The Texas Municipal Retirement System(TMRS) continues to struggle to meet its investment goals. Through June 30, 2016, the total fund earned 3.29% since January 1, 2016. This is still a far cry from the assumed 6.75% annual return. TMRS calculates they are 84% funded when the assumed investment return is 6.75%. If actual return rates were used, such as the 3.29% earned this year, the funding ratio would be much less than 84% which means the City, the employees, or both of them would have to increase their contributions to maintain the current formula for calculating retirement benefits.
TMRS continues to diversify its investments into riskier assets with higher fees in search of higher investment returns. They recently approved adding $100,000,000 to private equity. Private equity managers cannot be trusted, yet, pension funds continue to invest. The U.S. Securities and Exchange Commission told them so two years ago, when it reported that the majority of buyout fund managers were cheating investors with excessive and undisclosed fees. Since then the agency has repeatedly settled with funds it has accused of defrauding investors, including a $30 million settlement with KKR in June 2015; another for $39 million with Blackstone in October; and one for $52.7 million with Apollo Global Management on Aug. 23. (The firms didn’t admit wrongdoing.) Link
The City needs to seriously look at its participation with the TMRS pension plan(defined benefit) and either increase the contributions to the plan or convert to a defined contribution plan similar to the 401K used in private industry. It would be better to act before there is a crisis.
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