PENSION LEGISLATIVE UPDATE -
OCTOBER 17, 2016
Monday, October 17,
As many of you know, Board
members have been discussing possible solutions to the sustainability of our
pension system with the following understanding of the present environment:
1. Prior legislative attempts
to fundamentally change our system to a DC Plan will continue unabated;
2. The present contract
cannot sustain the system or resolve the unfunded liability going forward;
3. The need for fundamental changes
to all three city plans is self-evident and growing; and,
4. It is better to work with
the city to craft a mutually desirable result rather than leaving it in the
hands of Austin.
With that in mind,
your trustees have met with city representatives, legislative representatives,
legal representatives, actuaries, and a host of other key players to develop
recommendations that would address the needs for all involved while minimizing
the impact to any particular class of employees and retirees. We also felt it
important to share the topics being discussed with the understanding that
rumors will soon overshadow reality. The following topics are under
consideration, and we are asking our actuary to determine the economic impact
of them. These are POSSIBLE changes at this point and do NOT
reflect any final agreement with or promise to the City.
1. Pension obligation bonds
to immediately pay HPOPS $750,000,000.00 to make up for historical underfunding
and the interest thereon.
2. Statutory language that
prohibits the City from under-contributing in the future.
3. Reducing the discount rate
(what we must earn through investments) from 8% to 7%.
4. Closing the amortization
period down from 30 years to 20 years.
5. Modifying the pension
formula for those hired post-2004 to reflect the Rule of 70.
of 70 defined as years of service plus age.
6. Changing the formula for
cost of living adjustments (COLA) to model after social security.
7. Restricting COLA
eligibility to an age certain.
8. Establishing participation
caps in DROP for those eligible to reflect the following limits:
than 20 years of service – 10 years
than 5 years in DROP – 15 years
years or greater in DROP, but less than 10 – 18 years, and
years or greater in DROP – 20 years
No more DROP recalculations at time of retirement.
10. Removing backdrop option.
11. Employee contributions no longer credited to DROP.
12. COLA ineligibility for DROP accounts.
13. Employee contribution rate of 10.5% for all employees.
14. Interest crediting for DROP/PROP changed to reflect a
percentage of the 5-year average with a floor of 2.5% and no ceiling; however,
no interest to be credited for years when plan investment returns are negative.
15. Potential moratorium on COLAs for all plan participants
not to exceed eight years, except for retirees 70 years of age or older.
16. No further annuity deferrals into PROP.
17. Future multipliers for pre-2004 hires changed to 2.25% for
the first 20 years of service prospectively and then 2.00% for each year
18. Establishing a risk-sharing corridor plan with Meet and
Confer as a safety valve to ensure the system is properly funded.
19. Maximum pension benefit based on highest civil service
Again, these are simply topics being discussed at this point in order to reach
the result necessary for sustainability. These items, as well as others,
Are subject to change, redaction, addition, or
other modifications. Furthermore, no changes will take effect until the
legislature acts upon them.
Of note is the fact that no retroactive changes
will reach benefits already earned or any interest already accrued within
DROP/PROP accounts. [More]