Friday, March 16, 2012

Pension Review Board Recognizes Funding Achievement of Fire and Police Pension Fund of San Antonio

Regular readers of this blog are familiar with all the alarmist propaganda that the opponents of defined benefit plans gin up regarding the alleged underfunded status of pension systems. When a system and its city sponsors achieves above average funding levels, the opponents are silent.

Allow me to draw your attention to a San Antonio Business Journal article noting a recent finding of the Texas Pension Review Board about the Fire and Police Pension Fund of San Antonio.

In the SABJ story, the Fire and Police Pension Fund of San Antonio is recognized for its projected amortization period of 9.09 years, the second lowest among public pension funds in Texas, and the lowest among Texas pensions with more than $1 billion under management. An amortization period is also known as a funding period as it represents the length of time likely needed to eliminate a system’s unfunded liability based on current contributions from employees and active members. The state of Texas’ Pension Review Board guidelines say that funding periods should never exceed 40 years and suggest that healthy ranges are 25-30 years.

I know the Executive Director and Board members at the Fire and Police Pension Fund of San Antonio and I have nothing but the highest of praise for the dedicated effort that they exert to maintain a healthy pension fund on behalf of their active and retired members, and the taxpayers of their city.

The news story also correctly notes that police and fire fighters do not contribute to Social Security and don’t receive those benefits. That means the city of San Antonio contributes only to the pension system, not to Social Security “accounts” for those public sector employees. – Max Patterson

Wednesday, March 7, 2012

Good Article on Dallas Pension Fund; Realistic Article on Teachers’ System

There have been two really excellent articles in the news recently and we thought our blog readers would be interested in knowing about them.

First, please take a moment to read a story in CIO (Chief Investment Officers) magazine about Cheryl Alston, the executive director of the Employees Retirement Fund of the City of Dallas, Texas. The story provides information on the superb investment returns that system has achieved over the last three years through wise stewardship of employees’ and taxpayers’ contributions to defined benefit pensions for municipal employees in Dallas. The story recounts how Cheryl works with her board to find conservative and contrarian investments to maintain their history of great returns:
Perhaps not surprising for a public plan is the size of Dallas’ investment staff. If there are two things that are almost universally true about public pensions in America, they are this: the sponsoring entity doesn’t pay what it has promised, and there are too few people managing the assets. Indeed, the Dallas investment staff can sit around a small table with room to spare. It doesn’t seem to bother the ever-sunny Alston, however. “For the $3 billion we do have, I lead an investment staff of three people—myself and two others,” she says. “We do all asset classes, and the knowledge of all asset classes is extremely helpful in the allocation process. We conduct all of our manager due diligence, along with Wilshire,”—the fund’s investment consulting firm—“but in the end it’s the staff kicking the tires ourselves to evaluate managers. It’s a quality staff accountable for results.”

The ERF in Dallas is certainly not an exception or anomaly in terms of great investment management achieved at systems across Texas, but we certainly want to recognize and give a shout-out to Cheryl and her team. Great work up there!

Which now brings us to another story about great fund management, just in different terms.

We’ve been made aware of an article appearing in the Texas Observer by Forrest Wilder, about Bill King’s targeting the Texas Teacher Retirement System and his assessment that there is crisis imminent when there is none. As Wilder says:
The system does have about $24 billion in unfunded liabilities. What does that mean for the system’s long-term viability? Let’s look at TRS’ most recent report:
“Assuming the current contribution policy continues, the Pension Trust Fund has assets in place to make benefit payments through 2112.”
In other words, TRS should be able to pay all guaranteed benefits to teachers for the next century.
The article demonstrates how King is very worried about the state of Texas at some point possibly needing to increase its contribution from 6 percent to 8 percent to avoid insolvency decades from now, but not right now (and maybe never). Wilder says this:
“We’ve seen this movie before: Manufacture a crisis where there is none, scapegoat working people (even better if they work for the dread government), and under the guise of reform push through a plan that would never fly otherwise.

King wants to take way public employees’ guaranteed retirement benefit in favor of a defined-contribution, 401(k) approach subject to the vagaries of the stock market. This is destroy-the-village-to-save it logic. And it’s certainly not “conservative” in the classic sense of the word.
We are glad to see these types of stories appearing as they certainly provide balance to the sky-is-falling perspective of many opponents to defined benefit plans. – Max Patterson.

Tuesday, March 6, 2012

Austin American-Statesman Continues Coverage of Pension Issue

By virtue of its location in the state’s capitol, the Austin American-Statesman has been doing great work on covering issues that would affect all public sector employees in Texas. We greatly appreciate their interest in these issues.

To wit, the AAS editors last week accepted and ran an opinion piece I wrote addressing points made in a Wall Street Journal article that advocated for requiring public employees to abandon defined benefit plans for defined contribution plans.

As I note in my article, it’s becoming increasingly apparent that defined contribution plans aren’t doing what they should to increase employees’ retirement wealth. It’s my hope that a shared public policy goal would be reducing the amount of public funding needed by people once they retire.

We could do this by working to ensure that sound retirement plans are in place for all workers, regardless of whether they are in private or sector employment. Right now that would require making changes to regulations for defined benefit plans in the private sector to create an incentive for business to provide meaningful retirement benefits for their employees. – Max Patterson