Pension Reform Thoughts

Even though the pension fund that Georgetown participates in is currently deemed by "experts" to be in good shape, that is because they assume a 6.75% annual return on their investments. This of course is delusionary in the current and expected investment environment.  Many investment advisors expect the zero interest rates, or even negative interest rates to persist for an indefinite period.

One way that the Texas Municipal Retirement System(TMRS) could increase their returns would be to terminate the money managers and invest only in low cost index funds. Here are the investment categories and target asset allocations used by TMRS.  Investment managers are employed for all asset classes and were paid $37M in 2015.  The bottom four categories, real estate, real return, absolute return, and private equity typically charge higher management fees because they claim to provide superior returns.  The claim of higher returns for these investments have recently come into question in the financial industry.

TMRS spent $58M in 2015 on investment expenses and administrative staff. It is estimated between $30M and $50M in expense could be eliminated annually using the index approach.

Georgetown and the TMRS need to use realistic assumptions on investment returns so that a realistic assessment of the retirement fund health can be determined.

In addition, eliminating the money managers needs to be considered.

The final solution for Georgetown and its taxpayers would be to transition to a "defined contribution" retirement system which is prevalent in the private sector.  This would minimize the risk to the City and it's taxpayers.

Get involved, talk with your city council members.