Changes would need lawmakers’ approval
ers and be competitive with private employers, said Barney Knight, an attorney who for 18 years has represented the City of Austin Employees’ Retirement System, which manages the pension fund.
Working with the pension board, city officials sought state legislation in 1999 that tweaked one eligibility rule to let workers of any age retire with 23 years of service instead of 25. “Two years may not sound like much, but it made many more people eligible to retire,” Knight said.
The measure — part of a legislative plan that the City Council and city manager’s office agreed to pursue — also raised a multiplier that the city uses to calculate pension benefits from 2.6 to 2.7 percent and allowed the city and board to increase it again a few years later, to 3 percent, Knight said. Actuaries certified, at every step, that the more generous pension terms would not harm the fund’s health, he said.
Currently, city workers retire, on average, at age 57 with 20 years of service and a salary of about $57,000. That average retiree would collect a pension of $34,200 a year, because the city multiplies years of service by 3 percent and by the worker’s average annual salary from the highest 36 months of base pay.
The city allows workers to buy up to five years of service time to retire early or increase their pension benefits.
Because employees can collect a pension after working only 20 to 23 years, nearly half of manager-level employees will be eligible to retire in the next five years.
That impending “brain drain” means Austin might lose workers who are well-versed in city operations, Human Resources Director Mark Washington said. Changing the pension plan could help avert such an exodus, he said, but the plan must remain generous enough to draw and retain quality workers.
City budget staffers weighed several possible changes to the pension formula and are still working on a final recommendation. But they agree that future workers should be 60 to 62 years old and have careers spanning 30 years to get full pension benefits. They want to reduce the multiplier to 2.3 or 2.5 percent, which means future retirees would earn about 70 percent of their pre-retirement income, as current retirees do, but would have to work longer to collect it.
City budget officials also say future workers should be able to retire early only in exchange for reduced benefits and should be allowed to buy extra service time only to increase their pension payout, not to be eligible to retire younger.
Those changes would make Austin’s plan more in line with other cities’ pension programs, Knodel said.
Anthony Ross, an audit manager at Austin Energy and one of four employees on the pension board, said he prefers an option that would allow future workers to retire at age 57 with 28 years of service.
“We are going to have employees working side by side for years, one worker under the old plan and one under the new one,” Ross said. The 57-28 option, “in terms of fairness and equity, would create less of a gap” between the old plan and the one budget staffers have proposed, he said.
Employees and the city both pay into the pension fund. Workers pay 8 percent of their base salaries, a rate that hasn’t changed since 1999.
That rate could be increased by an employee vote or a mandate from the state Legislature, but city officials haven’t asked workers to contribute more because the current rate is higher than or similar to those of other Texas cities and because Austin workers haven’t received pay raises in a few years, Knodel said.
The city has been increasing its contribution rate since 2006, after the fund showed signs of ill health. The city now contributes an amount equal employee: $41,250 Employees can retire earlier than age 50 if they have 30 years of service. They get reduced benefits. El Paso Age 55 with 10 years of service Any age with 30 years of service Annual pension for the hypothetical employee: $37,500 Employees can retire early, at ages 40 to 54, if they have 10 years of service. They get reduced benefits. Fort Worth Age 65 with five years of service Age plus years of service equals 80 Annual pension for the hypothetical employee: $45,000 Employees can retire as early as age 50 but get reduced benefits. San Antonio (part of the Texas Municipal Retirement System, a pension system for more than 800 Texas cities) Age 60 with five years of service Any age with 20 years of service Annual pension for the hypothetical employee: Would vary depending on what the employee contributed over time No early retirement option. Texas Employees Retirement System
Age plus years of service equals 80 Annual pension for the hypothetical employee: $34,500 Employees hired after Sept. 1, 2009, will be able to retire early. But their pension benefits will be reduced by 5 percent for every year they retire before age 60, with a maximum reduction of 25 percent. to 12 percent of employee salaries, but by adding the extra $9 million a year for three years, it would increase that rate to 18 percent.
That is closer to what other cities contribute, Knodel said.