Texas Teacher Pension Needs 21% Return to Keep 80% Funded Ratio
The Teacher Retirement System of Texas needs an annual return of 21 percent in the year ending Aug. 31 to maintain an 80 percent funded ratio, the level actuaries consider adequate to cover liabilities, said its deputy director.
“We’d have to have remarkable investment returns for the rest of the year to reach 80 percent,” Brian Guthrie, the fund’s executive director-designate, said at a Texas House hearing today in Austin.
The fund’s investment return was 14.7 percent in 2010, the best among large public pension funds, Chief Investment Officer Britt Harris said at an April 7 board meeting. The fund had about $109 billion on April 1, up from $95.7 billion in September.
Even with the gains, the pension’s funded ratio -- the portion of promised benefits covered by current assets -- dropped to 81.3 percent as of Feb. 28 from 82.9 percent on Aug. 31, 2010, because of trading losses in 2008 and 2009 included through a process called smoothing, Executive Director Ronnie Jung said April 7.
Public pensions nationwide are grappling with about $3.6 trillion in unfunded liabilities, according to a 2010 study by Joshua Rauh of Northwestern University and Robert Novy-Marx of the University of Rochester.
Texas Teachers’ annualized return for the decade ended Dec. 31 was 4.8 percent, below the fund’s assumption of an 8 percent annual return.
Texas legislators are considering reducing the state’s contribution to the fund, which is now 6.64 percent of employees’ salaries. The Texas House earlier this month passed a budget that would cut general revenue spending by $4.6 billion, or 5.2 percent, during the 2012-2013 biennium.
To contact the reporter on this story: David Mildenberg in Austin, Texas, at dmildenberg@bloomberg.net
To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net
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