Local Pension Fund Performance: All The Wrong Monkeys

All but a handful of the local public pension funds in Texas have the same problem. They picked the wrong monkeys to manage their money. The result is underperformance. In many cases it means serious underfunding of workers’ retirements.

That’s the sorry story for most of the pension plans created to serve public employees for our cities, counties, police and fire departments. The data comes from the public pension search toolon the website for the Comptroller of Texas. That’s where you can find a database of all the funds in Texas.

The sorry tale in the data

The data plainly says that the police need to police their funds more actively and the fire departments have a three-alarm pension fire to attend.

Am I indulging in cheap, journalistic hyperbole? I wish I were.

My measuring stick was a simple, utterly conventional and low-cost index fund, the Vanguard Balanced Index fund Admiral shares (ticker: VBIAX), a fund that invests 60 percent of its money in the total domestic stock market and 40 percent in the total domestic bond market.

That’s pretty vanilla. It’s also dirt-cheap. The Admiral shares, which now requires a minimum investment of only $3,000, have an annual expense ratio of 0.07 percent. That means it would cost $7 to manage $10,000 for a year. It’s a fraction of what it costs for individuals and most institutions to have “active” money management.

The measuring stick

This is the most basic, one-stop shopping form of Couch Potato investing possible. Commit the money. Forget about it. Our pension funds, on the other hand, invest in a variety of ways, pay higher fees and make direct investments in real estate. Many also make “alternative investments,” which are expensive to manage and hard to measure. What they most certainly do is provide compensation levels for their managers that few police officers or firemen will ever see.

So, how did the 86 managers do?

I can’t tell you about six of them because they don’t yet have 10-year track records. But of the remaining 80 funds, a whopping 76 failed to beat the cheap and simple index fund. Four beat it, but the real number is probably lower.

So much failure, so many years

In other words, at least 93.75 percent of funds failed to beat a traditional, basic index fund over their 10-year measuring period.

Why “at least”? Because the pension funds report their performance gross before fees. And since three of the funds beat the index fund by only 0.12 percent to 0.40 percent, it’s quite likely that only one actually beat the index fund. That would be a fail rate of 98.75 percent.

For the other 76, it was all downhill. (See the rank-ordered performance list below.)  The worst fund (San Benito Firemen’s Pension Fund) trailed by an amazing 5.7 percent, annualized, per year. The Dallas Police & Fire Pension System-Combined Plan and the Dallas Police & Fire Pension System-Supplemental plan were second worst. Both trailed by 5 percent a year, annualized.

Someone needs to talk with these folks about the monkeys they hire to parse risk and reward. With the 1.4 percent annualized return achieved by the Dallas police and fire funds, they would have done far better by going home early after putting every dime in inflation-adjusted U.S. Treasury obligations.

Some trailed by more than others — a lot more

Of the 76 funds that trailed the comparable period index fund return before fees:

— 12 trailed the passive index fund by less than 1.0 percent a year, plus fees.

— 22 trailed by 1.0 to 1.99 percent a year, plus fees.

— 24 trailed by 2.0 to 2.99 percent a year, plus fees

— 11 trailed by 3.0 to 3.99 percent a year, plus fees

— 4 trailed by 4.0 to 4.99 percent a year, plus fees and

— 3 trailed by at least 5 percent a year, plus fees.

Those are wide margins of failure. The result is a large number of funds that are at least 20 percent underfunded and a whopping 19 that are less than 60 percent funded.

With pensions for private sector workers disappearing faster than beer at a tailgate party, many readers may be tempted to shrug their shoulders. It’s a problem lots of people won’t ever get to have.

But it isn’t so. One person’s underfunded pension plan is another person’s higher tax rate. This is a problem we all share.

Texas Pension Funds,

rank ordered by annualized 10-year gross performance

This table compares the performance of 86 Texas pension funds over their most recent reported 10-year performance period against the performance of Vanguard Balanced Index Fund Admiral shares over the same reporting period. The funds labeled “NA” did not have a 10-year reporting period. Performance figures are expressed in decimal format. For example, the figure 0.0640 would be 6.4%.
Reporting Period End Plan Name Gross Rate of Return, 10-Year Balanced Index 10 year return 10 year gap
12/31/16 El Paso Firemen & Policemen’s Pension Staff Plan and Trust  NA 0.0640 NA
12/31/16 Travis County ESD # 6 Firefighter’s Relief & Retirement Fund  NA 0.0640 NA
12/31/16 Cleburne Firemen’s Relief & Retirement Fund  NA 0.0640 NA
12/31/16 Colorado River Municipal Water District Defined Benefit Retirement Plan & Trust  NA 0.0640 NA
9/30/17 San Antonio Metropolitan Transit Retirement Plan  NA 0.0664 NA
12/31/17 The Woodlands Firefighters’ Retirement System  NA 0.0714 NA
12/31/16 Dallas Employees’ Retirement Fund  0.0884 0.0640 2.4400
12/31/16 Amarillo Firemen’s Relief & Retirement Fund  0.0680 0.0640 0.4000
12/31/16 Harris County Hospital District Pension Plan  0.0660 0.0640 0.2000
12/31/16 Denton Firemen’s Relief & Retirement Fund  0.0652 0.0640 0.1200
12/31/16 San Angelo Firemen’s Relief & Retirement Fund  0.0634 0.0640 -0.0600
12/31/17 City Public Service of San Antonio Pension Plan  0.0698 0.0714 -0.1600
12/31/16 Capital MTA Retirement Plan for Bargaining Unit Employees  0.0599 0.0640 -0.4100
12/31/16 Plano Retirement Security Plan  0.0599 0.0640 -0.4100
12/31/16 El Paso Firemen’s Pension Fund  0.0580 0.0640 -0.6000
12/31/16 El Paso Police Pension Fund  0.0580 0.0640 -0.6000
12/31/16 Capital MTA Retirement Plan for Administrative Employees  0.0568 0.0640 -0.7200
6/30/17 Houston Municipal Employees Pension System  0.0578 0.0655 -0.7700
12/31/16 Dallas/Fort Worth Airport Board DPS Retirement Plan  0.0550 0.0640 -0.9000
12/31/16 Dallas/Fort Worth Airport Board Retirement Plan  0.0550 0.0640 -0.9000
6/30/17 Houston Firefighter’s Relief & Retirement Fund  0.0565 0.0655 -0.9000
7/31/17 Port of Houston Authority Retirement Plan  0.0615 0.0714 -0.9900
8/31/17 El Paso City Employees’ Pension Fund  0.0607 0.0714 -1.0700
12/31/17 Corpus Christi Fire Fighters’ Retirement System  0.0605 0.0714 -1.0900
12/31/16 Irving Firemen’s Relief & Retirement Fund  0.0528 0.0640 -1.1200
12/31/16 Texarkana Firemen’s Relief & Retirement Fund  0.0527 0.0640 -1.1300
12/31/16 Wichita Falls Firemen’s Relief & Retirement Fund  0.0518 0.0640 -1.2200
12/31/16 Port Arthur Firemen’s Relief & Retirement Fund  0.0515 0.0640 -1.2500
6/30/17 Houston Police Officers Pension System  0.0530 0.0655 -1.2500
12/31/17 Lower Colorado River Authority Retirement Plan  0.0570 0.0714 -1.4400
12/31/16 Beaumont Firemen’s Relief & Retirement Fund  0.0485 0.0640 -1.5500
12/31/16 Atlanta Firemen’s Relief & Retirement Fund  0.0484 0.0640 -1.5600
9/30/17 Harlingen Firemen’s Relief & Retirement Fund  0.0506 0.0664 -1.5800
12/31/16 Austin Fire Fighters Relief & Retirement Fund  0.0480 0.0640 -1.6000
12/31/16 Tyler Fire Department Relief & Retirement Fund  0.0477 0.0640 -1.6300
6/30/16 Nacogdoches County Hospital District Retirement Plan  0.0522 0.0692 -1.7000
12/31/16 Marshall Firemen’s Relief & Retirement Fund  0.0467 0.0640 -1.7300
12/31/16 Corpus Christi Regional Transportation Authority  0.0466 0.0640 -1.7400
12/31/16 Galveston Employees’ Retirement Fund  0.0462 0.0640 -1.7800
12/31/16 Orange Firemen’s Relief & Retirement Fund  0.0460 0.0640 -1.8000
12/31/16 Houston MTA Workers Union Pension Plan  0.0460 0.0640 -1.8000
9/30/17 Waxahachie Firemen’s Relief & Retirement Fund  0.0480 0.0664 -1.8400
12/31/16 Dallas County Hospital District Retirement Income Plan  0.0446 0.0640 -1.9400
12/31/17 Austin Employees’ Retirement System  0.0515 0.0714 -1.9900
12/31/16 Lubbock Fire Pension Fund  0.0439 0.0640 -2.0100
12/31/16 Houston MTA Non-Union Pension Plan  0.0430 0.0640 -2.1000
9/30/17 DART Employees’ Defined Benefit Retirement Plan & Trust  0.0453 0.0664 -2.1100
12/31/16 Big Spring Firemen’s Relief & Retirement Fund  0.0426 0.0640 -2.1400
12/31/17 University Health System Pension Plan  0.0500 0.0714 -2.1400
12/31/16 Greenville Firemen’s Relief & Retirement Fund  0.0423 0.0640 -2.1700
12/31/16 San Antonio Fire & Police Pension Fund  0.0420 0.0640 -2.2000
12/31/17 Sweetwater Firemen’s Relief & Retirement Fund  0.0491 0.0714 -2.2300
9/30/17 Abilene Firemen’s Relief & Retirement Fund  0.0440 0.0664 -2.2400
12/31/16 Galveston Wharves Pension Plan  0.0409 0.0640 -2.3100
2/28/17 Brazos River Authority Retirement Plan  0.0434 0.0672 -2.3800
9/30/17 Northwest Texas Healthcare System Retirement Plan  0.0421 0.0664 -2.4300
9/30/17 Temple Firemen’s Relief & Retirement Fund  0.0417 0.0664 -2.4700
9/30/17 Laredo Firefighters Retirement System  0.0415 0.0664 -2.4900
12/31/16 Midland Firemen’s Relief & Retirement Fund  0.0388 0.0640 -2.5200
12/31/16 Denison Firemen’s Relief & Retirement Fund  0.0387 0.0640 -2.5300
9/30/16 McAllen Firemen’s Relief & Retirement Fund  0.0417 0.0678 -2.6100
9/30/17 Killeen Firemen’s Relief & Retirement Fund  0.0401 0.0664 -2.6300
12/31/16 Galveston Firefighter’s Relief & Retirement Fund  0.0374 0.0640 -2.6600
12/31/16 Galveston Employees’ Retirement Plan for Police  0.0364 0.0640 -2.7600
12/31/16 Guadalupe-Blanco River Authority  0.0357 0.0640 -2.8300
12/31/16 Texas City Firemen’s Relief & Retirement Fund  0.0356 0.0640 -2.8400
9/30/16 Fort Worth Employees’ Retirement Fund Staff Plan  0.0391 0.0678 -2.8700
12/31/16 Irving Supplemental Benefit Plan  0.0341 0.0640 -2.9900
12/31/16 Corsicana Firemen’s Relief & Retirement Fund  0.0340 0.0640 -3.0000
6/30/17 Arlington Employees Deferred Income Plan  0.0353 0.0655 -3.0200
6/30/18 Northeast Medical Center Hospital Retirement Plan  0.0490 0.0798 -3.0800
12/31/16 Lufkin Firemen’s Relief & Retirement Fund  0.0330 0.0640 -3.1000
12/31/16 University Park Firemen’s Relief & Retirement Fund  0.0329 0.0640 -3.1100
12/31/16 Longview Firemen’s Relief & Retirement Fund  0.0322 0.0640 -3.1800
12/31/17 Fort Worth Employees’ Retirement Fund  0.0391 0.0714 -3.2300
12/31/16 Conroe Fire Fighters’ Retirement Fund  0.0284 0.0640 -3.5600
12/31/17 Brownwood Firemen’s Relief & Retirement Fund  0.0352 0.0714 -3.6200
12/31/16 Austin Police Retirement System  0.0259 0.0640 -3.8100
10/31/17 Refugio County Memorial Hospital District Retirement Plan  0.0409 0.0796 -3.8700
9/30/17 Weslaco Firemen’s Relief & Retirement Fund  0.0259 0.0664 -4.0500
12/31/16 Paris Firefighters’ Relief & Retirement Fund  0.0216 0.0640 -4.2400
12/31/16 Plainview Firemen’s Relief & Retirement Fund  0.0195 0.0640 -4.4500
12/31/17 Odessa Firemen’s Relief & Retirement Fund  0.0258 0.0714 -4.5600
12/31/16 Dallas Police & Fire Pension System-Supplemental   0.0140 0.0640 -5.0000
12/31/16 Dallas Police & Fire Pension System-Combined Plan  0.0140 0.0640 -5.0000
9/30/17 San Benito Firemen’s Pension Fund  0.0094 0.0664 -5.7000
Sources:   https://comptroller.texas.gov/application.php/pension; Vanguard fund figures from: www.portfoliovisualizer.com

Related columns:

Scott Burns, “Can Couch Potato Investing Do Better than the Teachers Retirement System of Texas?,” 9/16/18

https://scottburns.com/can-couch-potato-investing-do-better-than-the-teachers-retirement-system-of-texas/

Scott Burns, “Couch Potato Investing versus Texas State Pension Funds,” 10/6/18

https://scottburns.com/couch-potato-investing-versus-texas-state-pension-funds/

 

Sources and References:

Public Pension Search Tool, Comptroller of Texas   https://comptroller.texas.gov/application.php/pension

“State Public Pension funds — investment practices and performance, 2016 update”  https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2018/09/state-public-pension-funds–investment-practices-and–performance-2016-data-update

“Warren Buffett says hedge funds get ‘unbelievable’ fees for bad results,” livemint, May 2, 2016, Sonali Basak and Noah Buhayar  https://www.livemint.com/Companies/pJIWtCZZeS55e87zDaAHAP/Warren-Buffett-says-hedge-funds-get-unbelievable-fees-for.html


This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.


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(c) Scott Burns, 2018