The two largest public pension funds in Texas are set to pay $9.4 million in bonuses this year to managers overseeing investments for former state employees and teachers, a newspaper report Monday.
But strong investment returns can’t compensate for the chronic underfunding and demographic trends that have contributed to the troubled financial position of the $23 billion Employees Retirement System of Texas, whose 321,000 members include state workers and elected state officials. The fund will run out of money to cover promised pension benefits by 2052 if nothing changes.
The Austin American-Statesman reports that a reduction in state workforce has helped put the fund on shakier footing than the fund for public school and university employees, which will pay out more than $6.7 million in bonuses.
The average payout for more than 100 employees in the investment division is $46,919.
Taking home the largest bonus is Britt Harris, chief investment officer of the Teacher Retirement System of Texas, who stands to make an extra $374,000. That’s on top of his $480,000 salary to oversee the retirement dollars of 1.3 million members.
Retirees understand that the bonuses are aimed at attracting and retaining top investment professionals to the teachers’ fund, said Tim Lee, executive director of the Texas Retired Teachers Association. But he added that the bonuses might be a bit too hefty and based too much on subjective factors.
“We think this is a best-practice that TRS has effectively employed to get some of the best and brightest minds working with our TRS fund. That said, it does not hurt to keep analyzing these policies to ensure our TRS retirees that this policy is mostly a reflection on performance and not on subjective peer review,” Lee told the newspaper.
The fund is on a better financial footing than it has been in over a decade because of changes made by the Legislature last spring, such as increased contributions and modified benefits. Those included raising the minimum retirement age to 62 for employees with fewer than five years of service.
The situation is bleaker at the Employees Retirement System, which is set to payout $2.7 million in bonuses.
Fund consultants say the problems are fixable, and recommended a measured approach that includes some mix of changes to benefits and contributions. They also cautioned against relying upon annual investment returns beyond 8 percent.
But no decisions will be made until at least 2015, when the Legislature next convenes.