Untitled Texas Attorney General Opinion ( 2016 )

KEN PAXTON
ATTORNEY GENERAL OF TEXAS
September 6, 2016
The Honorable Jim Murphy Opinion No. KP-0112
Chair, Committee on Corrections
Texas House of Representatives Re: Whether the State is required to assume
Post Office Box 2910 liability when a local retirement system
Austin, Texas 78768-2910 created pursuant to title 109 of the Texas Civil
Statutes is unable to meet its financial
obligations (RQ-0101-KP)
Dear Representative Murphy:
You ask whether the State of Texas must assume liability in the event that a specific group
of municipal retirement systems created pursuant to title 109 of the Texas Civil Statutes cannot
meet its financial obligations. 1 You explain that "[r]ising pension and health care costs,
unpredictable revenues, aging infrastructure, high debt load, and increasing costs for the delivery
of city services threaten municipalities' ability to balance budgets and maintain strong credit
ratings." Request Letter at 1. Citing the potential for municipal default, you ask whether "the
oversight role played by the State Legislature in these specific municipal retirement systems
cause[s] the State to assume some or all of the liability[.]" Id
Article XVI, section 67(a) of the Texas Constitution authorizes the Legislature to "enact
general laws establishing systems and programs of retirement and related disability and deatli
benefits for public employees and officers." TEX. CONST. art. XVI, § 67(a). With regard to
municipalities, the constitution requires the Legislature to provide "by law for ... the creation by
any city ... of a system of benefits for its officers and employees." 2 Id art. XVI,§ 67(c)(l)(A).
Pursuant to this authority, the Legislatur~ enacted multiple articles in title 109 of the Texas Civil
1
See Letter and Attachment from Honorable Jim Murphy, Chair, Comm. on Corrections, Tex. House of
Representatives, to Honorable Ken Paxton, Tex. Att'y Gen. at I (Mar. 8, 2016), https://www.texasattomeygeneral.
gov/opinion/requests-for-opinion-rqs ("Request Letter" & "Attachment" respectively) (Attachment on file with the
Op. Comm.).
2
Article XVI, section 67(c)(l)(C) also requires the Legislature to provide for a statewide system "in which
cities may voluntarily participate." TEX. CONST. art. XVI§ 67(c)(l)(C). Based on the information you provide, we
assume that none of the cities at issue have elected to participate in the statewide system, the Texas Municipal
Retirement System ("TMRS"). See generally TEX. Gov'T CODE §§ 851.001-855.608 (subtitle G", establishing
TMRS).
The Honorable Jim Murphy - Page 2 (KP-0112)
Statutes to establish the specific municipal retirement systems you ask about. 3 Through each
system's enabling statute, the Legislature provided the governance provisions applicable to each
system, including board composition, plan structure, retirement eligibility requirements, benefits,
and pension fund contributions. The Legislature also made public retirement systems generally
subject to Chapter 802 of the Government Code, which sets forth administrative requirements in
subchapter C regarding, among other things, the administration of assets. 4 See generally TEX.
Gov'T CODE§§ 802.201-.207. In accordance with the constitution and chapter 802, the trustees
of the municipal retirement systems at issue must "hold the assets of the system or program for the
exclusive purposes of providing benefits to participants and their beneficiaries and defraying
reasonable expenses of administering the system or program." TEX. CONST. art. XVI,
§ 67(f)(2) (applicable to retirement systems not belonging to a statewide system); TEX. Gov'T
CODE§ 802.201 (similarly providing that a public retirement system's assets are held in trust "for
the benefit of the members and retirees of the system and their beneficiaries").
In addition, the Legislature provided general oversight of municipal retirement systems
created pursuant to title 109 through the State Pension Review Board (the "Board"). See generally
TEX. Gov'T CODE §§ 801.001-.211. The Board must "conduct a continuing review of public
retirement systems, compiling and comparing information about benefits, creditable service,
financing, and administration of systems," including "intensive studies of potential or existing
problems that threaten the actuarial soundness of or inhibit an equitable distribution of benefits."
Id § 801.202(1)-(2). The Board recommends "policies, practices, and legislation" and, if
requested by a public retirement system, provides "information and technical assistance on pension
planning." Id § 801.202(3)-(4 ). Thus, through title 109 of the Civil Statutes and chapters 801
and 802 of the Government Code, the Legislature provided an overall operating framework for
each municipal retirement system about which you ask.
Within this framework, the Legislature specifically addressed the financial health of the
municipal retirement systems. For example, the Legislature required the Board to "conduct a study
of the financial health of public retirement systems in this state, including each system's ability to
meet its long-term obligations." Act of May 13, 2013, 83d Leg., R.S., ch. 140, § 7(b), 2013 Tex.
Gen. Laws 566, 568. If at any time an actuarial valuation indicates "that the system's actual
contributions are not sufficient to amortize the unfunded actuarial accrued liability within 40
years," a public retirement system must generally notify the associated governmental entity in
writing. TEX. Gov'T CODE § 802.2015(c). If the valuation shows that the amortization period
3
You identify the municipal retirement systems specifically enacted by title 109. See Attachment at 13-15,
17, 19-21, 23-26, 28-29 (pagination as indicated therein) (identifying Austin Employees' Retirement System, Austin
Fire Fighters Relief & Retirement Fund, Austin Police Retirement System, Dallas Police & Fire Pension System,
El Paso Firemen Pension Fund, El Paso Police Pension Fund, Fort Worth Employees' Retirement Fund, Galveston
Employees' Retirement Plan for Police, Houston Firefighters' Relief & Retirement Fund, Houston Municipal
Employees Pension System, Houston Police Officers Pension System, San Antonio Fire & Police Pension Fund, and
Texas Local Fire Fighters Retirement Act); see also TEX. REV. CIV. STAT. arts. 6243a-1, 6243b, 6243e, 6243e.1,
6243e.2(1), 6243g-4, 6243h, 6243i, 6243n, 6243n-1, 62430, 6243p.
4
Subchapter C of chapter 802, Government Code, does not apply to the Texas Local Fire Fighters Retirement
Act except for sections 802.202 (Investment of Surplus), 802.205 (Investment Custody Account), and 802.207
(Custody and Use of Funds). TEX. REV. CIV. STAT. art. 6243e, § 28(h).
The Honorable Jim Murphy - Page 3 (KP-0112)
"has exceeded 40 years" for a certain number of consecutive valuations, the retirement system and
the associated governmental entity must generally "formulate a funding soundness restoration
plan" meeting certain requirements in accordance with the system's governing statute and report
the progress toward improved actuarial soundness to the Board. Id. § 802.2015(c), (e), (f).
With regard to specific enabling statutes of the municipal retirement systems at issue, the
Legislature in some instances authorized or directed specific action by local entities under certain
financial circumstances. See, e.g., TEX. REV. C1v. STAT. art. 6243h, § 21(a), (c) (Houston
Municipal Employees Pension System) (authorizing the pension board to temporarily reduce
benefits if it "determines that the pension fund is seriously depleted," and authorizing the
governing body of the city by ordinance to dissolve and liquidate the pension system "[i]f the
reserve and surplus in the pension fund become exhausted and the payouts of the pension fund
exceed the income to the pension fund"). 5 In the event that a change by a municipal retirement
system results in the reduction of benefits, article XVI, section 66( d)-( e) of the constitution
generally protects the benefits of vested employees existing on the date of the change, putting the
joint responsibility on "the political subdivision ... and the retirement system that finance benefits
under the retirement system" to ensure that such benefits "are not reduced or otherwise impaired." 6
TEX. CONST. art. XVI, § 66(d)-(f); see also Tex. Att'y Gen. Op. No. GA-0615 (2008) at 7
(indicating that the legislative intent of section 66 was to give affected retirement systems the
"flexibility ... to respond to changing economic times" while protecting the benefits of vested
employees (quotation marks omitted)).
In no instance does the constitution or the Legislature make the State liable for any
shortfalls of a municipal retirement system regarding the system's financial obligations under title
109. The Texas Constitution would in fact prohibit the State from assuming such liability without
express authorization. Article III, section 49(a) prohibits the creation of State debt except in
5See also id.. arts. 6243e.l, § 9.08 (Austin Fire Fighters Relief and Retirement Fund) (requiring a temporary
pro rata reduction of benefits ifthe fund is insufficient to make regular payments); 6243n-l, § 6.0l(d)(4) (Austin
Police Retirement System) (giving the board "the authority and the duty" to decrease cost of living adjustments "as
much as is necessary" to protect the continuity of the retirement system if "the ability of the system to continue"
regular payments is compromised by an "economic situation"); 6243i, § 5.08(a) (Fort Worth Employees' Retirement
Fund) (authorizing the city's governing body to amend its administrative rules governing municipal contributions
under certain circumstances to address "a fiscal emergency"); 62430, § 4.06 (making the City of San Antonio
responsible for paying "the deficiency, if any" between the amount available to pay benefits and the amount owed by
statute).
6 By its terms, article XVI, section 66 does not apply "to a public retirement system that provides service and
disability retirement benefits and death benefits to firefighters and police officers employed by the City of
San Antonio" and to a public retirement system and its financing political subdivision ifthe voters so elect pursuant
to section 66(h). TEX. CONST. art. XVI,§ 66(b), (h). You inform us that voters of the following cities opted out of
this provision: the City of Galveston (for the Galveston Employees' Retirement Plan for Police); the City of Houston
(for the Houston Firefighters' Relief & Retirement Fund, the Houston Municipal Employees Pension System, and the
Houston Police Officers Pension System); and the City of San Antonio (for the San Antonio Fire and Police Pension
Fund). See Attachment at 22-26, 28 (pagination as indicated therein).
The Honorable Jim Murphy - Page 4 (KP-0112)
limited circumstances not present here. 7 See TEX. CONST. art. III, § 49(a). A related provision,
Article III, section 50, prohibits the State from lending its credit, stating that the Legislature has
no power to give or to lend ... the credit of the State in aid of, or to
any person, association or corporation, whether municipal or other,
or to pledge the credit of the State in any manner whatsoever, for the
payment of the liabilities, present or prospective, of any individual,
association of individuals, municipal or other corporation
whatsoever.
Id. art. III, § 50. Thus, a court would likely conclude that the State is not required to assume
liability when a municipal retirement system created under title 109 is unable to meet its financial
obligations.
7
See TEX. CONST. art. III, § 49(a) (prohibiting the creation of State debt "except (1) to supply casual
deficiencies of revenue, not to exceed in the aggregate at any one time two hundred thousand dollars; (2) to repel
invasion, suppress insurrection, or defend the State in war; (3) as otherwise authorized by this constitution; or (4)" as
approved by the voters through an election).
The Honorable Jim Murphy - Page 5 (KP-0112)
SUMMARY
A court would likely conclude that the State is not required
to assume liability when a municipal retirement system created
under title 109 of the Texas Civil Statutes is unable to meet its
financial obligations.
Very truly yours,
KEN PAXTON
Attorney General of Texas
JEFFREY C. MATEER
First Assistant Attorney General
BRANTLEY STARR
Deputy First Assistant Attorney General
VIRGINIA K. HOELSCHER
Chair, Opinion Committee
BECKY P. CASARES
Assistant Attorney General, Opinion Committee