Two bills compete to reform firefighters retirement fund

Two competing bills in the Texas Legislature aim to tackle the issue of reforming the funding structure of the Austin Firefighters Retirement Fund.

In a message on the City Council Message Board (posted by the mayor’s chief of staff, Colleen Pate), Mayor Kirk Watson said: “AFRF has been on the Texas Pension Review Board watchlist for two years because it is out of compliance with state requirements. It is not considered ‘actuarially sound’ because the unfunded liability is too great. The unfunded liability is projected to reach more than $327 million by the end of this year and the payback period will exceed 100 years.”

In Texas, a public retirement fund triggers a mandatory Funding Soundness Restoration Plan, or FSRP, if after Sept. 1, 2025, its funding period exceeds 30 years, and the funded ratio is below 65 percent in a single actuarial valuation.

Two lawmakers have written reform legislation in an attempt to avoid a forced FSRP.

Rep. John Bucy and Sen. Pete Flores filed identical bills in their respective chambers, House Bill 2802 and Senate Bill 2162, both of which have been referred to committee. Their legislation represents the city’s proposed reforms and has Watson’s support.

Sen. Charles Schwertner and Rep. Ellen Troxclair also filed legislation on behalf of AFRF in their respective chambers. SB 2345 and HB 4873 have both been referred to committee.

A major discrepancy between the city’s bill and AFRF’s bill is their approach to cost-of-living adjustments, or COLA.

AFRF Executive Director Anumeha Kumar acknowledged in the fund’s newsletter that getting the pension reform bill passed is a main priority.

“Over the past two years, the board prioritized finding a solution to provide predictable purchasing power protection for retired members,” she wrote. “The Fund hopes that the passage of the bill will accomplish that goal by ensuring that members who are not actively participating in the DROP (deferred retirement option plan) program are guaranteed a modest deferred 1 percent annual COLA. In addition, the current proposal is fiscally responsible and focuses on the long-term sustainability of the Fund, while preserving the benefits of current firefighters and not overly burdening new hires with future benefit reductions.”

Bob Nicks, president of the Austin Firefighters Association, advocated for a modest 1 percent funded COLA, still saving the city money in the long term. The firefighters’ retirement fund had been historically well-funded since it was reformed in 2010, with firefighters proactively agreeing to contribute more per pay period and reducing their benefits.

“We don’t think the city is focusing on the right things,” said Nicks, concerning the sacrifices firefighters have already made. However, he sounded hopeful on both sides’ ability to compromise, saying “our thoughts are very congruent in many ways.”

The city’s bill takes a different stance. As Watson explained, while the bill preserves the fund’s current ad hoc COLA approach, it “adds common sense financial guardrails to protect the Fund from spending more than it can afford. The Fund, however, has been telling legislators the City’s ad hoc COLA could cost us more than the Fund’s proposed automatic 1 percent COLA. That analysis appears to be based upon a false assumption by the Fund’s actuary that the City’s proposal would result in a 2 percent COLA in all future years. While the City’s proposal does not guarantee a COLA every year, it does allow for COLAs when the Fund performs better than expected. In fact, the City’s actuary ran 10 market scenarios and found that six of the scenarios resulted in a COLA as early as 2027, just one year after the legislation would become effective. Eight of the ten scenarios resulted in a COLA by 2030 or earlier.”

The mayor is concerned that with two competing bills, neither may pass. If this occurs, unfunded liability could increase $80 million to $100 million over the next two years, triggering a mandatory reform.

Watson wrote, “When the AFRF Board took up the legislative proposal in November, I voted against the Fund proposal as did the City Treasurer. The three votes in favor were beneficiaries of the Fund. I didn’t want to vote against the proposal. I always honor the service and sacrifice of all our public servants. I believe the City’s proposal does that while also respecting the taxpayers of the City of Austin. I don’t believe the Fund’s proposal does that because it makes the funding soundness worse instead of improving it.”

Both bills could be voted on this session if they continue to progress through the legislative process.

Photo made available through a Creative Commons license.

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