House Plan Would Plug Hole in Pension Fund

House lawmakers unveiled a plan Tuesday to shore up Texas’ chronically underfunded retirement system for state employees. 

The roughly $440 million proposal would increase how much the state and its workers contribute to the Employees Retirement System pension fund, which currently holds just 76 cents for every dollar it promises retired workers.

Employees — who gave the plan mixed reviews — would get across-the-board pay raises to ease the strain.

“This is a balanced proposal to assure that neither the state employees nor our taxpayers are expected to fix the problem on their own,” said Rep. Dan Flynn, R-Van, who chairs the House Pensions Committee.

Under the plan, employees and the state would each boost their contributions to the fund to 9.5 percent of payroll by 2017 – 2 percent more than what each would chip in otherwise. Meanwhile, workers would see a 2.5 percent pay boost.

The Employees Retirement System benefits about 230,000 active and retired state employees, elected officials, police and custodial officers and judges. Its pension fund is short about $7.2 billion, a liability projected to grow by $500 million each year if left unaddressed.

Lawmakers have failed to fully fund the system in 19 of the past 20 years. 

“The magnitude of the issue is real,” said Rep. Sylvester Turner, D-Houston. “I think everyone wants to stop this fund from spiraling out of control.”

If not fixed, some officials fear Texas’ unfunded pension liabilities could weigh down the state’s credit rating — as has been the case in Illinois, Pennsylvania and New Jersey. Moody’s Investors Service, a major credit rating agency, highlighted that long-term possibility in a recent report.

“One of the things Wall Street is always looking at is, do you have a plan,” Flynn said. “And this is certainly a plan.”

The Texas Public Employees Association, the state’s biggest advocacy group for state employees, welcomed the announcement.

“This proposal shows a true commitment to state employees on the part of House leadership,” Gary Anderson, executive director, said in a statement.

But the Texas State Employees Union said the proposal fell short of what state workers need and would do little – if anything – to prevent them from fleeing to private sector jobs with comfortable pay.

“It’s not nearly enough,” Seth Hutchinson, the group’s vice president, said. “State employees can’t afford to work for the state anymore.”

His group wants lawmakers to plug the pension liability without raising worker contributions and give workers all workers a $6,000 raise.

The House proposal is one of two major efforts on retirement benefits. Last month, its leaders pitched a plan to patch a $768 million shortfall in the state’s health care fund for retired teachers. That plan has gained support in the Senate.

"I'm very pleased with what House Appropriations has accomplished to date,” said Rep. John Otto, R-Dayton, chairman of the chamber’s budget-writing committee. “We have taken on what I consider two of the largest items that face this state going forward.”