Pension expert Richard Ennis analyzed the performance of public pensions from 24 funds, finding Illinois’ teachers’ pension system among the worst after underperforming for 10 years.
A retirement expert took a close look at 24 public pension funds and determined that Illinois’ teachers’ retirement system was the fourth worst.
Richard Ennis, former editor of the Financial Analysts Journal, found that the Illinois teachers’ retirement system underperformed the average investment index fund by 3.23 percentage points despite a positive return of 8.3. % over a period of 10 years. For reference, the average fund surveyed underperformed by 1.4 percentage points, he wrote for the Journal of Portfolio Management.
Of the 24 funds studied, TRS was the fourth worst performer. He said TRS and its $66 billion is one of the most mismanaged funds in the country.
“At the total fund level, my analysis indicates that TRS’s active management record is among the worst of the roughly 50 large funds in my data set. That goes for the 10 years covered by this article and the longer 13 years of my research,” Ennis told Crain’s Chicago Business.
Ennis also looked at the state employee retirement system, which has $24 billion, and found it was underperforming by 1.24 percentage points.
Poor long-term performance is one of the main reasons TRS and other Illinois funds are saddled with the largest pension debt in the nation. While Illinois has 3.8% of the nation’s population, it carries 15.5% of the nation’s retirement debt. Heavy government debt also makes it essential that future returns match and exceed the growth in liabilities, otherwise the funds run the risk of insolvency.
Ennis concludes that benchmarking and reporting practices are major contributors to public pension underperformance, particularly for TRS.
“This stark disconnect raises questions about the usefulness of fund performance reports, as well as their heavy reliance on expensive active management,” Ennis said.
In other words, TRS would have made more money putting its investments in funds that buy a bit of all the stocks in an index, like the S&P 500, rather than letting a professional pick and choose the investments to TO DO. The TRS has only about 46% of the funds it will eventually need to pay what has been promised to educators for their retirement.
The TRS’s responsibilities would likely increase even further under Amendment 1, a Nov. 8 referendum enshrining the powers of government unions in the state constitution.
If approved, government unions would have few constraints on what they could demand, stifling pension reform. Amendment 1 guarantees a $2,149 property tax increase over the next four years as ratepayers are forced to fund new contract demands.