The Woodlands Firefighters Want a New Retirement Plan

The Woodlands Firefighters have formally requested they be allowed to establish their own pension plan under the 1937 Texas Local Fire Fighters Retirement Act (TLFFRA). The Firefighters have voted to approve the establishment of this new plan and have elected their Pension Board. The Township has no legal alternative but to allow the Firefighters to do what they wish to do. The only remaining step to complete the process is for the Firefighters is to submit their new pension plan for approval to the Texas Pension Commissioner. Their new plan will have several differences from what the Firefighters have in place today (the existing Township’s 401a/457b retirement plan). The biggest difference will be an earlier retirement age and a defined retirement benefit. However, the Township is not required to fund that benefit to any extent greater than a 12% contribution.

The key provisions of the new plan will be dictated by the TLFFRA statues and the new Pension Board. In summary,

1.     The Plan will be managed by a 7 person Pension Board. The Township will have two members on this Board- Don Norrell and Monique Sharp

2.     Firefighters have approved a 12% employee contribution, with the Township contributing an equal amount. The Firefighters could elect to contribute more but the Township is not required to match any contribution over the 12% match required by law. Today, the Township makes a 2 for 1 7% match to the existing 401 plan.

3.     Once finalized, participation in the plan will become a condition of employment and all new firefighters will have to participate in the plan.

4.     The Pension Board intends to establish a plan that provides for retirement as early as age 52, after at least 20 years of service. The current 401a Plan only allows for funds to be taken, without penalty, at age 59 ½

5.     As long as the basic retirement benefit is equal to the equivalent Social Security benefit, the Township will no longer be required to contribute the employer portion of Social Security for the Firefighters.

6.     All administration cost must be borne by the Plan.

7.     The Township has no obligation to provide any funds to the plan for prior years’ service. We have already paid for such service with our contributions to the existing plan. Service credits in the new plan  will start to accrue upon the inception of the plan. The Township is not obligated to transfer any of the existing vested 401a funds to the new plan (the Board will be considering what action we might take in this regard). A major issue to consider in accommodating any transfer is that some Firefighters have borrowed money from their existing 401 plan.

In order to make certain our Firefighters fully understand what they are agreeing to, the Board commissioned an actuarial study to replicate what the Firefighters the study they did on a preliminary basis as well as quantify the contributions and benefits they might expect from several other scenarios.  For example, the TLFFRA plans have on average only earned 6.3% over the last 10 years, yet the investment returns the Firefighters used in their plan was higher. Township staff is in the process of holding small group meetings with the Firefighters to brief them on the results from our study. The next step would be for the Firefighters to conduct their own study and vote to approve their plan which then would be submitted to Texas Pension Commissioner for final approval.

The proposed TLFFRA Plan will not result in any unfunded liability risk to the Township. It appears that our cost will actually be less than the current plan. This will hold true as long as the Township Board never elects to increase the Township contribution above the 12% maximum required by law. There is a risk that if the new plan ever gets into trouble and cannot fund the benefits promised to the Firefighters, there will be pressure on the Board to provide a higher contribution to make up some, or all, of the shortfall. My concern is not so much about what the current Board might do but rather what action future Boards might take, something we cannot control.

Given the physical demands of the Firefighter’s job, I can completely understand that they would like to have retirement plan which allows them to retire at a younger age. However, in doing so, they should also realize that they either need to accept a lower benefit revenue stream or contribute more money into their plan. In today’s business environment, it is unrealistic to expect the Township to be put at risk to provide a sum certain retirement benefit with taxpayers taking on the investment risk to provide that benefit.