The Houston Firefighters Relief and Retirement Fund (HFRRF) filed suit last week against the City of Houston, its mayor and the city council seeking to challenge pension reforms enacted by the state legislature that allow the city to reduce its annual pension contribution.
The HFRRF asserts that a recently enacted pension reform bill known as SB 2190 permits the city to artificially reduce its annual contribution to a fiscally irresponsible level that will result in an underfunded pension.
Texas Governor Greg Abbott signed SB 2190 into law last week creating a statutory assumption of 7% return on fund investments. The law was enacted at the behest of Houston Mayor Sylvester Turner and the city council who claim the change in assumption will allow it to save an estimated $23 million a year.
The HFRRF asserts that SB 2190 violates the Texas Constitution. According to the complaint:
- Texas Constitution Section 67(f) vests in the Board the sole authority to “administer the system or program of benefits,” “hold the assets of the system or program for the exclusive purposes of providing benefits to participants and their beneficiaries and defraying reasonable expenses of administering the system or program,” and “select legal counsel and an actuary and adopt sound actuarial assumptions to be used by the system or program.”
- This latter portion—vesting in the Board the authority to “select . . . an actuary and adopt sound actuarial assumptions to be used by the system or program”—is at issue here.
- The current version of Article 6243e.2(1) complies with the constitutional mandate because it leaves to the Board the exclusive authority to appoint an actuary and determine the actuarial assumptions to be used by the Fund.
- SB 2190 fixes an initial assumed rate of return at 7%, which could vary thereafter in accordance with actuarially assessed conditions.
- By statutorily fixing this rate, SB 2190 violates the Board’s exclusive authority to adopt actuarial assumptions under Section 67(f) of the Texas Constitution.
- SB 2190 unconstitutionally infringes on the Board’s exclusive authority to “select . . . an actuary” and “adopt sound actuarial assumptions” under Section 67(f) of the Texas Constitution.
According to a press release issued by HFRRF:
- The City’s proposed budget allocates about half the amount it owes to firefighters’ pensions under the current statute.
- The City thereby would fail to adequately pay its share, in addition to the much greater amount of Fund endowment and member contributions that goes to fund the system.
- The City’s lesser amount will severely underfund the system.
- We warned everyone from the beginning that SB 2190 is unconstitutional.
- HFRRF recommended fair benefit adjustments to the legislature, but leaving 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 suit seeks a permanent injunction against the enforcement of SB 2190, along with an award of costs and attorneys fees. SB 2190 is scheduled to go into effect on July 1, 2017.
Here is a copy of the complaint: 2017 HFRRF v Houston
Here is the HFRRF press release.