|
Houston
Police Officers Pension System (HPOPS)
|
Current
|
Proposed
|
Difference
|
|
ADC (%
of payroll)
|
22.58%
|
22.60%
|
0.02%
|
|
Employer
Normal Cost (% of payroll)
|
14.45%
|
14.90%
|
0.45%
|
|
Unfunded
Actuarial Accrued Liability (millions)
|
$636.00
|
$599.00
|
$(37)
|
|
Funded
Ratio
|
92.00%
|
92.50%
|
0.50%
|
|
Within
PRB Pension Funding Guidelines
|
Yes
|
Yes
|
N/A
|
ACTUARIAL EFFECTS
The bill would make multiple changes to Houston Firefighters Relief and Retirement Fund (HFRRF) and Houston Police Officers Pension System (HPOPS), including changes to normal retirement age, deferred retirement option plan (DROP) eligibility and participation, and actuarial assumptions and methods.
The actuarial analysis for HFRRF showed a decrease in the unfunded actuarial accrued liability (UAAL) of over $17 million with an increase in normal cost of 0.53 percent. The actuarially determined contribution (ADC) rate would increase by 0.18 percent in 2026 and by 0.22 percent in 2027.
The analysis for HPOPS showed a decrease in the UAAL of $37 million with an increase in normal cost of 0.45 percent. The ADC rate would increase by 0.02 percent.
The actuarial review states under the current Pension Review Board (PRB) Pension Funding Guidelines, funding should be adequate to amortize the UAAL over a period which should not exceed 30 years as of September 1, 2025, and not to exceed 15 years after September 1, 2040. Under state law, systems with funding periods over 30 years for too long are required to prepare a Funding Soundness Restoration Plan (FSRP) to make changes to the pension plan to put the system on a path to eventually achieve full funding.
The actuarial review notes the HFRRF July 1, 2024, actuarial valuation shows eight liability layers with a remaining amortization period of 5.208 years and one liability layer with an amortization period of 30 years. The HPOPS July 1, 2024, actuarial valuation shows a 23-year funding period if contributions were equal to the ADC. Since projected contributions are greater than the ADC, the HPOPS funding period is estimated to be closer to 12 years.
These current arrangements meet the PRB Pension Funding Guidelines. Since the bill would not be expected to have a material impact on the funding periods based on the relatively small changes in funded ratio and normal cost, the funding periods for both HFRRF and HPOPS would remain within the guidelines as well as statutory funding requirements under Section 802.2015, Texas Government Code.
SYNOPSIS OF PROVISIONS
The bill would change the HFRRF normal retirement age to the earlier of 20 years of service or age 50 with 10 years of service and the HPOPS normal retirement age to the earlier of 20 years of service or age 60 with 10 years of service. Previously HFRRF members who were hired on or after July 1, 2017, and HPOPS members hired on or after October 9, 2004, could retire at the age at which the member's age plus service exceeded 70 years.
The bill would expand the members eligible to participate in a DROP by allowing HFRRF members hired or rehired on or after July 1, 2017, and HPOPS members hired on or after October 9, 2004, to participate.
The bill would provide an optional deferred vested pension benefit for HFRRF members who terminate employment with at least 10, but less than 20, years of service. The bill would also change the cost method used to calculate liabilities from ultimate entry age normal to entry age normal.
FINDINGS AND CONCLUSIONS
The bill would impact all members in the newest tiers, including HFRRF members hired on or after July 1, 2017, and HPOPS members hired on or after October 9, 2004.
METHODOLOGY AND STANDARDS
The HFRRF analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the HFRRF actuarial valuation for July 1, 2024, with the exception of the cost method changing from ultimate entry age normal to entry age normal and the assumption that 20 percent of terminating members were assumed to elect the new deferred vested pension benefit.
The HPOPS analysis relies on the participant data, financial information, benefit structure and actuarial assumptions and methods used in the HPOPS actuarial valuation for July 1, 2024, with the exception of the cost method changing from ultimate entry age normal to entry age normal.
According to the PRB actuary, the assumptions and methods for both HFRRF and HPOPS are reasonable for this analysis.
All actuarial projections have a degree of uncertainty because they are based on the probability of occurrence of future contingent events. Accordingly, actual results will be different from the results contained in the analysis to the extent actual future experience varies from the experience implied by the assumptions. This analysis is based on the assumption that no other legislative changes affecting the funding or benefits of HFRRF will be adopted. It should be noted that when several proposals are adopted, the effect of each may be compounded, resulting in a cost that is greater (or less) than the sum of each proposal considered independently.
SOURCES
HFRRF Actuarial Analysis by Michael A. Ribble, FSA, EA, MAAA, FCA, Gallagher Benefit Services, May 19, 2025.
HPOPS Actuarial Analysis by Joeseph Newton, FSA, EA, MAAA, Gabriel, Roeder, Smith and Company, May 21, 2025.
Actuarial Review by David Fee, ASA, EA, Staff Actuary, Pension Review Board, May 21, 2025.