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.

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