Austin police pension fund facing trouble

The Austin Police Department’s retirement system is in considerable trouble, with actuaries predicting that the fund will run out of money within 50 years unless the city and the officers who are members of the system reach an agreement to change current contribution levels, benefits and/or try a more novel approach.

Like other retirement funds, the Austin Police Retirement System suffered a significant loss in 2018. That loss, at $43.6 million, put the system’s rate of return in negative territory for 2018, at -6.18 percent, according to the report released Aug. 21.

Pattie Featherston, executive director of the Austin Police Retirement System, told the Austin Monitor via email, “The global stock markets were all down for 2018. The broad-based domestic Russell 3000 Index was down -5.24 percent, midcap growth was down -4.75 percent, midcap value was down -9.06 percent, small cap value was down -12.86 percent, and international markets were down -13.78 percent. Returns were looking good until December 2018, but they experienced a significant downturn that impacted the calendar year.”

The Police Retirement System portfolio of investments was valued at $718.5 million at the end of 2018 after those losses. Fortunately for the system, 2017 was an excellent year for stock market investors.

The Austin Firefighters Relief and Retirement Fund lost about $44.6 million in 2018, or about 4.68 percent of its funds, but that was significantly less than what the police pension fund lost.

Mayor Steve Adler, who chairs the firefighters retirement fund, was able to write to members of that fund that “the pension plan has maintained its financially sound position being 88.0 percent funded with a 17.90 years amortization period.”

Unlike retired police officers, retired firefighters and their beneficiaries received a cost-of-living adjustment in 2017 and 2018.

But the actuaries who looked at the police pension fund gave the city and the police this warning: “The current contribution rates are not sufficient to support the benefit structure of the System. In addition, the System is currently deferring $89 million in investment losses not yet recognized in the funded status of the System.

“We strongly encourage the System to open a dialogue with the city about what steps should be taken to put the System back on a path of sustainability. These steps could include increased contributions (member and/or city), changes to the benefits structure or a combination of both. There is no immediate danger of the System not being able to meet its benefit payment obligations. However, the dialogue with the city should begin sooner rather than later in order to ensure that any necessary changes are incorporated during the 2021 legislative session.”

Adler acknowledged via text that “the fund has challenges,” but added, “we have the time to address them.” Whatever the two sides agree to will require legislative approval, so they should finish those negotiations before the 2021 legislative session.

Kathy Mitchell of the Austin Justice Coalition told the Austin Monitor Tuesday, “The police retirement fund has a solvency problem it has to solve and … the contributions that taxpayers and police officers pay is not enough to pay the liabilities … which is, of course, the promise we made to existing police officers.”

Mitchell has worked to try to get more mental health professionals into the field to resolve problems that people often call the police to solve. Mitchell’s solution to the pension fund problem, which she has presented to Council during a budget hearing, is to hire more mental health professionals to accompany paramedics when the situation calls for it. And Mitchell proposes that the city forgo hiring the 30 police officers recommended by the police department this year.

She notes that APD plans to put its new cadets through an eight-month training program, which means those officers will not be on the street for much, if any, of the upcoming fiscal year.

Austin’s Public Safety Commission has already discussed the issue of providing more mental health professionals to assist first responders and recommended additional funding for those professionals.

Photo by WhisperToMe – Own work, Public Domain, via Wikimedia Commons.

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