Honorable Frank Madla, Chair, Senate Committee on Intergovernmental Relations
John Keel, Director, Legislative Budget Board
SB1696 by Wentworth (Relating to the issuance of obligations by certain municipalities to pay unfunded liabilities to public pension funds. ), Committee Report 1st House, Substituted
SB1696 amends Subtitle A, Title 4 of the Local Government Code to allow municipalities with populations over 100,000 to issue obligations to fund all or part of an unfunded pension liability, given that the municipality enters into a written agreement with the public retirement system having fiduciary responsibility for overseeing investment assets. These Pension Obligation Bonds, when used as a method of funding a system's unfunded actuarial liability, provide immediate funds while transferring the liability from a debt owed to the pension fund to one owed to the bond holders. Pension systems should be aware that any savings from this debt refinancing must be spent wisely or it might impact future funding schedules. The funding of a pension plan depends on maintaining its targeted assumptions into the future. When capital markets provide interest rates that are lower than the actuarial rate assumption, pension obligation bonds can provide necessary capital and cash flow. If investment return does not meet the assumptions, new unfunded liabilities will be generated. Because of these market-driven effects, the bill, if enacted will have an unknown actuarial impact on public pension systems.
338 Pension Review Board