The 85th Legislature ended on May 29. Many bills were passed and many bills were killed. As each of you know, the pension bill was our main focus in this session. Senate Bill 2190 was signed into law on May 31 and will become effective on July 1.
The final law is exactly as described in the various presentations at the HPOU with a few exceptions.
Let me explain the two major changes.
If the system ever falls below 65 percent funding after four years of the concessions and the city paying the $750 million owed, then new hires from that point forward will be put in a cash balance plan.
This is not a defined contribution, but is a cash balance plan similar to what Harris County currently has. If we never fall below 65 percent funding, it is a moot point.
The second exception is the money owed to the system may require a vote in November of this year. If the citizens vote NO and/or if the city fails to pay the $750 million owed by March 30, 2018, then all concessions made by officers will cease prospectively. This provision will assure that the money will be paid.
The major provisions in the law that were discussed at the various informational sessions are as follows:
All persons in DROP or eligible for DROP – those officers hired prior to 2004 – will continue to receive all benefits with the exception of cost of living allowances (COLAs) while in DROP. Interest on DROP and PROP accounts will be 65 percent of the five-year average of the fund with a floor of 2.5 percent and no ceiling.
Everyone, except for those over 70, will have a three-year moratorium on COLAs. COLAs after the three years will be the five-year average of the fund minus five percent with a floor of zero percent and a ceiling of four percent.
So if the fund’s five-year average is eight percent, we would get a three percent compounded COLA.
Effective July 1, all active employees will contribute 10.5 percent into the pension system. Currently, those hired prior to 2004 contribute nine percent and those hired after 2004 contribute 10.25 percent. Contributions will all go into the pension fund, not in DROP accounts.
Those in DROP and those eligible may remain in DROP for 20 years.
Those hired after 2004 will no longer have to wait until they are 55 years of age to receive a pension and will not necessarily have to work 25 years before receiving a pension.
Those hired after 2004 will be under the rule of 70. This means that when your age plus years of service reach 70, you are eligible to receive a pension. This is a huge benefit for those who have been paying 10.25 percent since 2004 and are not eligible for DROP. So if one starts HPD at 22 years of age and works here for 24 years, that officer will be 46 years old and may immediately retire and receive a pension since 46 plus 24 equals 70.
Previously, that same person would have been required to wait nine years to receive a pension.
While the HPOU was not involved in the crafting of the pension deal, Mark Clark and I worked hard to help get this passed. Some questioned why we would be supporting a bill that makes future concessions and requires a higher contribution than current law.
The answer is quite simple: Doing nothing would have not protected our benefits to be paid tomorrow and into the future. The current path was not sustainable according to the actuaries hired by the city and by HPOPS. We stood firmly against putting new hires into a defined contribution plan and stood firm to prevent any clawbacks of earned benefits.
Not one retiree will see his/her pension check reduced one cent. Not one person in DROP will see one cent taken from his or her DROP accounts or see one cent in reduction of their current monthly benefit.
Yes, future increases will be affected, but our system will be secure and sustainable. As one of our members stated upon hearing the bill had been signed by the governor, “I have never been so happy for something so financially painful.”
At the May HPOU general membership meeting, I was asked how we justified the 10.5 percent contribution beginning July 1 going into the system instead of into DROP accounts.
The answer is simple: Monthly benefits are paid from the pension system. A large part of that funding is from the contributions made by active employees. When an active employee’s contribution goes into his/her own DROP account, that is one less active employee paying into the system while at the same time receiving a monthly benefit.
Thus, currently only about 55 percent of active employees are actually paying money into the system because the others – myself included – are in DROP and paying themselves. In short, contributions were always intended to fund the system in order to pay monthly benefits and that will be the case beginning the first full pay period after July 1.
I want to personally thank those who have kept up with the bill and understand that the passage of this bill was necessary and bittersweet. I also want to thank Lt. Gov. Dan Patrick, Sen. Joan Huffman, Rep. Dan Flynn and the entire Houston delegation who stood with us. A special thanks to Sen. John Whitmire, a friend of both police and fire, for analyzing this bill and voting yes along with his Democratic colleagues. Also, Senator Whitmire’s staff could not have been more accommodating.
Mayor Sylvester Turner did not cause this pension crisis, but he did take it by the horns, worked with our pension trustees, and protected our defined benefit pensions today and into the future.
A Memorable Event
Each year in the month of May we celebrate Police Week, both locally and nationally. Many activities in the city, across the state and in the nation’s capital celebrate the heroes who have made the ultimate sacrifice, 113 of them from the Houston Police Department. This is the first year I have had the honor of attending the ceremonies in Austin, Washington, D.C., and in Houston – all in the same year. I want to thank all who made each ceremony memorable for the surviving families able to attend. Each ceremony was done with dignity and respect.
I want to share one story with you from the ceremony in Austin. As I heard the names of each officer who was killed in the line of duty the preceding year, particularly the five in Dallas, I was incredibly angered at the evilness that exists in this world against our police. I left that ceremony with bitterness.
Four of us from HPD left Austin in our uniforms and headed back to Houston. We stopped at Southside BBQ in Elgin to grab lunch. As we sat down to eat, we saw a black female and a white female walk in together. Each had a daughter of 8-10 years old with them. After getting their food, the ladies went to get beverages as the young girls sat near us, smiling at us as they sat down. Prior to their mothers joining them at the table, both girls got up, came to us, hugged each of us and told us they loved us. One of the officers sitting with us stated that he wanted to be an officer in Elgin!
All of my thoughts about the evilness that exists were tempered by these two beautiful girls. I simply had to be reminded of what I say all the time. Ninety-five percent of folks, of all races, support the police. Those two girls are part of the silent majority. They are the ones who wave at us when we pass, thank us for our service, and mourn with us when one of us are gunned down.
I’m sure glad we stopped in Elgin. We all needed that!