Austin Firefighters Retirement Fund Reform Legislation

[Colleen Pate]

Colleagues –

I wanted to provide you an update on the dueling bills in the Legislature to reform the Austin Firefighters Retirement Fund (AFRF or the “Fund”).
Rep. John Bucy and Sen. Pete Flores have filed the City’s bill in their respective Chambers; Sen. Charles Schwertner and Rep. Ellen Troxclair have filed legislation on behalf of the Fund.

As you’ll recall, AFRF has been on the Texas Pension Review Board watchlist for two years because it is out of compliance with state requirements. It is not considered “actuarially sound” because the unfunded liability is too great. The unfunded liability is projected to reach more than $327 million by the end of this year and the payback period will exceed 100 years. Soundness requires the liabilities for a retirement fund like this to be able to be paid back in 30 years or less.

If the Pension Review Board puts the Fund on the watchlist for a third year, it will trigger mandatory reforms of the Fund. This is expected at the end of this year. Consequently, the City and the Fund agreed that moving forward with a “Voluntary Funding Soundness Restoration Plan” was the responsible course of action and agreed to a prudent cost-sharing approach that is reflected in both bills. We all realize that it will never get easier or cheaper than it is today to address this significant fiscal challenge.

But with competing bills, I’m concerned that neither will pass.

The primary sticking point has been and remains the automatic Cost-of-Living Adjustment that’s included in the Fund’s bill. Unfortunately, that would increase the unfunded liability by $89 million, bringing the total unfunded liability to $416.5 million. Under the Fund proposal, the City would bear the cost for the entirety of the additional liability.

As it stands, the retirement benefit for current Austin firefighters exceeds that of their counterparts in other large Texas cities. After 30 years of service, an Austin firefighter would receive a benefit worth 99 percent of what they were making while active. For comparison, a similar firefighter in Dallas, El Paso and Fort Worth would take home 75 percent at retirement; a Houston firefighter would get 65 percent plus $150 per month. Even new Austin firefighters, who would be hired with fewer benefits in the Tier B plan that’s part of the legislation, would retire with 90 percent after 30 years of service.

The City’s proposal preserves the Fund’s current “ad hoc COLA” approach but adds common sense financial guardrails to protect the Fund from spending more than it can afford. The Fund, however, has been telling legislators the City’s ad hoc COLA could cost us more than the Fund’s proposed automatic 1 percent COLA. That analysis appears to be based upon a false assumption by the Fund’s actuary that the City’s proposal would result in a 2 percent COLA in all future years.

While the City’s proposal does not guarantee a COLA every year, it does allow for COLAs when the Fund performs better than expected. In fact, the City’s actuary ran 10 market scenarios and found that six of the scenarios resulted in a COLA as early as 2027, just one year after the legislation would become effective. Eight of the ten scenarios resulted in a COLA by 2030 or earlier.

I’m very cognizant of the need for purchasing power protection for a retirement system with members who do not participate in Social Security. But it needs to be paid for. And we also need to consider it in the context of a very rich Deferred Retirement Option Plan (DROP) that guarantees a 5 percent return regardless of the fund’s performance.

As you know, state law requires that the mayor serve as the chair of the AFRF Board of Trustees. That means, by state law, I have a fiduciary responsibility to both the beneficiaries of the Fund and the taxpayers of Austin. The intent of the statute obviously is to assure the City is involved and part of this analysis since the City will have financial obligations. When the AFRF Board took up the legislative proposal in November, I voted against the Fund proposal as did the City Treasurer. The three votes in favor were beneficiaries of the Fund.

I didn’t want to vote against the proposal. I always honor the service and sacrifice of all our public servants. I believe the City’s proposal does that while also respecting the taxpayers of the City of Austin. I don’t believe the Fund’s proposal does that because it makes the funding soundness worse instead of improving it.