In February, Fort Worth took a positive step towards improving the solvency of its Employees’ Retirement Fund (FWERF). Last December the Fort Worth City Council passed a pension reform proposal that was then put to the employees for a final vote. In order to pass, the reform needed more than 50 percent of the city’s employees to approve the plan.
To clearly communicate the costs and benefits of the proposed changes to the city’s workers, Fort Worth leadership spent the month of January on an education campaign, which included several written and in-person sessions to detail all of the complex concepts involved in the decision.
The results are now in, and more than 59 percent of total employees, almost 80 percent of those who voted, voted in favor of the pension reform plan, which says a lot about the city’s leadership and their ability to communicate to those they represent.
The crisis had been brewing for years and required a multifaceted solution. As of FY2017, FWERF faced an unfunded liability of around $1.6 billion, with a funded ratio of 58 percent (based on GASB accounting standards). We detailed the causes of that pension debt and the solutions required to address those problems here last September.
The changes to Fort Worth’s public pension plan focus on adjustments to both contributions and benefits. The reform also adds a limited “risk-sharing” automatic adjustment feature to both employee and employer contributions and several changes to the pension plan’s benefit structure.
That said, the city did miss an opportunity to address one of the major sources of unfunded liability by not addressing the plan’s problems with overly optimistic assumptions, namely the assumed rate of return.
Despite its shortfalls, the reform plan passed by the Fort Worth City Council, and approved by the city’s employees, is a major step in the right direction. The adopted plan will improve the solvency of FWERF through increased contributions along with automatic adjustments, and all of this without cutting any pension benefits already earned by members and retirees.
The additional costs of the city’s pension plan going forward will cost both taxpayers and workers, but Fort Worth’s communal willingness to act will save money in the long-run and potentially help the city avoid intervention from the state legislature. Both the city council and the city’s employees deserve a great deal of credit for making a difficult, yet necessary change that will eventually improve the fiscal health of FWERF.