TRS posts negative investment return for October

Things still aren’t looking up for the Teachers’ Retirement System, or TRS. You’ll remember that it earned a dismal 0.76 percent return on its investments in fiscal year 2012, after predicting 8.5 percent returns. Earlier this year, TRS lowered that expectation, but only slightly: the system is still predicting 8 percent returns this year. But...

Things still aren’t looking up for the Teachers’ Retirement System, or TRS. You’ll remember that it earned a dismal 0.76 percent return on its investments in fiscal year 2012, after predicting 8.5 percent returns.

Earlier this year, TRS lowered that expectation, but only slightly: the system is still predicting 8 percent returns this year. But even the lowered expectation may be hard to meet. During the past five years, TRS has averaged just 1.2 percent returns on its investments. And that’s before accounting for fees.

So how did TRS investments do in the month of October? They posted an investment return of -0.2 percent (gross of fees). Granted, that’s just a snapshot of one month of returns. It’s possible that TRS could still meet its target this year, despite the fact that the Federal Reserve plans to keep interest rates at zero until 2015.

But here’s the problem: Every time these returns come in under projections, it falls on taxpayers to make up the shortfall. If TRS can’t hit its 8 percent target this year, taxpayers will spend the next 30 years pumping more money into the system in order to make up the difference.

Ultimately, there are only two numbers that matter: the amount of money the pension system will pay out in earned benefits and the amount of money it has on hand. Between now and 2045, TRS will pay $376.5 billion to retired teachers. At the start of the fiscal year, it had just $36.3 billion on hand. For those assets to cover future payouts, TRS would need to see average investment returns of nearly 19 percent per year.

The simple fact is that TRS is broke. Under new accounting rules, TRS has less than 23 percent of the money it should have in the bank today to make its pension payments. The system doesn’t even have enough money on hand to pay out benefits to the people who have already retired, let alone those still in the classroom. Pension experts and TRS’s own actuaries agree: the fund could soon be insolvent.

The longer lawmakers delay action, the worse the pension debt crisis will become. Only major reforms, like those centered on defined-contribution plans and those tackling the automatic, compounding cost-of-living adjustment, can get the problem under control.