Update on the Health of the ERS Pension Fund

Posted on 12/10/2015

The Employees Retirement System Board of Trustees adopted the annual actuarial valuation of the ERS pension fund at its Dec. 3–4 meeting. An actuarial valuation measures the adequacy of contributions to pay out benefits and tracks changes in a fund’s value over time.

This year’s report was keenly anticipated due to the increased contribution rates enacted by the 84th Legislature in House Bill 9 . The overall picture is more positive compared with one year ago.

Key takeaways

Thanks to the increased contribution rates and the elimination of the 90-day waiting period for new employee participation, the time required to eliminate the pension fund’s unfunded liabilities has shrunk from “infinite” to 33 years.

Although fund contributions increased, market returns were lower than expected. (Two-thirds of annuity payments are generated by investment returns.) The funding period still exceeds the 31-year requirement for any type of benefit enhancement, therefore trustees will not be in a position to consider any type of annuity adjustment. Once market performance improves and the fund arrives at—and can sustain—the 31-year funding period milestone, trustees will legally be able to consider issuing an annuity increase.

The past fiscal year’s market volatility resulted in asset returns of 0.49 percent rather than the forecasted 8 percent. The actuaries cautioned, however, that this is not cause for a “knee-jerk reaction”: Investments must be analyzed from a long-term perspective, so one-year fluctuations (positive or negative) are “smoothed” over time and average 8 percent.

Additional ERS news: HDHP/HSA implementation

ERS has asked TPEA and other stakeholder groups for feedback on the design of the new high-deductible health plan/Health Savings Account (HDHP/HSA) option, which will be available to active employees and non-Medicare eligible retirees beginning Sept. 1, 2016. The agency has been directed to implement this option as a result of House Bill 966 . United Healthcare will administer the HDHP, and ERS is reviewing vendor bids for HSA administration. The ERS staff will make recommendations as to plan design and HSA vendor at the February 2016 board meeting.

Look for additional information and resources related to the HDHP/HSA option from TPEA in the new year.