Proposed Changes In Fort Worth Plan

The Fort Worth City Manager, David Cooke, is proposing additional contributions and the elimination of the annual 2% COLA as a means to sure up the $1.6 billion unfunded Fort Worth pension system, which is forecast to become insolvent within roughly 25 years. Both employees and taxpayers are being asked to contribute more to the system.

Cooke’s suggestions flow from a task force created nearly three years ago to tackle Fort Worth’s troubled system.  This is the best that they can do after three years? What is being done with the management of the plan? I suspect that the goal remains to achieve the return on asset assumption (ROA) instead of getting a greater handle on the plan’s liabilities using multiple discount rates, and then using that output to drive investment structure and asset allocation changes. Furthermore, have they done an asset exhaustion test to actually calculate what the plan’s true ROA is?

Pension systems continue to inject too much volatility into their plans by striving to achieve a difficult ROA objective, especially this deep into a bull market. By keeping inflated ROA’s as their primary objective the plan is systematically underfunding the system through lower contributions than necessary that which are needed.

Three years seems like a very long time to determine that additional contributions are needed. It would be fascinating to learn about the other possible action items that were discussed as potential remedies for this plan’s underfunding.

 

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