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NEW RETIREMENT REALITIES: PENSIONS AT A CROSSROADS By: Craig Mason Chief Pension Executive City of Houston PRESENTATION.

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Presentation on theme: "NEW RETIREMENT REALITIES: PENSIONS AT A CROSSROADS By: Craig Mason Chief Pension Executive City of Houston PRESENTATION."— Presentation transcript:

1 NEW RETIREMENT REALITIES: PENSIONS AT A CROSSROADS By: Craig Mason Chief Pension Executive City of Houston PRESENTATION

2 1 COH Pension Systems In Context - Overview 3 separate plans – civilians, police, firefighters, Administration of plans is outsourced to independent trust organizations: - Houston Municipal Employees Pension System (HMEPS) - Houston Police Officers Pension System (HPOPS) - Houston Firefighters Relief and Retirement Fund (HFRRF) The trust organizations are established and governed by separate state statutes to: - Manage the plans investments - Pay benefits when due The description of benefits is included in the state statutes HMEPS and HPOPS have ability to trump state statutes through Meet & Confer Unions do not bargain on pension benefits

3 2 COH Pension Systems In Context – Pension Board Composition HMEPS HPOPS HFRRF -Elected active beneficiaries Elected retired beneficiaries Appointed by: Mayor City Council 2 City Controller 1 City Finance Director 1 1 All other trustees 2 Elected beneficiary trustees 1 - Total trustees

4 3 COH Pension Systems In Context – Pension Participants and Assets HMEPS HPOPS HFRRF Actives 13,333 5,245 3,949 Retireds 8,340 2,878 2,550 Deferred Vesteds 5, _____ _____ _____ Total Members27,415 8,145 6,507 Est. Assets 3/31/2010$1.962B $3.085B $2.783B

5 4 COH Pension Systems The Challenge – City Contributions Increase to Unsustainable Levels,

6 5 COH Pension Systems Addressing the Challenge – In General Mayor White assumed office in January 2004 – Inherited the challenge Orchestrated a general election in May 2004: - Citizens of Houston elected to opt out of State constitutional provision prohibiting localities from reducing accrued pension benefits - Option available, but not used yet Formed a task force of business leaders to assist in addressing the issues Executed Meet & Confer Agreements with HMEPS and HPOPS Created the position of Chief Pension Executive for the City

7 6 COH Pension Systems Addressing the Challenge – HMEPS Interim steps in 2004: - reduced future benefit accrual rates - increased eligibility age for retirement from rule of 70 to rule of 75 - increased mandatory employee contribution rate from 4% to 5% - transferred an asset valued at $300 million to the pension fund - adopted a schedule of increasing dollar contributions for FY2005 thru FY2007 Resulted in reduction in actuarially calculated contribution rate from 52% to 24%

8 7 COH Pension Systems Addressing the Challenge - HMEPS Long term reform in 2007 – Adopted an objective based plan design for new employees - Integral element of total compensation - Basic Level of income replacement at no cost to employee - Promote career employment - Consider Social Security benefits - Enhance ability to hire mid-career employees - Provide employees capital accumulation opportunity/flexibility - Increase risk sharing/responsibility of employee Future City contributions of 15% of payroll

9 8 COH Pension Systems The New Plan - HMEPS Hybrid approach with both DB and DC features - Basic level of income replacement – City responsibility - Capital accumulation opportunity – employee responsibility Income replacement: - target full benefit at age 62 ** 45% + SS + EE at 25 yos ** 50% + SS + EE at 30 yos - options to retire early - optional survivors benefit - no COLA - no DROP - estimated City contribution rate, 6% of payroll Individual capital accumulation account provides supplemental benefits City risks reduced (investment, inflation, longevity) Employee risks increased with more flexibility, responsibility


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