The 25 Billion dollar drop...we have company...wonder if they awarded millions of bonuses in a down year? Dream on, Bill Hickman!

From John Curry
Subject: The 25 Billion dollar drop...we have company...wonder if they awarded millions of bonuses in a down year? Dream on, Bill Hickman!
"Hickman said the TRS pension operates on the assumption that it will have an 8 percent rate of return on investments each year."

Economy batters teacher retirement fund

No benefits to be cut, but lawmakers told to hold line on any additions

By R.G. RATCLIFFE Copyright 2008
Houston Chronicle Austin Bureau
Nov. 14, 2008

AUSTIN — A market value drop of about $25 billion in the Teacher Retirement System of Texas since Sept. 1 prompted actuaries Friday to warn against giving retirees any additional benefits next year unless the Legislature pays for them with tax dollars.

However, system managers said the losses will cause no cuts in current benefits for retired teachers because the fund's investments are made to cover costs over the long term.

The 275,000 retired teachers and beneficiaries covered by the retirement system, TRS, do not regularly get cost of living increases. But the Legislature sometimes authorizes a 13th check for the year whenever the system has investment gains.

TRS' market value grew from $100 billion in the 2006 state fiscal year to $112 billion in 2007. TRS ended its 2008 fiscal year on Aug. 31 with a market value of $104.9 billion, and that was before the wild downturn on Wall Street.

By the end of September, the pension fund's value was $96 billion. Chief Investment Officer Britt Harris said the fund likely will end October with a value of between $80 billion and $85 billion once audited returns are complete.

TRS Executive Director Ronnie Jung told fund governing board members that gains and losses for the fund were fluctuating by as much as $1 billion a day in the volatile market.

Actuary Bill Hickman of Gabriel Roeder Smith & Co. told the board that for the long-term health of the pension fund, legislators next year should not consider either reducing the state's contribution to the fund or ordering any unfunded benefits, such as a 13th check.

The retirement system trustees last year approved a one-time 13th check of about $2,400 for retirees based on a 14 percent investment return for the fund and a $664 million appropriation from the Legislature to cover payroll increases for active teachers. State law does not allow the TRS or the Employees Retirement System of Texas to give out a 13th check unless the pension is 100 percent funded.
Losses in billions The losses this fall make it unlikely either pension will be fully funded this year, even with legislative help.

Market value of the employee system dropped from $23.5 billion to $21.5 billion in the fiscal year that closed on Aug. 31. The employee system lost another $3.6 billion in value since Sept. 1, said spokeswoman Mary Jane Wardlow. Wardlow said the decline will not result in any reduction of benefits.

Hickman said the TRS pension operates on the assumption that it will have an 8 percent rate of return on investments each year. He said because of the losses in the first two months of this fiscal year, the pension fund's investments would have to earn a 35 percent rate of return for the remaining 10 months to equal an annual return of 8 percent.

"You're still close to 80 percent funded," Hickman said. "Should you be worried? No. Should you be cautious? Yes."

Harris said he wanted to make certain retirees do not mistake the gloomy financial news to mean they will not receive their benefits or might have a benefit cut.

"These are short-term conditions. We are a long-term fund," Harris said.

Meanwhile, the TRS approved the hiring of the law firm of Morgan Lewis & Bockius as its fidicuiary counsel.

The board had created a controversy earlier this year when it voted against renewing the contract of the Groom Law Group and replaced it with the firm of Cooley Godward Kronish LLP.

The Cooley firm represents investment banks in negotiations with investors, and some saw the potential for conflict of interest in the hiring. The firm withdrew its bid this month.

r.g.ratcliffe@chron.com