Only on ABC-7: Texas public pension reform movement brewing

A movement is brewing in Texas to save tax dollars by reforming public retirement plans, and it’s already being met with fierce opposition.

Some of the most vocal opponents are from the public safety sector. In El Paso, firefighters and police officers participate in a pension-style defined-benefit plan when they sign onto their respective departments.

Under a pension-style defined-benefit plan, retirees are promised checks until they die, and the amount is based on years of service. The city is responsible for making sure those payments are made and must make up the difference if there’s a shortfall.

Chief Michael Calderazzo, chairman of the El Paso Firemen & Policemen’s Pension Fund, told ABC-7 there is concern over “talk in Texas about a group out of Houston that wants to do away with defined-benefit plans.”

“What they want to do is convert everyone to a defined contribution, sort of a 401(k)-type hybrid,” he continued.

Both kinds of retirement plans rely on three sources for funding: a percentage contributed from an employee’s paycheck, a percentage contributed from the employer and returns on market investments.

However, in a 401(K)-style defined-contribution plan, the city is not forced to shore up the fund if it’s too low. Retirees are on their own — market conditions and individual contributions ultimately determine how much money is in their plan.

Ron Martin, president of the El Paso Municipal Police Officer’s Association, warns of far-reaching repercussions to retirement changes.

“Leave our pension alone,” Martin said.

He explained police and fire retirees in El Paso are not generally entitled to Social Security and must pay their own medical coverage.

“I guess I [would] have to live off the street or go [to the hospital] and say, ‘I have no money to pay, I’m indigent.’ All that affects El Paso,” said Martin.

Per state law, any potential changes in retirement plans would only affect new, incoming employees. Martin said recruitment would suffer if reforms are made.

“The quality of officers and quality of firefighters that work the streets, you’re not going to have what you have today,” he said.

However, Talmadge Heflin, director of the Texas Public Policy Foundation’s Center for Fiscal Policy, told ABC-7 defined-contribution plans in the style of 401(k)s are a better option for employees.

“They become the owner of the plan,” said Heflin, whose organization is a nonprofit think tank.

Heflin said advantages of 401(k) style defined contribution plans include building on saved funds if employees switch jobs, the ability to retain funds if the retiree dies and greater control over investments.

Plus, he said, pensions are not as secure as some may think.

“If the system goes bankrupt, then their future payments could stop,” said Heflin.

In fact, cities across the country have already gone bankrupt and many more are in trouble — due in part to massively underfunded pension obligations.

Calderazzo said El Paso is in pretty good shape.

“We structured it that way so it wouldn’t be all on one party or the other if the fund is in trouble. Both the employer and employee would fix it together,” said Calderazzo.

That’s thanks to a city council decision to borrow $210 million to shore up fire and police pension funds in 2007 and 2009. Public safety workers also sacrificed to keep the fund afloat.

“They work longer and get less out of it,” said Martin.

Back then, firefighters and police officers raised their contributions. Police now contribute 13.89 percent of their pay to the pension fund, and firefighters contribute 15.28 percent.

Calderazzo said those contribution rates are among the highest in the state –public or private.

The city, in turn, contributes 18.5 percent –the maximum city charter allows.

“It’s a pretty high max,” said Calderazzo. “There are other cities that are at 20, 20 plus because of their funding.”

Now the fire and police pension funds combined are short about $283 million dollars and about 79 percent funded.

“We’re still not out of the woods,” said Calderazzo. “There are still issues with needing to raise contributions to meet future retirement needs but that could change with better returns and investments.”

The average average current annual benefit for a fire department retiree is $39,247. The average current annual benefit for a police department retiree is $38,534.

Martin maintains the push to change retirement plans statewide is unnecessary in El Paso.

“You have all these cities who can not fiscally manage themselves now coming to the ones that could. We don’t have that problem here, we fixed it. You guys need to learn how to fix it,” said Martin.

Still, Heflin said state law should change to give cities more control over what kind of retirement system they want to offer employees.

“There’s a very high likelihood that there will be some changes made. [But] many of the cities may choose to stay with a defined-benefit plan. That would be strictly up to them,” Heflin said.

The Houston group believed to be pushing to get rid of pensions is called Texans For Public Pension Reform.
ABC-7 reached out to past and current members to see how and when they would appeal to state lawmakers but has yet to receive a response.

The police and fire pension fund is not the only one the city of El Paso is tied to. A fund is also in place for nonuniformed workers. City officials said it is about 76 percent funded. Last year, the benefit structure changed for nonuniformed municipal employees to make the fund more sustainable.