Austin Takes Emergency Control Of Pensions

AUSTIN, TX — Austin’s City Council Audit & Finance Committee voted unanimously to grant itself extended legislative authority over the city’s troubled employees retirement system (COAERS) and the Austin Police Retirement System (APRS) in an effort to help absolve their troubled balance sheets.

The pensions’ liabilities were already in relatively bad shape before the pandemic, but today’s situation necessitated legislative “flexibility” to cure it. According to a report presented to the council, the APRS and COAERS funding ratios at the end of 2018 were 58.1%  and 67.6%, respectively, with both projected to sour in the near future.

Some of the recommendations included in the board’s proposal are contribution increases, benefit mitigations for new hires, and the establishment of a council group to provide policy direction on pension reforms.

 The two funds together have about $2 billion in unfunded liabilities.

“No significant easing of these long-term funding challenges is expected from investment returns alone,” the report said. The council entertained a host of considerations that would help cure the fund, including enacting a flexible contribution policy to manage their risks and liabilities, amending benefit policies to help sustain the fund’s obligations, and risk-sharing between the city and employees. In the sharing program, the city of Austin would pay at least 60% and the police would pay 40%.

Moody’s downgraded its AAA credit rating to the city of Austin in 2019 from stable to negative, citing the city’s “inability to manage the growth of liabilities and costs associated with the retiree benefit systems.” Standard & Poor’s maintained a stable outlook, but it said the city’s pattern of raising contribution rates significantly “negatively impacts finances, or material deterioration in the long-term health of the plans could affect the rating.”

The council approved a substantial increase in the city’s contribution rate for COAERS in 2010, raising it from 12% of payroll to 18% of payroll by 2013. APRS’ contribution rate increased from 18% in 2009 to 21% in 2015.

The report said APRS “has an infinite amortization period; in other words, the current funding levels are actuarially projected to remain insufficient to adequately fund the benefits. As stated in the plan’s valuation: ‘The APRS’s funded ratio is expected to continue to decrease until it reaches zero when the assets of the system are depleted.’”

From Chief Investment Officer