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State employee retirement fund loses $6.5 billion in value in 6 months
March 19, 2009

The loss of $6.5 billion in value has left a dent in the long-term condition of the fund, which is now at $15 billion. The system has 89 cents of every dollar needed to cover promised benefits over the long-term, down almost 4 percent since August.

Written by Kate Alexander, The Austin American Statesman

The Employee Retirement System of Texas trust fund is sagging under the weight of a 28 percent decline in market value over the past six months, according to an actuarial report released Wednesday.

The loss of $6.5 billion in value has left a dent in the long-term condition of the fund, which is now at $15 billion. The system has 89 cents of every dollar needed to cover promised benefits over the long-term, down almost 4 percent since August.

Last week, the Teacher Retirement System of Texas reported that its $70.6 billion trust fund had about 68 cents for every dollar required to pay for benefits down the road.

Benefits for ERS members are not at risk. Most of the losses are unrealized and could be erased, assuming the market rebounds

The ERA covers 135,000 active state employees and about 73,000 retirees.

Although restoring the fund to full health would cost $762 million, the most pressing concern is the persistent gap between the combined contributions and the annual cost of the benefits being earned.

Not covering that annual amount — what is known as the normal cost — is an issue that needs to be looked at closely, said Sen. Robert Duncan, R-Lubbock, chairman of the committee that oversees the pensions.

It would take an additional $101 million to close that gap in the 2010-11 budget. The decision for lawmakers will be whether the state, employees or both should kick in more.

Employees would prefer to increase their contribution rate from 6 percent of wages to 6.5 percent to bolster the trust fund's long-term health rather than enact a major change in retirement eligibility, according to a survey by the Texas Public Employees Association.

"People are willing to contribute to help solve this problem. I think they understand that you need to put the fund on long-term sound footing," said Andy Homer, director of government relations for the employees association.

But the state, which now puts in 6.45 percent of payroll, should at least match the employees, Homer said.

Increasing the employees' contribution to 6.5 percent would generate a little more than half the amount needed to cover the normal cost.

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