HMEPS News

We would like to congratulate Lenard Polk and Terrence Ardis on their election to the Board of Trustees. In the trustee election conducted under the independent administration of Mir Fox & Rodriguez, P.C., Lenard Polk was elected as the employee trustee in Position 3 and Terrence Ardis was elected as the employee trustee in Position 4.

It is with a heavy heart that HMEPS informs our participants that Fred Holmes passed away on May 6, 2008, at the age of 76, of amyotrophic lateral sclerosis (ALS), or Lou Gehrig's disease. Please click here to post your thoughts and memories of Fred on the website.

HMEPS wishes to extend its heartfelt thank you to Fred Holmes for his long and productive service on the Board of Trustees. Holmes submitted his resignation from the Board, citing health reasons. He served on the Board for 35 years, the last 16 as Chairman.

"I am grateful and proud of all that we have accomplished during that time for the pension system and our participants," Holmes said. "Addressing the many needs of the pension system and the members has been a challenging and rewarding goal. As a Board, we have made important changes to increase financial security and better serve our participants, and I take satisfaction in having helped lay some of the foundation for what makes this an outstanding pension system."

Lonnie Vara has replaced Holmes as a retiree Trustee on the HMEPS Board. Vara worked for the City of Houston for 32 years before his retirement in 2006 as the City's Human Resources Director. He served as a Mayor's representative on the HMEPS Board from June 1995 to July 2005.

Also at the January 31, 2008 Board Meeting, Trustees elected Roderick J. Newman as Chairman, replacing Holmes in that position. Newman is an employee Trustee and has served on the Board since 1992. The Board elected Sherry Mose as Secretary, replacing Newman. Mose also is an employee Trustee and began serving on the Board in 1998. Ray Kennedy, a retiree Trustee, remains Vice Chairman of the Board. Kennedy has served on the Board since 1994.

HMEPS Executive Director David Long, who has worked closely with Holmes, expresses the sentiment of many of us in wishing Fred the best and in thanking him for all he has done for the participants. "Fred has been a committed leader who has worked tirelessly for three-and-a-half decades to benefit all of HMEPS' participants," Long said. "On behalf of all of us, I want to thank Fred for his guidance and wisdom over the years. He has been a good friend and a trusted adviser who has helped bring about positive change."

At the September 27, 2007 Board meeting, the Board of Trustees approved a DROP interest rate of 7.5% - the maximum percentage possible - for calendar year 2008. This rate will apply to DROP accounts starting January 1, 2008.

HMEPS AND THE CITY OF HOUSTON SIGN FOURTH AMENDMENT TO MEET AND CONFER AGREEMENT

The Fourth Amendment to Meet and Confer Agreement, which HMEPS and the City of Houston approved last month, has been signed. There are no changes to benefits for current employees and retirees.

The Benefit Provisions page contains links to the Meet and Confer Agreement, and to the First Amendment, Second Amendment, Third Amendment and Fourth Amendment to the Meet and Confer Agreement.

HMEPS TRUSTEES AND CITY OF HOUSTON APPROVE FOURTH AMENDMENT TO MEET AND CONFER AGREEMENT;
NO CHANGES IN BENEFITS FOR CURRENT EMPLOYEES AND
NO CHANGES TO THE BENEFITS OF RETIREES

We are pleased to inform you that at the City of Houston City Council meeting today, the City Council voted and approved the Fourth Amendment to the Meet and Confer Agreement. The Fourth Amendment will implement a new benefit program for new employees beginning January 2008, while at the same time securing future funding for the pension plan.

There will be no change in benefits for current employees and no changes to the benefits of retirees. The Fourth Amendment will be in place until 2012.

"HMEPS is pleased that new plan changes to help meet our goal of a sound pension system have been by the Houston City Council," said David Long, HMEPS executive director. "HMEPS worked diligently with the Mayor's office to develop a program that would not impact the benefits of current employees and no changes to the benefits of retirees. We feel this is a win for everyone involved."

The HMEPS Trustees and Executive Director David Long worked hard to represent our participants' interests and remained committed to a program that helps provide for all of our participants' financial well-being now and in the future.

Ensure no change in benefits for current active employees and retirees;
Work to develop a new program for new employees with the defined benefit plan that provides a competitive benefit with appropriate funding;
Secure future funding for the pension plan that is reasonable and actuarially sound.

As agreed, the City will pay HMEPS $75 million in FY 2008. The amount will increase by $3.5 million for FY 2009, by $5 million for FY 2010 and by $5 million for FY 2011. In subsequent fiscal years, the City will pay the actuarially determined rate, which is the contribution otherwise required by state law. This funding schedule was attainable due to HMEPS' excellent investment returns and the joint development of a revised benefit program for new employees.

In addition, HMEPS agreed to recognize all deferred investment gains as of July 1, 2006 for purposes of the next actuarial valuation. The amount of the deferred investment gains is approximately $185 million due to HMEPS' exceptional investment returns over the last few years.

Beginning January 2008, new employees will participate in a non-contributory group with later retirement eligibility, and with an option for an early reduced retirement benefit and an option to roll over funds from their section 457(b) plan to purchase an increased benefit. We are confident the new program provides a competitive benefit with options and is actuarially sound.

David Long, who was the HMEPS negotiator in the meet and confer process, had many meetings and conversations with the City's negotiator over the last two weeks, and we appreciate his diligence and commitment to get this amicably resolved so the final agreement is in the best interests of everyone.

We know these negotiations have caused anxiety among many of you, and we appreciate your patience and confidence. We are pleased the agreement was reached and, again, believe it helps ensure your financial well-being.

HMEPS Trustees Approve Agreement With City of Houston;
No Changes In Benefits For Current Employees and
No Changes to the Benefits of Retirees

We are pleased to inform you that at its meeting today, the Trustees of the Houston Municipal Employees Pension System voted to approve an agreement with the City of Houston on a plan to implement a new benefit program for new employees beginning January 2008, while at the same time securing future funding for the pension plan. City Council must vote on the agreement at next Wednesday's council meeting for it to be effective.

There will be no change in benefits for current employees and no changes to the benefits of retirees.

We are extremely pleased that HMEPS and the City worked together to reach an agreement that meets our objectives and meets the goals set by the City. We have negotiated in good faith and feel this is a win for everyone involved.

HMEPS has received a proposal from the City of Houston regarding the City's proposed changes to the current pension plan for municipal employees. We are in negotiations with the City, but the proposal we received does not clearly state who would be covered by the changes nor does it specify how the changes would reduce the City's contribution requirement. We have sent the proposal to our actuary for review, and want to fully understand the proposal's specific terms and costs before we can comment on details. Proposals are part of any negotiation, and we will respond to the City's proposal after we and the actuaries have had the opportunity to review it. As we have said before, we would have liked to have begun discussions with the City months ago to fully explore the options and to have ample time to review any proposals.

We want to continue to want to work with the City to come up with a sound program for funding and hope to see detailed numbers on which to base our discussions. We assure you that the HMEPS Board is working to represent our participants' interest and are committed to a program that helps provide for our participants' financial well-being in the future.

In case you missed the letter that was in the Houston Chronicle, here is the letter HMEPS sent to the Chronicle:

Mayor Bill White says he does not plan to pay the City's full pension obligation to its municipal employees because he believes the statutory rate is unrealistic. The truth is: It is the law.

State law requires the City to contribute an actuarially determined amount to the Houston Municipal Employees Pension System (HMEPS). If Mayor White doesn't like the law, he could have worked through the process to try to get it changed. In 2004, HMEPS agreed, at Mayor White's request, to a three-year period of structured cash contributions ($66 million, $69 million and $72 million) in order to accommodate the City's budget requirements. It was clearly stated then that the cash contributions, based on the actuarial rate, would increase to $115 million on June 30, 2007, but because of HMEPS' outstanding investment returns, that number is down to $109.6 million.

HMEPS clearly understood that when the three-year funding schedule ended on June 30, 2007, the City would pay the amount required by state law. Based on the meet and confer negotiations we had, we believed the City understood that as well. In fact, in 2004, HMEPS sent the City contribution rate projections for fiscal year 2008 and several years thereafter, and the actual rate and dollar amount are even less than projected. Also, the City received annual updates of the projected contribution amount for next fiscal year, and the actual rate is right in line with those projections. We believe that the issue is not whether the Mayor or his administration stated they would pay an amount required by state law, but why they have ignored our repeated requests for discussions on this and why they are just now disputing an amount that they have known about for almost three years.

Since the 2004 Meet and Confer Agreement, HMEPS has kept the City apprised of the increased funding requirement through written and oral communications, and has initiated attempts to meet to discuss it. At public pension meetings, Council Members have expressed concern about this issue and even asked as far back as 2004 how it is being addressed. Almost a year ago, Craig Mason, the City's pension official, also acknowledged this issue should be addressed.

The Mayor also talks about a new pension plan with more options - as if that would be a good thing. The truth is, though, giving more options is not really meaningful to people if the options give you a worse benefit. The Mayor mentions benefit proposals, but we have seen no specific proposals or costs associated with those proposals, and the Mayor has not initiated any discussions through the meet and confer process. And, these benefit issues were dealt with thoroughly when Mayor White's administration and HMEPS negotiated the 2004 Meet and Confer Agreement, which was approved by the HMEPS Board and City Council, and which reduced the unfunded liability by about $1 billion, primarily through reducing future benefits by $850 million. We jointly reduced the unfunded liability.

The Mayor once again refers to "the Pension Board's 2001 mistake or outright fraud." The Pension Board in 2001 had five City representatives to ensure the City's interests were dealt with. They had a full voice on the Board. And, as for fraud, it is irresponsible for Mayor White to even make such allegations as the matters were fully investigated and reviewed over three years ago with no findings of wrongdoing. Even Mayor White's own staff has stated on numerous occasions that the funding shortfall was due to a mistake by the actuary.

We believe it is important to emphasize that HMEPS negotiated the Meet and Confer Agreement in good faith and has met its obligations under the Agreement. We hope that the City leadership recognizes the importance of this issue, and makes every attempt to work with HMEPS to meet the City's obligations under the law.

The Houston Chronicle ran a front page article (May 14, 2007) saying the City of Houston will not meet its full funding obligation to HMEPS. We want to give you background about this issue, assure you we have been trying to meet with City officials to properly resolve the funding issue, and let you know we are hoping Mayor White will open negotiations.

HMEPS currently has a Meet and Confer Agreement with the City, which was signed in September 2004 and amended three times. The Agreement addresses several pension matters, including plan benefits and funding. The funding provisions regarding the City's required contributions expire June 30, 2007. At that time, the City must make its required contributions as determined by actuarial valuation in accordance with the pension statute, Art. 6243h, Tex. Rev. Civ. Stats. Ann. HMEPS provided the City the actuarial valuation as of June 30, 2006, which requires contributions of 24.63% of payroll. This actuarially determined City contribution rate for FY2008 is less than the rate that was projected by the HMEPS actuary and provided to the City during the 2004 meet and confer process. In fact, the dollar amount of the City's required contribution is over $5 million less than what was expected for the City to contribute beginning July 1, 2007. The contribution amount is also right in line with the estimates in the HMEPS actuarial valuation as of July 1, 2005. Both valuations are available on the Publications page at www.hmeps.org/publications.

In addition, over the past two and a half years, HMEPS has consistently advised Mayor White, the City Council Pension Review Committee and other City representatives about the need to focus on the City's funding plan for HMEPS beginning July 1, 2007. HMEPS sent letters to Mayor White on December 5, 2006 and March 1, 2007, notifying the Mayor that HMEPS was willing and prepared to meet and confer regarding the City's plans to fund the required contributions beginning July 1, 2007. HMEPS has not received a response from Mayor White, nor has a designated City representative met to negotiate these matters with HMEPS. We would like to know what steps the City has taken to prepare for the upcoming funding period, which the City knew about far in advance, and which was structured this way at the recommendation of Mayor White during the 2004 meet and confer negotiations.

We believe it is important to emphasize that HMEPS negotiated the Meet and Confer Agreement in good faith and has met its obligations under the Agreement. In addition, HMEPS has significantly helped to improve the funded level of the pension plan through the excellent returns that HMEPS has realized on investments:

HMEPS remains open to good faith negotiations with the City to address the important pension matters at hand. We are hoping the Mayor will respond to our requests.

Although HMEPS cannot stop all of the rumors that have been flying around, we hope you have a better idea of the process and of our commitment to diligently represent only the interests of the HMEPS plan and our participants. We will continue to keep you informed, and recommend that you periodically visit this page for updated news and information.

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