Georgetown Pension Update

The employees of the City participate in the Texas Municipal Retirement System (TMRS). It is actually one of the better public pension systems in Texas, but, there is always room for improvement.

They tout that their funding ratio is over 80%. The question is: Why isn't the funding ratio at 100%?

The reason is they assume a discount rate, or rate of return that is higher than actually achieved in recent years. That rate is 6.75%.

Even though the stocks have been in a bull market for over 10 years, TMRS is still not meeting their goal.

Click image to enlarge

Notice the Total Fund Composite (Net) line in the table above the graph. The 5 year return is 6.41% annually versus a goal of 6.75%. The 5 year period is used to smooth out the annual variability.

Of course TMRS does not want to reduce the annual goal of 6.75% return because that will make the funded ratio fall below 80%, which means participants would have to increase their contributions. That would cause the cities too much political pain!

They should reduce their assumed investment return to be more in line with those achieved over the last 13 years. The old days of 8-10% returns are likely gone.