Actuary Still on Hook in Houston Pension Goof

     HOUSTON (CN) – An actuary that caused Houston to raise its firefighter retirement fund payments by $11.6 million a year can’t dismiss claims its math embroiled the city in a pension-funding crisis, a federal judge ruled.
     Though Houston’s City Council passed a balanced $5.1 billion budget for fiscal year 2016 in June, closing a predicted $63 million deficit, there are two things that will make it hard for the city to balance the books in the coming years.
     The city’s pension obligations to its police officers, firefighters and municipal workers are more than $300 million a year, and a law passed by voters in 2004 caps the city’s property tax revenue at $1.1 billion annually.
     Houston blames its firefighter pension funding boondoggle on its former actuary, Towers Watson & Co., which it sued in August 2014 in Federal Court.
     Houston’s required contribution to the firefighters’ pension fund was $90 million in fiscal year 2015. It increased to $92.6 million in fiscal year 2016.
     “The city’s contribution equals approximately 33.2 percent of the fire department’s annual payroll, and is approximately four times the amount that the firefighters themselves contribute from their salaries,” the lawsuit states.
     Texas law governs the fund so any changes to it must go through Austin. The city is required to make a yearly contribution of at least twice the firefighters’ input.
     Houston Mayor Annise Parker, who is in her third and final term, struck a deal with the fund in March that would have saved the city more than $70 million over three years.
     The deal called for firefighters to contribute 12 percent of their pay to the fund, up from the current 9 percent. But a bill needed to seal the deal died in the Texas House of Representatives in May.
     State law mandates the firefighters’ fund be managed by a 10-person board of trustees comprised of eight members appointed by firefighters and two city representatives – the city’s treasurer and a mayoral appointee.
     The statute makes an actuary responsible for deciding if the fund can alter its members’ retirement benefits.
     Towers’ predecessor was the fund’s actuary from the early 1980s until 2002, and prepared annual reports that calculated the fund’s financial health and the city’s required annual contributions.
     In its lawsuit, Houston links its costly firefighter pension payments to a report Towers’ predecessor issued in 2000.
     “According to Towers, the firefighters’ fund was running a surplus through the late 1990s,” the complaint states. Towers’ report projected the fund’s assets would exceed its pension payment liabilities for the next 30 years, the city says.
     Based on that report, and another from the actuary that stated the pension payments could be raised “without increasing the city’s contribution rate for the next 10 years,” Houston says it voted for the changes at a May 2000 meeting.
     But the city says Towers’ calculations were way off: that in March 2002 Towers’ annual report found that with the new benefits, the city’s responsibility to the pension fund “jumped by an additional $11.6 million in a single year,” and the increase would “persist through at least 2020.”
     Towers moved to dismiss the lawsuit, claiming it is not liable for negligent misrepresentation because its reports were predictions of future events, not existing facts.
     U.S. District Judge Melinda Harmon refuted that argument on Wednesday.
     She found Towers’ statements were not all forward-looking.
     “The city also alleges Towers misrepresented that the fund was ‘100 percent funded,’ ‘had a surplus of $67 million,’ and the city’s required contribution for normal cost was 13.7 percent of [the fire department’s] payroll for the year 1999,” she wrote.
     “Towers fails to cite any authority that precludes actuarial statements regarding surplus value and current contribution rates simply because actuarial methods were used in the calculation.”
     Harmon also refused to dismiss the city’s professional malpractice claim in the 7-page ruling.

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