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The enemies of public employee pensions were handed a PR gift today. But it’s just smoke.

October 26, 2012

It came as shocking news.

Illinois’ Teacher Retirement System reported out that their return on investment was .76% for fiscal year 2012. Holy crap. That’s less than 1%! Last year the return was 23.6%.

And it isn’t just Illinois.

Bloomberg reports today:

U.S. state and local-government pensions ended the 2012 fiscal year with a median gain of 1.15 percent as the European debt crisis and a slowing global economy damped stock returns, Wilshire Associates said.

It was a reversal after two years of gains for the retirement funds, which have $2.8 trillion in assets, according to the U.S. Census Bureau. The performance, included in a report Wilshire is set to release today, may add to political pressure on public workers to accept benefit cuts and increase contributions to the plans.

This news will provide ample ammunition to those who want to privatize public employee pensions. Those who want to turn our defined benefit system into something akin to a 401K.

But the story is smoke.

The law requires that the public pension systems report out their return on investments as of June 30th, the end of the fiscal year.

If TRS reported their return on investments as of September 30th, just three months later, the reported return would have been 16.4%.

Over the past year  TRS  reports that its strongest gains from its investments in real estate, which returned +9.91 percent. Positive returns were also recorded from the System’s investments in bonds (+5.68 percent), private equity (+3.76 percent), hedge funds (+2.62 percent), real return securities (+2.54 percent) and stock held in United States companies (+0.96 percent).

But TRS investments in international stocks recorded a negative 11.71 percent rate of return.

All this is to say that any attempt to claim that there is an investment return crisis doesn’t hold up to scrutiny. When considering the success on investment, you never look at just one point in one year. Instead you have to look a multi-year trends.

2012 +.76%
2011 +23.6%
2010 +12.9%
2009 -22.7%
2008 -5%
2007 +19.2%
2006 +11.8%
2005 +10.8%
2004 +16.5%
2003 +4.9%


The failure of the state to meet its pension obligations over the past 50 years resulting in an $85 billion unfunded liability has meant that no matter how well TRS investments do, we are losing money.

That’s because we don’t have 60% of our funds being invested at all.

For that you can thank the Illinois state legislature, not investments.

3 Comments leave one →
  1. filly4rrights permalink
    October 26, 2012 2:38 pm

    “This news will provide ample ammunition to those who want to privatize public employee pensions. Those who want to turn our defined benefit system into something akin to a 401K.”

    Why so everyone can lose out? there’s that thing out there called “if we don’t have it than neither should you,” instead of we should have some kind of protection too. In addition, if the state isn’t contributing it’s share doesn’t that blow the whole “my taxes are funding your bloated pension” theory? Fred many people have no idea that so many states don’t participate in social security, and when they hear that the whole tone of the argument changes.

  2. filly4rrights permalink
    October 26, 2012 2:45 pm

    HARRISBURG, PA – The Public School Employees Retirement System (PSERS) today
    announced the Fund’s investment performance for the fiscal year ended June 30, 2012.
    PSERS posted positive returns of 3.43 percent for the fiscal year, 12.57 percent for the 3
    year, 7.19 percent for the 10 year, and 8.42 percent for the 25 year periods ended June 30,
    2012. PSERS outperformed more than 85 percent of the public pension plans in the Wilshire
    Compass All Public Funds Universe and added nearly $1.1 billion in net investment income to the Fund.

    “Over the past few years PSERS’ Board and investment staff made significant changes to
    the Fund’s investment asset allocation, including further refining the Fund’s investment
    strategy and increasing the diversification of the Fund’s assets,” Van Noord said. “In particular,
    PSERS lowered its long‐term actuarial investment rate of return assumption from 8.00 percent
    to 7.50 percent and actively reduced its risk profile by significantly reducing its equity exposureand by moving portions of the Fund’s assets into asset classes that are less correlated to the equity markets.”

  3. October 26, 2012 3:09 pm

    Some public pensions on the east coast are suing the London bankers who artificially set LIBOR rates….NPR did an interesting story about a Chicago fund manager who was also burned by this practice

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