More City Pension Information

Even though the City has very little direct influence on the Texas Municipal Retirement System(TMRS), it behooves the staff and council to pay attention. As reported before, TMRS assumes a 7% investment rate of return on its portfolio, although unofficial reports indicate the Board has reduced that rate to 6.75%. Recall that as the investment return decreases, the more unfunded liability there is for the city and thus the taxpayers.

The annual investment return is quite erratic as shown in the following chart. The return was over 10% in 2009 after being -1.3% in 2008. The return for 2015 was 0.34%.

Every year TMRS calculates the return over the previous 10 years. Looking at the following chart it is clear the fluctuations are greatly reduced using the 10 year rates of return.

A couple of observations are apparent from the charts. First, the trends are downward sloping for both the annual returns and for the prior 10 year returns.

Secondly, it appears the assumed rate of return for the investments should be no more than 6% and perhaps should be more like 5.42%, which is the return over the past 10 years, rather than the 6.75% recently approved by the TMRS Board.

Given the recent performance of stocks and bonds and the slow growth of the economy, the city should be prepared to increase its pension contributions to maintain a healthy funding ratio.