Mayor Sylvester Turner has pointed to the moment when both chambers of the Texas Legislature approved the city's pension reform plans — signed into law yesterday by Governor Greg Abbott — as one of the crowning achievements of his administration so far.
Houston firefighters, however, see this new legislation differently — as a way for the city to underfund their retirement plans.
And so as a result, the Houston Firefighters Relief and Retirement Fund sued the City of Houston, the mayor and city council members on Tuesday, claiming that certain provisions of the lauded pension reform plans actually violate the Texas Constitution.
"We warned everyone from the beginning that SB 2190 is unconstitutional," HFRRF board chairman David Keller said in a statement. "HFRRF recommended fair benefit adjustments to the legislature, but [left] out the unconstitutional parts, which would have still been a very appreciable cost savings to the City. The Mayor, however, positioned matters so that the only reform that the legislature could approve was the one designed by the Mayor."
The city sought $23 million in savings when it decided to cut the firefighters' pension fund from $93 million in the current budget to $70 million in the upcoming budget. But the firefighters say that this is a gross understatement, and that in fact, using what it believes is the correct formula, the city owes $148 million — more than double what is currently allotted.
That formula is tricky. Currently, HFRRF spokesman Joe Gimenez said a firefighter's monthly pension check consists of a contribution from the city, which accounts for about one-fourth of the check; its members own contributions to the fund, and the pension fund's investments in various stocks or bonds. The city's rate of contribution to the fund is determined in part based on an assumed rate of return on the investments and various other actuarial assumptions, such as how long retired firefighters live, and how much money the pension fund needs to make on its investments in order to fund retirements.
"It's like predicting the future," Gimenez said. "Everybody is trying to make the most accurate predictions about the future using these various factors."
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Here's where the alleged constitutional problems come in: Under the Texas Constitution, the pension boards have exclusive authority to decide how to calculate those various actuarial factors to arrive at the assumed rate of return. Now, under Turner's pension reform, the pension board has to collaborate with the city's own actuary to reach a compromise, and the assumed rate of return is fixed at 7 percent. This mechanism, the firefighters claim, cuts into the board's authority to control those assumptions and ultimately cuts into firefighters' retirement benefits, given that the city's own formula has arrived at half the sum the firefighters claim they are owed.
"The concern is that the control of the assumptions would essentially legalize the city's underfunding of the firefighters' pension fund," Gimenez said.
Mayor Turner said at a press conference earlier this year that as first responders ask for new equipment, higher salaries and more pension funds, it is essentially not financially possible to comply with their wishes, and asked the firefighters to meet him in the middle.
On Wednesday, he said in a statement to the Houston Press: "I would like to thank Governor Abbott for his signature, which now makes the Houston Pension Solution state law. Now, with the strong support of both the Texas House & Senate, we move forward with our city finances. It is unfortunate that some would choose to litigate such a widely supported solution to Houston's pension issues."