniquely flexible among
the Title 109 plans.

Cost trends: The state and some local governments face rising cost pressure driven by contribution
shortfalls

The state faces rising pension contribution requirements and unfunded liabilities stemming from its two largest plans, ERS and
its share of TRS.
In the case of TRS, plan actuaries project employer contributions will grow, albeit at a moderate 3% annual pace through
2024. These projections assume that the plan achieves its 8% investment return target each year, among other economic and
demographic assumptions. However, even if plan assumptions hold, projected contributions will not be sufficient to prevent the
UAAL from growing by approximately 10% above its 2014 baseline level by 2019 (see Exhibit 4).
Exhibit 4

Texas TRS Projects Moderate Growth in Employer Costs and Unfunded Liabilities

Projections assume 8% annual investment target and other assumptions are met.
Source: Texas TRS actuarial valuation.

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The state faces a more rapidly growing cost and liability challenge from the ERS, where employer contributions have
consistently fallen below actuarial requirements. According to the ERS 2014 actuarial valuation, 2002 is the last time that the
plan actuarially sound contribution (ASC) was met. Further, the amortization is calculated as a level percent of payroll and is
calculated each year on a rolling or open basis. As a result, the number of years remaining to retire the UAAL under the ASC
requirement never decreases, even if the state were paying the ASC. Further, the UAAL will continue to grow infinitely barring
better-than-expected actuarial performance (e.g. investment returns) each year. Assuming the plan achieves its annual investment
return target of 8% and without further changes to scheduled contribution rates, plan actuaries project that the reported ERS
unfunded liability will grow by nearly 30% from 2014-19, double the 2010 level (see Exhibit 5).
Exhibit 5

Contribution Shortfalls Drive More Rapid Growth in Unfunded Liabilities for Texas' ERS
If plan hits investment targets, doubling of unfunded liabilities from 2010-19 still projected

Source: Texas ERS actuarial valuation.

According to the ERS 2014 actuarial valuation, the states current employer contribution rate of 7.5% of payroll, when
combined with employee contributions and expected investment earnings, will not generate assets sufficient to cover all accrued
benefits payable in the future. As a result, the plan reports a projected depletion date of 2041 in its 2014 financial statements,
which comply with the new GASB 67 pension accounting standards.
Under the new standards, the plan discounts all accrued, projected benefit payments after the depletion date using a municipal
bond rate as of the measurement date. This rate was 4.17% for the ERSs 2014 reporting. The plan continues to discount
accrued, projected benefit payments prior to the depletion date using the 8% assumed rate of investment return. The resulting
single-equivalent discount rate that drives the plans GASB 67 reporting for fiscal 2014 is 6.07%, nearly 200 basis points lower
than the discount rate under the previous GASB 25 accounting standards. Thus, the new accounting brings the reported Net
Pension Liability of ERS closer to Moodys Adjusted Net Pension Liability, which in comparison is based entirely on a 4.11%
discount rate for ERSs 2014 reporting (see Exhibit 6).

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Exhibit 6

ERS Reported Net Pension Liability Moves Closer to Moody's ANPL Under New Accounting Standards
Same plan economic condition, but projected asset depletion drives down single-equivalent discount rate for financial reporting, increases reported
liabilities

Source: ERS actuarial valuations and Comprehensive Annual Financial Reports (CAFRs)

In order to prevent the ERS from having a projected depletion date and thus using an 8% rate to discount all liabilities, the
state would have to increase its current contribution rate by 59% according to plan actuaries, from 7.5% of payroll to 11.94%
of payroll. The ERS system is seeking a state increase to the 11.94% level as part of its legislative appropriations request for the
fiscal 2016-2017 biennium.
Beyond the states largest plans, contribution shortfalls like those described above are not the norm for all public pension plans
in Texas. Only 8 out of the 81 public pension plans throughout the state that are both pre-funded and remain active have
received less than 80% of the ARC over the past seven years. Many plans have received the entire ARC, or more, over the same
time period (see Exhibit 7).
Exhibit 7

Most Public Pension Plans in Texas Collected at Least 80% of the ARC Over Past Seven Years
n = 81

Source: Texas Pension Review Board, Study of the Financial Health of Texas Public Retirement Systems. December 2014

TMRS contribution rates to remain stable for most9

The Texas Municipal Retirement System (TMRS) is a multi-employer agent plan covering nearly 850 municipalities
throughout the state, though it is treated in Exhibit 7 as one aggregated data point with 95% of the ARC contributed from all
employers combined (which arguably understates the preponderance of contributions at or very close to the ARC). State law

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requires participating employers in TMRS to fully fund the ARC as determined by the TMRS board. However, when changes
to actuarial assumptions were adopted in 2007, participating employers could elect to phase-in the increases through 2016.
Those that chose the phase-in option pay less than the ARC until the full rate is reached. The system is also allowing certain
participating employers to phase-in the rate impact of additional changes to actuarial assumptions that were adopted in 2013.9
While varied on an individual basis, contribution rates for TMRS employers in aggregate have remained relatively stable over
the past decade. For example, a typical employer paid 10.8% of payroll in 2003 and will pay 12.8% of payroll in 2015. Plan
actuaries also project that rates will remain near 2015 levels over the next decade if the plan meets its 7% investment return
target and other assumptions. Finally, the average amortization period for a TMRS plan has fallen to approximately 23 years.
As a result, plan actuaries project that within approximately the next two years, the average employer's contributions will be
sufficient to begin reducing plan unfunded liabilities.10
Varied contribution records and trajectories for single-employer plans11

The relation of past contributions to actuarial requirements varies for single-employer plans throughout the state, as does any
resulting upward pressure on future costs resulting from cost deferrals. The contribution history for the single-employer plans of
the four most populous cities in Texas not only highlights this variation, but underscores the variation in state and local control
over public pension systems previously discussed.
City of Austin

Austin (Aaa stable) participates in three single-employer plans, one for general employees, and one each for police and

firefighters. The provisions governing contributions to Austin's three plans are similar, in that state law sets benefits and
minimum employee and employer contributions. However, the city can authorize additional contributions to address plan
funding needs at its discretion, a step it has taken.
Employees in the city's general employee plan, the City of Austin Employees' Retirement System (COAERS), contribute 8%
of payroll. While the city must also contribute at least 8%, it implemented an Amended Supplemental Funding Plan in
2010, which phased-in additional city contribution increases and concurrently sought state legislation implementing a lower
benefit tier for employees hired after January 1, 2012. As a result, the city has increased its contribution rates over time, reaching
the current 18% of payroll in 2013. The employer contribution rate increase has brought the city's contributions in line with
plan actuarial requirements following years of shortfalls. From 2003 to 2011, the city only contributed between 58% and
82% of the ARC, while in 2012 and 2013, its contributions slightly exceeded the GASB ARC funding benchmark. Despite
this improvement, plan actuaries project the fund's unfunded liability will grow until at least 2024, assuming no changes to
contribution rates and annual investment returns of 7.75%.
Contributions to both of Austin's public safety plans are not locally determined, but instead are set by state law. For example,
the state statute governing the city's firefighter plan sets the city's contributions at 18% of payroll. The state has increased
the city's contribution rate steadily for police, from 17.9% of payroll in 2008 to the current rate of 21.6% of pay. Over the
same time period, however, the plan's reported unfunded liability has grown from $229 million to $306 million. The current
contribution rates are projected to amortize the unfunded liability in approximately 29 years on a level percent of pay, open
basis. While this suggests that current contributions are inadequate to prevent the reported unfunded liability from growing for
the forseeable future, the plan's GASB 67 analysis does not project a depletion date.
City of Dallas

Dallas has two main single-employer plans, its Police and Fire plan and the Employees Retirement Fund. State statute governs
the basic parameters of the public safety plan, setting rules for the determination of benefits and contribution requirements.
For example, the members of the pension plan can vote to amend future benefits. The citys contribution rate is determined
according to a schedule within the statute and is a direct function of employee contributions. Since the highest employee
contribution into the system is currently 8.5% of payroll, the city must contribute 27.5% of payroll unless it elects to contribute
more. However, the statute also limits the citys contribution to a maximum of 28.5%, unless voters authorize a higher rate or
the legislature changes the statute. In recent years, the citys 27.5% contribution rate has resulted in slight ARC underfunding

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for the public safety plan, suggesting that the reported unfunded liability will continue to grow without contribution rate
increases, benefit changes or better than expected plan experience (e.g. investment performance).
Conversely, city ordinance governs the citys plan covering general employees, the Employees Retirement Fund. A voter
approved funding procedure began in 2005, when the city (63%) and employees (37%) split the cost of a current adjusted
total obligation rate. This rate includes debt service associated with 2005 pension obligation bonds plus the total plan ARC,
with the UAAL amortized as a level percentage of payroll on a 30-year, open basis. An increase in contribution rates can only
be triggered if the updated adjusted total obligation rate differs from the previous year by more than 3% of payroll. While this
framework limits contribution rate changes to years with material changes in plan funding needs, it has also resulted in the
citys contribution tracking consistently below actuarial requirements. The plan's actuarial valuation illustrates that the city's
contribution tracked near 65% of the employer ARC from 2009 to 2013.
City of Houston

Houstons three single-employer plans each have a unique employer contribution history and framework. An annual actuarial
valuation generally determines the citys contribution rate for its police plan with the unfunded liability being amortized over
a 30-year, open period. However, the city negotiated with the pension board in 2011 to determine employer contributions for
fiscals 2012 through 2015 that have fallen short of the ARC. For example, the citys fiscal 2014 payment was approximately
71% of the actuarially determined amount. The agreement also calls for the citys payment to grow by only $10 million
annually, which is projected to result in a 78% increase in the plan's reported UAAL from 2013-23 if the plan hits its
investment return target of 8.5%.
Historical contributions to the citys municipal plan are similar, in that contributions negotiated with the pension board have
fallen below actuarial requirements. Aside from 2005 when the city used debt proceeds to bolster its contribution, it has not
contributed at an actuarially required level since 2003, according to the plan actuarial valuation. Future city contribution
increases will be the greater of a 2% of payroll increase or $10 million until the city meets the actuarially determined rate, at
which time the plans amortization method will switch to a closed basis. Plan actuaries projected this will occur in 2015 and
forecast that the citys contributions (in dollars) will increase by an average of 8% through 2018, and by a more moderate
average of 3% for the five years thereafter. These projected contribution increases will not prevent the plans unfunded liability
from growing, even if the plans 8.5% annual investment return target is hit. Under this baseline scenario, the plans unfunded
liability will grow to $2.3 billion by 2023 from $1.7 billion in 2013, an increase of 30%.
Unlike its other plans, the governing provisions of Houstons firefighter pension plan cannot be modified through agreements
with the pension board, but instead are governed by state statute. This difference was the focus of the citys lawsuit mentioned
in the previous section of this report. As a result, the citys recent contribution history matches up with the actuarial requirement
of the plan every three years, the most often the board can reset the citys contribution rate under state law. While the citys
contribution must be at least double the employee contribution rate of 9%, the board can add to the requirement in order to
match with actuarial requirements. For example, the actuarially determined rate for 2007 was 29.4% of payroll, a rate which the
city paid for fiscals 2007 through 2009. For fiscal 2015, the citys contribution rate is approximately 34% of payroll, according
to the citys court filing.
City of San Antonio

State law sets the citys employer contribution to its Police and Fire pension fund at 24.64% of payroll. As a result, the citys
contribution rate will remain stable at that rate going forward unless state law changes. Currently, the citys rate is sufficient
to cover the citys normal cost and amortize the unfunded liability as a level percentage of pay very rapidly. The results of the
last plan valuation indicate that the unfunded liability is on schedule to be fully amortized in less than eight years using the
actuarial value of assets, or approximately 12 years using the market value of assets. San Antonio also has a TMRS agent plan for
its general employees.
The wide variation in plan funding described above translates into a similarly dispersed impact of pensions on the credit profile
of the largest Texas cities. For example, San Antonio not only paid its actuarial costs in fiscal 2013, but also exhibits the smallest
Moody's ANPL compared to its operating revenues among the four cities. Conversely, 2013 financial results for both Dallas and

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Houston included the underfunding of actuarial costs. These two cities with multi-year trends of contribution shortfalls also
unsurprisingly exhibit the higher Moody's ANPLs compared to their large city peers (see Exhibit 8).
Exhibit 8

Pensions Have a Broad Credit Impact on the Largest Cities in Texas, as Indicated by Several Key Metrics
Data based on fiscal 2013 reporting
City

Reported Actuarial Costs as % of Reported Contributions as %

Operating Revenue
Operating Revenue

% of Total Actuarial Costs

Contributed (Fiscal 2013)

3 Year Avg. Moody's ANPL

(2011-13) / Operating Revenue

Austin (Aaa)
Dallas (Aa1)
Houston (Aa2)
San Antonio (Aaa)

10.8%
11.9%
14.0%
6.7%

111%
84%
74%
99%

2.9 times
4.2 times
3.5 times
1.3 times

11.9%
10.3%
10.1%
6.7%

Note: Moody's has netted out support from utility funds and non-operating funds to generate all of the above data points.
Source: Issuer CAFRs, Moody's Investors Service

Plan demographics: Statewide ratio of actives to retirees tracks well above national norms

This relatively beneficial mix of active employees and retirees for some plans in Texas provides additional time cushion to
build-up assets and stabilize or reduce contribution burdens. For example, the TRS has approximately 2.4 active employees for
each current retiree, well above the national norm of 1.6. Unfunded liabilities present a shorter-term challenge to participating
governments in plans with a greater share of retirees because accrued benefit payments are generally due sooner, and thus will
represent a draw on plan assets sooner.
The state does not enjoy the same demographic benefit with all of its plans. Whereas the TRS has a very high ratio of actives to
retirees, at 1.4 in 2013, the ERS actually falls slightly below the national average (see Exhibits 9 and 10). For all public plans in
Texas combined, the ratio of actives to retirees in 2013 was 2.2.
Exhibit 9

Large Statewide Plans Show Varying Demographic Mix, Divergent Funding Progress Under New Accounting Standards
Plans

TRS

ERS

Sectors Impacted
Plan Type
Participants in Social
Security?
Actuarial Cost Method
Actuarial Valuation Date
Moody's ANPL (billions)
Reported Unfunded Liability
As-Reported Funded Ratio
Projected Depletion Date
(GASB 67)
Assumed Discount Rate
Assumed Rate of Return

State only
Single-Employer

State, school districts, community colleges, state universities

Multi-employer cost-sharing
Some

Yes
Entry Age
8/31/2014
$25.0
$14.5
63.4%

Entry Age
8/31/2014
$125.8
$31.6
83.2%
None

2041
6.07%
8.00%

8.00%
8.00%

Year

% of ADC Paid

Investment Returns

Actives / Retirees

% of ADC Paid

Investment Returns

Actives / Retirees

2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

87%
87%
89%
90%
68%
63%
59%
49%
51%
66%

13%
9%
14%
-5%
-7%
7%
13%
8%
10%
15%

2.0
1.9
1.9
1.8
1.9
1.8
1.7
1.5
1.5
1.4

82%
83%
85%
102%
108%
86%
86%
74%
74%
79%

14%
10%
14%
-4%
-14%
11%
16%
7%
9%
17%

2.9
3.0
2.9
2.9
2.9
2.8
2.7
2.5
2.4
2.4

Source: Plan CAFRs and actuarial valuations

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Exhibit 10

Largest Pension Plan in Texas Heavily Weighted Toward Active Employees Rather Than Retirees
Provides demographic cushion more than national norms and comparisons

CalPERS is the California Public Employees Retirement System. MPSERS is the Michigan Public School Employees Retirement System. 2013 US Census data point projected by
Moody's.
Source: US Census Annual Survey of Public Pensions, plan CAFRs and actuarial valuations

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Endnotes
1 Texas Legislative Council. Analysis of Proposed Constitutional Amendments: Amendment 15 (2003).
2 Texas State Constitution. Article 16, Section 66.
3 State Pension Review Board. 2013 Guide to Public Retirement Systems in Texas.
4 Employees Retirement System of Texas. Issue Brief: ERS and TRS.
5 Employees Retirement System of Texas, 2014 actuarial valuation.
6 Employees' Retirement Fund of the CIty of Fort Worth. January 1, 2014 actuarial valuation and review.
7 Van Houten and Hall v. City of Fort Worth. Plaintiffs' Brief in Opposition to City's Amended Motion for Summary Judgment. US District Court for the
Norther District of Texas, filed September 19, 2014.
8 City of Houston v. Houston Firefighters' Relief and Retirement Fund. Plaintiffs Original Petition and Application for Injunction. District Court of Harris
County, Texas, filed January 22, 2014.
9 Texas Municipal Retirement System Actuarial Valuation Report as of December 31, 2013. Presentation by Gabriel Roeder Smith & Company, May 15,
2014.
10 State Pension Review Board. Study of the Financial Health of the Texas Public Retirement Systems. December 2014.
11 Information sources for this section include issuer CAFRs, plan CAFRs and plan actuarial valuations.

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U.S. PUBLIC FINANCE

AUTHOR
Tom Aaron
DATA VISUALIZATION
Lisa Mahapatra

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