DALLAS — A bill requiring increased contributions to the state retirement system has won preliminary approval in the House of Representatives.
House Bill 9 by Rep. Dan Flynn, R-Canton raises state employee contributions to the Employees Retirement System pension fund by 2% to 9.5%. The state would also contribute 2% more.
State employees would also get 2.5% pay raises to offset contributions to the pension fund. Lawmakers passed the bill April 13 on a voice vote and without debate. It still must pass on third reading before going to the Senate.
The pension fund shortfall of $7.2 billion is projected to grow by about $500 million every year under current funding levels. The fund has not been fully funded in 19 of the past 20 years.
"With this legislation, we are keeping our commitment to our hardworking state employees in their retirement years," Flynn said. "This is a vital benefit to employees who earn an average salary of approximately $45,000 a year."
The employee contribution rate under current law is 7.2% for 2016 and 7.5% for 2017. The plan outlined today increases that contribution rate to 9.5 percent for 2016 and 2017.
"This is another important item that will signal to Wall Street that Texas has a plan to achieve actuarial soundness in its pension systems," Flynn said.
The legislation seeks to help ERS attain a finite amortization period. The legislation also seeks to help ERS and Texas to calculate and report lower unfunded liabilities under the new Government Accounting Standards Board standards.
"The Appropriations Committee recognizes the importance of prioritizing expenditures and fulfilling our obligation to state employees," said Rep. John Otto, chairman of the House Appropriations Committee. "This proposal accomplishes both of these goals while also attaining actuarial soundness."
The state's adjusted net pension liability is $104.4 billion, or 102.8% of all governmental fund revenues, based on fiscal 2013 data, the 14th highest ANPL-to-revenue ratio, according to Moody's Investors Service.
The state's three-year average ANPL ratio is 109.3%, third highest among the states.
Moody's adjusted net pension liability applies a bond index rate to determine the present value of plan liabilities, incorporates the market value of plan assets.
"The adjustments are not intended to replace Texas' reported liability information, but to improve comparability with other rated states," according to Moody's. "Texas' share of liability for both pension plans was determined in proportion to its contributions to each plan. The state's contribution rates to the plans are below the levels calculated by the plans' own actuaries."
While contributions to ERS were 14.6% of payroll in fiscal 2013, according to the fiscal 2013 ERS valuation, the actuarially sound contribution rate was 18.7%, according to Moody's.
"The trend in pension funding is a credit weakness for the state and could create downward rating pressure if not addressed," analysts said.
Texas is rated triple-A by the three major ratings agencies with stable outlooks.
