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City, police pension funding could be better

Friday, April 19, 2019 by Jo Clifton

The city of Austin’s Employees Retirement System will be fully funded in about 30 years, which is longer than experts recommend. Nevertheless, actuaries with Bolton, the company that analyzed the data for all three of the city’s retirement systems, concluded that the systems are basically sound. According to a report given to the Council Audit & Finance Committee on Wednesday, in addition to the length of time for fully funding pensions, the ERS’s payroll growth assumption of 4 percent “is relatively high. Thus, adverse economic events such as an economic downturn are likely to have a greater effect on” the Employees Retirement System “than a better funded plan.” The report covered 2013-2017 and suggested that the next report include information on potential financial risks. The committee also heard a report on funding for the Austin Police Retirement System, which also assumes payroll growth of 4 percent and a fixed-rate contribution rate of about 21.3 percent. Actuaries said that means the unfunded accrued liability will be paid off in 35-37 years “if all goes as assumed.” But if the police pension payroll were to grow more slowly, actuaries noted, “for example at 3 percent (the current inflation assumption) or 3.5 percent (the current pay increase assumption), then the period necessary to pay off” the unfunded liability would increase to about 50 years. “Both of these periods are longer than the period over which we believe it is generally reasonable to fund a pension plan,” the actuaries said. They noted that the pension’s funding level “will likely be subject to substantial risk from adverse events, such as large drops in the investment markets” or recessions. The actuaries suggested that the situation be monitored closely and that serious consideration be given to increasing the contribution level.

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