Texas Public Pension Funds Set Financial Health Record

 State and local pension funds’ soundness improves from last year.

The number of state and local pension funds receiving Texas Pension Review Board recommendations for overall financial health reached a record high in 2019, according to the Texas Association of Public Employee Retirement Systems (TEXPERS).

“This is indisputably the best overall set of data we’ve seen regarding the aggregate health of Texas’ state and local pension funds,” Art Alfaro, executive director of TEXPERS, said in a release. “Clearly, the public policies established by the Texas Legislature are achieving intended results.”

A special report issued by TEXPERS said the 99 state and local pension funds that report financial statistics to the review board significantly improved their aggregate amortization periods. The report said that 45 of them achieved PRB-recommended amortization period of 0-25 years, which is the most that reached this level in eight years. The PRB has said that amortization periods are the single “most appropriate” measure of public retirement systems’ health.

“The most compelling finding is that amortization periods continued to improve despite a very bad year-end in the markets in 2018, and despite systems’ continuing efforts to lower target rates for investment returns,” Alfaro said. “If target rates had remained the same, we might have seen even greater numbers of funds improving their amortization periods.”

The report emphasized, however, that amortization periods are not the only measure of pension fund health and said the PRB has developed other tests in recent years to trigger “intensive reviews.” The evaluations are intended to help detect whether certain measures might be giving warning signs before “worrisome amortization period changes” occur.

“Our member pension systems can always strive to do better and the Pension Review Board’s expansion of issues of concern beyond amortization periods is warranted,” said Alfaro. “The intensive reviews it established a few years ago to explore other measures of pension fund health may already be having effect in the data here.”

The analysis also found that the trend of pension funds lowering their target investment return rate continues to rise. For the first time in decades, no Texas pension fund has a target investment return rate greater than 8%. Only five have a target of 8%, which is down from 11 last year, and 21 in 2017. Meanwhile, the number of pension funds with investment return target of 7% has more than doubled in the past two years to 16 in 2019 from 12 in 2018 and 7 in 2017.

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