Pension Liability is Hidden

The pension liability of the City of Georgetown is hidden from public view.  The City retirement system is part of the Texas Municipal Retirement System (TMRS). Georgetown's employee's retirement is reportably funded at approximately 83.3%.  Funding levels above 80% are considered prudent by pension standards.

There is just one major problem with the reported funding level.  It assumes the investments backing up the pension systems are growing at a 7% annual rate.  As anyone who has a savings account knows, a 7% annual return in a "safe" investment is not possible.  Either TMRS is investing in high-risk instruments, or, they are fudging the books by using a 7% growth rate.

Ellen Norcross of the Mercatus Center at George Mason University has calculated the pension liability for the State of Texas.

Pension liability is calculated from each state’s pension actuarial reports. The unfunded pension liability is based on the expected return on the pension fund’s investment. The market value of the unfunded liability recalculates the value of pension obligations using the risk-adjusted discount rate, or the return on 15-year Treasury bonds, to reflect the legal guarantee associated with benefits. Changing the discount rate reveals the full liability for the plan and also reduces the funded ratio of the plan.

	Unfunded pension liability	Funded ratio	Market value of unfunded liability (risk-adjusted discount rate)	Market value of funded liability ratio
Texas	$39.87 billion	81%	$227.03 billion	43%
National average	$19.85 billion	70%	$78.79 billion	40%

The unfunded liability for the state of Texas assumed rate of return is $39.87 billion for a funded ratio of 81%. However, when the risk adjusted discount rate, or the 15 year treasury bond rate, is used, the unfunded liability balloons to $227.03 billion and a 43% funding ratio. The unfunded liabilities increased by a factor of 6X and the funding ratio decreased by 50%.

It is likely that Georgetown's share of TMRS is also significantly underfunded when using the 15 year treasury bond rate to discount the growth of the investments.

Georgetown needs to determine the unfunded pension liabilities when using a current real-world interest rate.

Ask your city councilperson to have the staff provide this information for all citizens to see!