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Release of Pension System Annual Reports Showcases that Breakthrough City of Houston Pension Reforms Continue to Work

The City of Houston’s work on the historic pension reforms in 2017 continues to pay dividends by providing reliable and secure pension checks to retirees while bolstering the City’s financials.

“Houstonians will end 2021 knowing their City is in a much stronger financial position than when I took office,” said Mayor Sylvester Turner. “Our police officers, fire fighters and municipal employees can also enjoy the holiday season knowing their pensions are safe and will be available to them when they retire.”

In 2017, Mayor Turner crafted and then followed through on a solution to the City’s pension obligation woes that had created a significant barrier to progress in our city and eluded a cure for 17 years. The Texas Legislature approved the reform with two-thirds, bipartisan majorities, and Gov. Greg Abbott signed it into law.

City employee pensions had suffered for more than 15 years from underfunding and payments out of the reach of City budgets, but no mayor before Turner had been successful in reaching a compromise with the employee groups and attaining legislative approval.

The estimated unfunded pension liability reached as high as $8.2 billion before the 2017 reforms. The pension crisis threatened the City’s financial solvency and could have forced the layoff of thousands of employees, including police officers and fire fighters.

At the time of the reforms, the forecast was set to eliminate the estimated $8.2 billion unfunded liability of the three pension systems over 30 years. The reform also includes the innovative “cost corridor” concept, which controls costs for the City to ensure the pension systems are fully funded.

The reform plan uses a realistic 7 percent rate of return on investments. It requires the City to meet its annual contribution until the unfunded liability is fully paid in 30 years. But, due to extraordinary asset returns in Fiscal Year 2021—with all three pension plans returning more than a 30 percent rate of return, the unfunded liability of the pension plans has fallen to $1.5 billion, down from $4.9 billion in Fiscal Year 2020—a decrease of $3.5 billion. The unfunded pension liability is now anticipated to be eliminated even more quickly.

Lowering the City’s pension liability changed the City’s financial position from negative to positive in Fiscal Year 2017, and the trend continues today. Aided by the significant improvement in assets of the pension systems, the City’s financial position not only continues to be positive but continues to improve and is $2 billion higher than last year, going from $1.56 billion to $3.61 billion.

“As the City seeks to recover from the economic downturn due to COVID-19, being in a strong financial position is more important than ever,” said Mayor Turner. “We can move forward knowing that the historic pension reforms continue to work and have put the City on sound financial footing.”

“This has been an incredible year where Houstonians have shown they can and will overcome adversity, and I am so proud that we have delivered on our promise to bring sound financial management to the City of Houston,” the mayor added.

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