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City of Houston Unable to Afford its Retirement Benefits

March 4, 2004
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Taxpayers in Houston may have to pay nearly $100 million next year to reduce a shortfall in the city’s pension fund, according to the Houston Chronicle.

The city’s retirement benefits are generous compared to cities of similar sizes, and some Houston employees will earn more not working than they did while working.

The Chronicle reports that when Houston implemented its retirement benefits, the city relied on a report by Towers Perrin to estimate the future cost of the plan. A consultant at another firm, Milliman USA, says that the Towers Perrin projections turned out to be optimistic. Joe Esuchanko, of Actuarial Service Company in Troy, Michigan, is now among the people helping the city figure out what to do now. He tells Workforce Management that "optimistic" is the right word to describe the original assumptions. "Their optimism was not realized," he says. More employees retired than expected, and more employees than expected chose a plan option that ended up being expensive for the city. Now, the Houston fund is short about $995 million.

Attorneys at Towers Perrin are reviewing the issue and did not comment.

Meanwhile, union officials say that employees aren’t to blame for the city’s shortfall; they accepted low salaries with the public sector knowing that in exchange, they’d have strong benefits upon retirement.

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