Thursday, October 27, 2016

City Retirement Investments Earnings Rate

The official investment report from the Texas Municipal Retirement System (TMRS) for the quarter ending September 30, 2016 will not be available until the December board meeting. However, the unofficial rate of return for the calendar year to date through September 30 is 5.5%.

TMRS reported that the ratio of funded assets to total liability was 85% at the end of 2015. All the pension gurus exclaim this is "good" and the pension fund is healthy. Remember, this ratio is based on an assumed return rate of 6.75% annually for the next 30 years.

If one uses the end of 2015 assets and liabilities and the most recent annualized rate of return of 5.5%, then the funded ratio is only 60%. This is not viewed as healthy by pension experts and the only way to cure this low ratio is to increase the contributions of the city and the employees, increase investment risk and try to achieve a 6.75% return, or some combination of these two approaches. Otherwise the "can" is just kicked down the road for future generations as the unfunded pension liability grows.

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