City's Pension Investments Significantly Underperforming

As is usual for government organizations, the bad news from Texas Municipal Retirement System (TMRS) was dumped to the internet for public consumption without fanfare. TMRS earned 2.09% on its investments last quarter, and has earned 0.34% for the entire year of 2015.

Remember that when TMRS calculates the City's pension liability, they assume the investments earn 7% annually. When the investments earn less, the City's liability increases. At 7% return, the City's pension liability is covered at 83.3%, whereas at 5.42%, the 10 year average, the coverage is less than 60%. Thus it is easy to see the City's pension liability increases substantially when investment returns decrease.

Remember the 10 year Treasury Note interest rate, which is considered the risk free rate, is currently about 1.75%.

This bears watching as the City may need to substantially increase its annual pension contributions due to lower than expected investment returns.