Texas Legislator floats idea to help cover retiree benefit costs

This article was provided to us by Jerry Clancy

PUBLIC PENSIONS

State-run fund would let cities, counties
earn better returns on contributions
to workers' health care, life insurance.

By Robert Elder
AMERICAN-STATESMAN STAFF
Wednesday, August 13, 2008

City and county officials Tuesday welcomed the idea of a
state-run investment fund that would help local governments
pay for the mounting cost of retirees' health care.

At a House Pensions and Investments Committee meeting,
Chairwoman Rep. Vicki Truitt, R-Keller, floated the idea of a
fund to which local governments could contribute to help pay
for health care, life insurance and other benefits for
public-sector retirees.

Vicki Truitt: Brought up proposal at House committee she leads.

The fund is only an idea for Texas,
but it's an approach that some states
are using to deal with a national
accounting standard that requires
them to disclose the long-term costs
of public retiree benefits and how
they plan to pay for them.

Last year, Texas public pension
funds for state employees and
public school workers reported an
estimated $37 billion unfunded
liability in providing health care a
nd other benefits to current and future retirees. That figure
doesn't include local governments.

The size of retiree cost estimates has sparked a nationwide
debate over how to pay the bill. The costs also have generated
anxiety among public employees, who fear that benefits will
be reduced or even eliminated over time as a way to trim
budgets.

Robert Scott, assistant city manager and chief financial
officer for Carrollton, in North Texas, called the idea
"very intriguing" and potentially a great benefit to local
governments.

The fund could let local governments set aside money for
retiree costs and earn a relatively high return on their
investment, said Scott, who also is an official with the
Government Finance Officers Association of Texas.

The state's Public Funds Investment Act limits many
governmental entities to investments in short-term bonds;
the goal is to preserve capital and keep the investments
liquid, not to try to reap the highest returns.

Some governmental entities have established irrevocable
trusts to prepay some of their retiree costs, but Scott said
many government officials worry about locking in money.

The cost-disclosure rule, issued by the nonprofit
Governmental Accounting Standards Board, doesn't require
a government to set aside money to cover its long-term costs.
But it is intended to give policymakers, the public and
credit-rating agencies a view into how prepared a
government is to meet its obligations.

A 2007 Texas law gives state and local governments the
option of following the accounting standard. Texas is the
only state to reject the rule.

A state pool could be more flexible than a trust and give
cities and counties the chance to earn a higher investment
return, Scott said. That, in turn, would reduce the
unfunded liability governments face in providing retiree
benefits.

David Kester, human resources director for Harris County,
and Susan Spataro, the Travis County auditor, also
endorsed the idea.

"All of us are going to be facing this, one way or the
other," Kester said.

Kester said Harris County, like many local governments,
faces rising health care costs and an aging work force. More
than 30 percent of county employees can retire in the next
five years, he said, and retiree health care costs are
"projected to double in less than 10 years."

Scott, of Carrollton, said the number of public retirees
"is going to explode in the next several years."

Scott said when he started working for the city in 1991,
there was one retiree for every 25 employees compared
with one for every three workers today.

Those kind of numbers are why "a pay-as-you-go system
is not sustainable for many governments," he said.
"If there is an option to earmark some dollars for these
benefits and earn higher investment returns, we think
that could be very, very beneficial."

The fund could be managed by a state entity such as the
Texas Treasury Safekeeping Trust Co., the investment
company for the Texas comptroller's office.

In response to a question from Truitt, Paul Ballard, CEO
of the trust company, said a pooled benefits fund would
give local governments access to unbiased investment
advice, diversified portfolios and low costs because of the
economies of scale that come with managing large
amounts of money.