Comments on Texas House Bill 3367 and Senate Bill 1245

Public comments prepared for the Texas House Committee on Pensions, Investments and Financial Services.

Chair Capriglione, committee members, thank you for the opportunity to offer our brief perspective on providing a new cash balance retirement benefit for future members of the Judicial Retirement System 2.

My name is Steven Gassenberger, and I serve as a policy analyst based in Houston for the Pension Integrity Project at Reason Foundation. Our team conducts quantitative public pension research and offers pro-bono technical assistance to officials and stakeholders aiming to improve pension resiliency and advance retirement security for public servants in a financially responsible way.

Our work in Texas includes actuarial modeling and technical analysis related to the state’s most recent and impactful pension reform, 2021’s SB 321, which is modernizing and strengthening the Texas Employees Retirement System (ERS) by placing new hires into a low-risk cash balance retirement plan designed to provide an attractive benefit, while also committing to fully paying off ERS’ $14 billion in unfunded liabilities over the coming decades.

Similarly, this year’s House Bill 3367 and its companion, SB 1245, would change the trajectory of the Judicial Retirement System 2 (JRS2, also managed by ERS) in a consistent and demonstrably positive direction. The proposed bills would provide a modern, low-risk cash balance retirement plan for new judges that offers a way to improve JRS2 while addressing the core issues causing today’s unfunded liabilities. From our perspective:

• JRS2 currently holds $95 million in unfunded liabilities and is projected to run out of assets in 46 years.
• HB 3367 and SB 1245 would not change retirement benefits or terms for today’s retirees or current judicial officers. It would only affect future hires.
• Cash balance retirement plans are designed to guarantee asset growth while providing a steady accrual rate, offering members portability, and ensuring retirement security.
• The proposed cash balance plan design follows the 2021 SB 321 reform for the wider ERS membership. The plan is similar to the Texas Municipal Retirement System and the Texas County and District Retirement Systems, both of which have long track records of affordably providing guaranteed retirement benefits.
• Cash balance plans have the advantage of managing the risk of runaway costs that often accompany traditional public pension systems like the Teachers Retirement System of Texas.  HB 3367 and SB1245 would slow the growth of Texas’ unfunded pension liabilities incurred for past service, giving the state the opportunity to start paying them down and ultimately returning JRS2 to full funding.

We commend Rep. Greg Bonnen and Sen. Joan Huffman, and other legislators for working to modernize and fully fund JRS2 in a meaningful way. Texas doesn’t allow structural deficits in its state budget, nor should it tolerate the equivalent of a structural budget deficit in its public pension funds. Adopting sound policies to help reduce public pension debt being passed on to future generations and tackling the important challenges facing the state’s public pension systems aligns with the long-term interests of Texas’ public workers, government employers, and taxpayers.

Thank you again for the opportunity to share our perspective on HB 3367. Please feel free to reach out if you have any questions or concerns.