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TRS among worst performing public pension funds

Pension expert Richard Ennis analyzed public pension performance of 24 funds, finding the Teachers’ Retirement System of Illinois among the worst after underperforming for 10 years.

A pension expert looked closely at 24 public pension funds and determined Illinois’ pension system for teachers was fourth worst.

Richard Ennis, former editor of the Financial Analysts Journal, found Illinois’ Teacher Retirement System underperformed the average investment index fund by 3.23 percentage points despite a positive return of 8.3% over a 10-year period. For reference, the average surveyed fund underperformed by 1.4 percentage points, he wrote for the Journal of Portfolio Management.

Of the 24 funds surveyed, TRS was the fourth-worst performing. He said TRS and its $66 billion is one of the more mismanaged funds in the nation.

“At the total fund level, my analysis indicates that TRS’ active management record is among the worst of the approximately 50 large funds in my dataset. This holds for the 10 years covered in this paper and the longer 13-year period in my research,” Ennis told Crain’s Chicago Business.

Ennis also looked at the State Employees Retirement System, which has $24 billion, and found it underperformed by 1.24 percentage points.

Poor long-term performance is a major reason why TRS and other Illinois funds wrestle with the most pension debt in the nation. While Illinois has 3.8% of the country’s population, it carries 15.5% of the nation’s pension debt. The state’s severe debts also make it critical that future returns meet and exceed growth in liabilities, or else funds run the risk of insolvency.

Ennis concludes the benchmark and reporting practices are major contributors to public pension underperformance, especially for TRS.

“This sharp disconnect raises questions about the usefulness of the funds’ performance reporting, as well as their heavy reliance on expensive active management,” Ennis said.

In other words, TRS would have made more money by putting its investments into funds that buy a little of all the stocks in an index, such as the S&P 500, rather than letting a professional pick and choose which investments to make. TRS only has about 46% of the funds it will eventually need to pay what has been promised to educators for their retirements.

TRS liabilities would likely balloon even more under Amendment 1, a Nov. 8 referendum enshrining government union powers in the state constitution.

If approved, government unions would have few restraints to what they could demand, stifling pension reform. Amendment 1 guarantees a $2,149 property tax increase during the next four years as taxpayers are forced to fund new contract demands.