Battle Brews Over Texas Public Pensions, Group Seeks End of Defined benefit Plans

In a prelude for what will eventually happen in every state, a Battle brews over Texas public pensions.

Texas could be gearing up for its own Wisconsin-style grudge match over public employee benefits.

A group of high-powered Houston business leaders is starting a statewide campaign to overhaul retirement for future teachers, firefighters, police officers, judges and other state and local government workers.

"I think the state needs to get the hell out of this (pension) business completely," said lawyer Bill King , who is forming Texans for Public Pension Reform with others from the Greater Houston Partnership, an über-chamber of commerce with business members representing $1.5 trillion in assets.

Talmadge Heflin, former House appropriations chairman, agreed that it is probably too late for the pension reform group to be a major force in the 2012 elections.

But they could make waves during the 2013 legislative session, said Heflin, who has advocated for similar reforms as director of the Texas Public Policy Foundation's Center for Fiscal Policy.

Pension Haircuts Mandatory

Merely doing away with public defined benefit pension plans is insufficient. The article notes ...

In 2010, eight governors made pension reform a key campaign promise with the aim of cutting government spending and appealing to tea party supporters.

Yet not one has scrapped pensions this year in exchange for a 401(k)-style system, said Stephen Fehr, a researcher with the Pew Center on the States.

The problem is that states can't save money anytime soon by doing away with pensions.

In fact, it costs more in the midterm because taxpayers must contribute more to cover the benefits accrued by retirees and current workers because new workers would no longer be chipping in to the pension, Fehr said.

When a Texas Senate committee looked in 2008 at a similar pension conversion, the committee found no compelling reason to do so.

The state's Pension Review Board at the time estimated the combined contribution from the state and employees to the Employees Retirement System of Texas would have to rise from around 17 percent of payroll to as much as 30 percent if the pension were closed to new people.

In 30 years, the contribution rate would climb beyond 80 percent .

The first step is to stop the bleeding. The way to do that is to immediately kill defined benefit pension plans for all public employees.

The second step is to admit what has been promised cannot possibly be paid. Legislation that would allow public pension plans to go bankrupt may be needed.

Like it or not, one way or another, haircuts are coming. The sooner this is recognized and acted on, the smaller (and more equitable) the haircuts would be.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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