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Miracles Can Happen
Houston Mayor Gets a Pension Deal

Houston Mayor Sylvester Turner did the seemingly impossible and brokered a compromise that might give the city’s massively underfunded public pension program a chance at recovering. The Houston Patch has the report:

Houston Mayor Sylvester Turner’s plan to reform the city’s three pension plans has received the backing from the Houston Police Department , Houston Fire Department and the Houston Municipal Employees, Turner said Monday.

Turner’s plan, which he hopes to present to the Texas Legislature in January, called for the city’s pension systems to be fully funded by 2046.

The plan is designed to eliminate $5.6 billion in unfunded pension liability within 30 years, but would also reduce benefits avoiding more than $2.5 billion in future costs, and include the issuance of at least $1 billion in bonds.

Increased employee contributions, a less optimistic rate of return, capped cost of living adjustments, and an option to cut benefits if investment returns don’t pan out as expected are all positive achievements. As we’ve written before, the biggest barrier to pension reform has been a lack of cooperation on the part of public sector unions in meeting fiscally strained localities halfway. For now, Houston appears to have bucked this trend. One group of analysts has even gone as far as saying that this reform is a model for the country.

We wouldn’t go quite that far. For one, this compromise does not solve the crisis. The numbers add up in part because the assumed rate of return on investments is set at a still-unrealistic 7 percent (down from 8.5 percent). And while this compromise overall is a step in the right direction, we still maintain that a provision that transitions workers from a defined-benefit to a defined-contribution or 401(k)-style plan is much more suited to the economic realities of post-blue model 21st-century employment. Defined-benefit plans lead to far too much union-politician chicanery, which has plagued U.S. municipalities for decades. Moving towards a defined-contribution plan would allow workers to have a retirement plan that is more portable and flexible. And more importantly, it will cut unions out of the equation and give states far more flexibility when managing their obligations to retirees.

That all said, this reform deal—as far as it goes—is good news for those concerned about the ticking time bomb that is America’s public pension crisis. It at least shows that a deal is possible when all parties involved seek practical solutions. (It also serves to highlight just what an unworkable mess blue states like Illinois are in, given that their public sector workers have their pension benefits explicitly protected in their constitutions.)

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