Mayor Turner Takes Defined Contrib. Plans Off Table! #LetThePeopleVote

Turner Takes Defined Contribution Plans “Off the Table”

Turner and I both testified at the Texas House’s Pension Committee held Monday in Houston on the crisis the City is facing with its pension plans.

We actually agreed on a number of things.  For instance, we both agreed that Houston pension debt is now approaching $6 billion. You may recall that during the campaign Turner insisted that my estimate of $4 billion was an exaggeration.

We agreed that the current contribution of over $400 million does not fully fund the pensions and is unsustainable.  And we agree that without a pension deal, the City will be facing massive layoffs and service cuts as early as next year.

What we disagree on is the solution to the problem.  As many of you know I have been arguing for some time that the only permanent solution to the pension problem is a plan that ultimately transitions the City from defined benefit to defined contribution plans.  This, of course, is the conclusion that the private sector reached over the last few decades.

However, at the hearing, Turner unilaterally announced to a packed chamber of cheering City employees that any switch to defined contribution plans was “off the table” because all three pension systems are opposed to such a change.  Really?

Apparently the City Council, the Texas Legislature, and of course, the long-suffering Houston taxpayers have no say in the issue.  Oh, and by the way, polling shows that over 70% of Houstonians are in favor moving new employees to defined contribution plans.

The reason defined benefit plans are a financial death trap is that the ultimate cost of such plans is unknowable.  The cost depends on demographic and financial market conditions over many decades.  Any notion that we can predict life expectancies or interest rates over the next 40 years is pure hubris.  And the fact that we have missed the cost by nearly $6 billion in just the last fifteen years shows just how foolhardy the exercise is.  As long as we continue to delude ourselves that such clairvoyance is possible, we will continue face this crisis.  That is why a plan that fairly transitions the City to a defined contribution system is the only solution for both taxpayers and the City’s employees.

But instead of Turner and I continuing to debate this question, I have a proposal to settle our argument.   Turner has said that he is anxious to have an election to eliminate the property tax cap.  So why don’t we give Houston voters the opportunity to vote to eliminate defined benefit pension plans for new employees?  After all, shouldn’t the people that will ultimately have to pay for these plans have some say in what plans they want to offer to their new employees?

Here is my proposal.  Let’s put a referendum on the pension plans on the ballot this November.  I concede that it is unclear what the legal effect of a referendum would have under these circumstances.  But at least it would send a very clear message to the Texas Legislature, not to mention our mayor and city council, how Houston taxpayers feel about elected officials continuing a system that has plunged us into billions of dollars in pension debt.