Texas Public Pensions Continue to Worsen

An article in the Texas Tribune identifies the issues and the struggles in state and local governments to try and fix the problems.

There are primarily three different types of public pension plans in Texas: defined benefit; defined contribution, think 401K; and cash balance. The defined benefit pays benefits based on length of service and some high average salary. Defined contribution plans consist of accumulating employee and employer contributions and investing them. The payout is based on how much money was accumulated. Cash balance plans are based on employee and employer contributions to a hypothetical account that are invested and converted to an annuity at retirement.

Here is a good description of the features from the National Public Pension Coalition.

Click on chart to enlarge

Fortunately, Georgetown employees are enrolled in the Texas Municipal Retirement System, TMRS, which is a cash balance plan. Pension experts believe the cash balance plan is the best approach to providing public pensions while protecting taxpayers from run-away costs.

However, cash balance plans are funded like any other defined benefit plan, with actuarial calculations, normal costs, discount rates, and unfunded liabilities.

Therefore, Georgetown is not completely off the hook for pension liabilities.