CITY | STATE PAGE A3 City settles pension suit for $40 million

Agreement with an actuarial firm for far less than sought includes dismissal of other cases

Houston has agreed to settle a lawsuit it filed four years ago against an actuarial firm it blamed for contributiing to the city’s multi-billiondollar pension crisis for $40 million, less than 5 percent of what it originally sought in damages.

Houston has agreed to settle a lawsuit it filed four years ago against an actuarial firm it blamed for contributing to the city’s multi-billion-dollar pension crisis for $40 million, less than 5 percent of what the city originally had claimed in damages.

Under the settlement City Council will be asked to approve Wednesday, Houston’s outside counsel, Susman Godfrey, would collect $11 million, and $29 million would be deposited into the city’s general fund.

Houston filed suit in July 2014, saying city officials' reliance on the advice of Towers Perrin, now known as Willis Towers Watson, led them to boost workers’ retirement benefits in 2001 and saddle taxpayers with unaffordable pensions costs as a result.

Rather than increasing slightly, as the actuaries had predicted, the city’s pension costs spiked after the 2001 changes. The city repeatedly shorted its rising payments to its pension funds, creating a debt of more than $8 billion by the time Mayor Sylvester Turner passed a pension reform package at the Legislature last year.

In the lawsuit against Towers, the city alleged negligence and malpractice and sought damages of $832 million; that figure later was revised to $432 million.

The suit targeted only Towers’ work for the firefighters’ pension fund, but the city as part of the settlement would dismiss that case and agree not to sue Towers over its work for the police or municipal workers’ pension funds during the same period. Towers’ actuarial reports were commissioned by

the worker-controlled pension boards; the city did not seek second opinions on Towers’ projections.

Alex Romain, lead counsel for Towers on the case, declined comment Friday.

City Controller Chris Brown, Houston’s elected financial watchdog, called the settlement “woefully inadequate,” not only for the agreed-upon dollar amount but also because it prevents the city from pursuing claims related to the two pension funds in worse financial condition than the firefighters’ fund.

The city attorney at the time the lawsuit was filed, David Feldman, had said the fire pension case was “cleaner” but that it could be feasible to sue the firm over its work for the city’s other pension funds.

“A settlement of $40 million – of which only $29 million will actually be received by the city — for a multi-billion dollar actuarial mistake does not make fiscal sense,” Brown said. “During these lean financial times, an equitable settlement could have gone a long way in addressing the city’s structural deficit — I’m afraid this settlement will hardly make a dent.”

A similar suit in Alaska, where state pensioners have their retirement and health care benefits covered, resulted in another actuarial firm settling for $500 million. Milwaukee County, Wis., settled a comparable case for $45 million.

The $29 million to be deposited into the general fund is equivalent to the annual operating budget of Houston’s municipal courts, for example, but it also represents less than 5 percent of the city’s original estimate of damages. The city’s annual general fund operating budget is $2.4 billion.

Towers reported revenues of $8.2 billion in 2017.

Mayor Sylvester Turner’s office, in a prepared statement, said, “The parties have settled the dispute in order to avoid the costs and uncertainty of litigation and to put this dispute behind them.”

The statement says the parties agree the settlement does not constitute an admission of wrongdoing on Towers’ part.

City Councilman Michael Kubosh, who was among those to argue the hearings should be open, said he was pleased to see the dispute reach an end.

“What we received is about 10 percent of what we were asking for, but it’s still a very large amount of money,” he said. “I’m just glad we’re able to get something out of it. I never expected us to get anything.”