Texas Watchdog has a piece today on the battle brewing in Texas over pension reform. I got a first hand look at this when I visited Austin in August to speak with some legislators. Although the state's retirement system for public employees is better funded than many states', unfunded liabilities are growing and a recent evaluation of the health of the funds by the state's Employee Retirement System concluded that, "Without action, the unfunded liability will continue to increase and make today's situation unmanageable." Still, the sticking point is what to do.
TEXAS PENSION FUNDS' STATUS
Public employee groups urge that the system be strengthened, which usually means asking taxpayers to contribute more, but not changed. The Texas Conservative Coalition wants to see the state move to a 401(k) style system before Texas winds up in the shape of other states.
There's one good precedent for that. Utah closed off its pension funds to new workers in 2010 and started placing new employees in a 401(k) system when its system's funded status dipped after the 2008 fiscal meltdown. Even with the decline, however, Utah still had a better funded ratio than most states. It made the switch because it could see the long-term writing on the wall (for more on this, you can listen to Utah Gov. Gary Herbert describe the switch on John Stossel's Fox Business show tonight, rebroadcast all weekend on the Fox Network. I'll be appearing with the governor).
The Texas battle is likely to heat up this legislative session.
There's one good precedent for that. Utah closed off its pension funds to new workers in 2010 and started placing new employees in a 401(k) system when its system's funded status dipped after the 2008 fiscal meltdown. Even with the decline, however, Utah still had a better funded ratio than most states. It made the switch because it could see the long-term writing on the wall (for more on this, you can listen to Utah Gov. Gary Herbert describe the switch on John Stossel's Fox Business show tonight, rebroadcast all weekend on the Fox Network. I'll be appearing with the governor).
The Texas battle is likely to heat up this legislative session.
Many people recognize the availability of 401 K plans. These plans will help you to have a better retirement.
I think some of Mr. Malanga's reporting on public pension issues is interesting and helpful, but he often gets key facts wrong, and this article is no exception. He states,
"Utah closed off its pension funds to new workers in 2010 and started placing new employees in a 401(k) system when its system's funded status dipped after the 2008 fiscal meltdown."
This is not correct. Effective July 2011, new hires in Utah (including state employees, public school teachers, and employees of cities and counties) may choose either a 401k plan or a pension plan. The pension plan is not closed off, and since July 2011, the vast majority of new hires have elected to participate in the pension plan, not the 401k plan.
The distinguishing feature of the Utah retirement model is that the employer has capped its retirement contribution to 10 percent of employee pay, regardless of whether the employee elects the pension or the 401k plan. If the cost of the pension plan rises above 10 percent, the employee must pay the difference.
A little more emphasis on accuracy is in order.