A New Study Compares the Investment Expenses Paid by Large Public Pension Funds

“A new study, [Public Pension Management and Asset Investment Review Commission],… compares the investment expenses paid by large public pension funds. Although such comparisons are difficult because of vast reporting discrepancies, the study still raises important questions about investment expenses of these funds—including some in Illinois…

“Among 84 funds with assets over $10 billion… by far the most expensive on the list was Illinois’ largest fund, the Teachers’ Retirement System (TRS), at 1.58%, or $778.6 million…

“[T]he State Universities Retirement System (SURS), ranked 42nd with an expense ratio of 0.34% and expenses of $63.3 million, and the Illinois State Employees’ Retirement System (Illinois SERS), ranked 67th at 0.17% with expenses of $28.9 million. The average expense ratio for the 84 funds was 0.37%.

“Caution should be used in interpreting this information. As noted in the Pennsylvania report, it is difficult to precisely compare investment expenses among public funds because they are not reported consistently. This is particularly true for expenses related to so-called alternative investments that are not publicly traded, such as real estate, private equity and hedge funds.

“Illinois TRS’ ranking is partly attributable to a reporting change in FY2016 that more than doubled investment expenses, according to a spokesperson. Before FY2016, TRS subtracted real estate investment expenses from real estate income and showed only net real estate income in its Comprehensive Annual Financial Reports (CAFRs); the fund subsequently reported real estate expenses and income separately. Although the change made TRS’ investment expenses appear higher, it did not have any financial impact, the spokesperson said. Without the additional expenses related to real estate and other alternative investments, TRS’ investment expenses in FY2017 would have been $349.6 million instead of $778.6 million and its expense ratio would have been 0.70% instead of 1.58%...

“Besides reporting differences, funds’ investment expenses can vary due to the mix of investments. Over the past decade, public pension funds across the country have increasingly turned to higher-fee alternative investments to meet their investment return targets, but the use of alternative investments varies widely. In FY2017 TRS had 40.3% of its portfolio in alternative investments, 35.5% in stocks and 21.5% in bonds; for the 81 funds with assets over $10 billion that report allocations, the average mix was 26.2% alternative investments, 48.9% stocks and 22.4% bonds, according to Public Plans Data. (These numbers don’t sum to 100% because of a small percentage of assets in cash and other investments.)

“Investment expenses also depend on whether a fund’s investment approach emphasizes high-fee active management or low-fee indexing. As explained in the Pennsylvania study, active investing involves managing a portfolio to outperform the returns of a given market index, while index or passive investing involves investing in a set of securities to replicate the performance of a market index. TRS uses indexing for 33.5% of its stock portfolio. Illinois SERS, whose assets are managed by the Illinois State Board of Investment, has 65.9% of its total portfolio in index-type investments. In 2016 the Board of Investment revised its investment strategy to focus on indexing and reduce its exposure to hedge funds…

“Of course, even high investment expense is justified if it results in a higher return. However, the study concluded after subtracting fees and adjusting for the risk of various asset classes that low-cost investments usually outperform most managers.

“The Illinois General Assembly should consider requiring a similar study of its public pension funds. While the recent change in reporting by TRS is a step in the right direction, the public would benefit from uniform, comprehensive reporting of fees across all systems. Moreover, a systematic examination of asset allocation, investment approach and manager selection would help ensure that investment expenses are warranted.

“Although investment costs are important, neither increasing investment returns nor reducing investment costs will solve Illinois’ pension problems. At the end of FY2018, the State’s five retirement systems—including TRS, SURS, Illinois SERS and the Judges’ and General Assembly Retirement Systems—had a total unfunded liability of $133.5 billion and only 40.2% of the estimated assets needed to pay future benefits.

“Illinois is expected to spend $7.1 billion, or 18.2% of its general operating expenses, on pension contributions in FY2019. Even so, statutorily required State contributions are not expected to be sufficient to keep the unfunded liability from growing until FY2029.  

Under Illinois law, the State’s FY2020 contribution to TRS is $4.8 billion. The fund’s actuaries estimate that full funding would be 63.7% higher at $7.9 billion” (Public Pension Management and Asset Investment Review Commission). These excerpts are from the Civic Federation, January 11, 2019.

"From Russia with Love"

“President Donald Trump told reporters on the South Lawn of the White House Monday [January 14] that suggestions he was some sort of Russian agent were totally ridiculous, and insisted that the entire special counsel investigation into Russia's interference in the 2016 election is a ‘whole big fat hoax.’

“It's in keeping with his broader approach to the question of Russia's election meddling efforts and ties between those close to his campaign and actors for foreign powers: This is all a sham. Special counsel Robert Mueller is out to get him -- as is the entire FBI. They've got nothing. (The 192 criminal counts, 36 people and entities charged, seven people who have pleaded guilty, the four people sentenced to prison and the one person convicted at trial as a result of the Mueller probe make clear, of course, that Trump is wrong.)

“But even if you ignore all of those facts about the Mueller investigation, there's still one question I keep coming back to over the last 48 hours: Why did Trump go out of his way to ensure that no records of his meetings with Russian President Vladimir Putin exist? These two paragraphs, from The Washington Post's Greg Miller, are staggering stuff:

“‘President Trump has gone to extraordinary lengths to conceal details of his conversations with Russian President Vladimir Putin, including on at least one occasion taking possession of the notes of his own interpreter and instructing the linguist not to discuss what had transpired with other administration officials, current and former U.S. officials said....

“‘The constraints that Trump imposed are part of a broader pattern by the president of shielding his communications with Putin from public scrutiny and preventing even high-ranking officials in his own administration from fully knowing what he has told one of the United States' main adversaries…’

“WHAT!

“Think of that decision for a minute. The dark cloud of Russia's involvement in the 2016 election has followed Trump since almost his first day in office. The US intelligence community concluded unanimously almost two years ago that the Russians actively sought to interfere in the election to help Trump and hurt Hillary Clinton. Any number of his past associates on the campaign -- and some within his administration -- have pleaded guilty to lying to Mueller about the nature and breadth of their interactions with the Russians. His top three campaign advisers -- Paul Manafort, Donald Trump Jr. and Jared Kushner -- met with Russians at Trump Tower in June 2016 under the promise that the Russians had dirt on Clinton. At a news conference following their summit in Helsinki, Trump sheltered Putin and Russia from blame in the election interference operations, insisting that the Russian president said he didn't do it and there was enough blame to go around on all sides.

“There's more, but you get the idea. In a vacuum, the President of the United States going above and beyond to shield his communications with the Russian president would be concerning. Given what we know about the Trump campaign and Russia, it's downright alarming.

“Now, back to my unanswered question: Why, if you are Trump, would you purposely shield your conversations with Putin even from your own aides? Why would you take notes from a translator at one encounter and urge that person not to reveal what transpired -- even to your senior aides? Why would you, as Miller notes in his story, ensure that ‘there is no detailed record, even in classified files, of Trump's face-to-face interactions with the Russian leader at five locations over the past two years.’

“That's doubly true given Trump's recounting Monday morning of the meeting in Helsinki with Putin. Said Trump:

“‘That was a very good meeting. It was actually a very successful meeting and I have those meetings with everything. I just know nothing about it. ... It was a very, very successful meeting. We talked about Israel, we talked about the pipeline that Germany is paying Russia a lot of money -- I don't think it's appropriate. We talked about that. We talked about many subjects, but I have those meetings one-on-one with all leaders including the president of China, including prime minister of Japan, Abe. We have those meetings all the time. No big deal.’

“So, the meeting was: a) great; b) no big deal.

“Even without all of the water under the Russia bridge, that would seem to suggest Trump would be totally fine with sharing every bit of his (highly unusual) one-on-one summit with Putin. And even if he wasn't comfortable sharing it with the general public, he would certainly be willing to have some record of that meeting (and others) that he and his senior staff could go over at a later date. Right? And he certainly wouldn't go out of his way to get rid of any ability by anyone other than him and Putin to know what went on in those meetings, right? RIGHT?

“Here's the thing: I don't know what Putin and Trump talked about in Helsinki or any of the other times they have huddled over the past two years. What I do know is that Russia ran an elaborate operation to interfere in the 2016 election to help Trump and hurt Clinton because, at a minimum, they believed Trump would be better for their interests. And that A WHOLE HELL OF A LOT of people in Trump's orbit lied to federal investigators about their contacts with Russia.

“Add it up and you get this: If Trump really didn't do ANYTHING wrong in relation to Russia, the dumbest thing he could possibly do is what he did -- actively work to scotch the official record of any evidence of what he and Putin have talked about over the past two years. It's literally the most guilty looking thing he could do.

“Which brings me, again, to this: If he did absolutely nothing wrong and this whole Russia investigation is a total hoax, why did Trump try to keep the contents of his meetings quiet? Why would he do that?

“To me, that's the question the press has to ask and ask and ask. Because the answer that seems obvious is one that would deeply endanger Trump's presidency. And if he is truly innocent of any and all allegations, then why lead people to believe you might not be?” (The One Giant Question Donald Trump Still Hasn’t Answered on Russia by Chris Cillizza, Editor-at-large, CNN). 

Please support House Resolution 1, introduced by House Democrats on January 3, 2019, by calling your senator and representative

“VOTING AND ELECTIONS LAWS: Voter registration would be made easier. Citizens could register online or get registered automatically, via data from driver's licenses or other government sources. For federal elections, states would have to provide same-day registration and at least 15 days of early voting. Election Day would be a federal holiday.

“The bill would crack down on efforts to take voters off the rolls or prevent them from casting ballots. Felons could regain their voting rights after finishing their sentences.

“Federal elections would require paper ballots to prevent computer tampering. State chief election officials couldn't get involved in federal campaigns.

“The bill would declare an intent to revive core anti-discrimination provisions of the Voting Rights Act of 1965 that were effectively shut down by the Supreme Court six years ago. It would also state that failing to vote isn't grounds for taking away a person's voter registration.

“CAMPAIGN FINANCE REFORM: Provisions from the Disclose Act would expand the prohibition on foreign political money and mandate the disclosure of the big donors behind politically active 501(c) (4) social welfare organizations.

“Digital companies, like Facebook and Google, would have to set up public databases cataloging political ad purchase requests of $500 or more and create new measures to block ad buys by foreign nationals.

“Presidential inaugural committees would have to disclose expenditures, in addition to the existing requirement for donor disclosure. This is a response to reports of unexplained spending by Trump's inaugural committee.

“A new matching-fund program would support House candidates who agree to raise only small-dollar contributions. (Similar provisions for Senate candidates would have to come from the Senate.) The public financing system for presidential candidates, largely irrelevant since 2012, would be updated.
The bill would quash "sidecar" super PACs that support individual candidates.

“ETHICS: Presidents and vice presidents would have to release their tax returns, something that happened routinely in past administrations but not in this one.

“Presidents-elect would need ethics plans for their transition teams and would have to file financial disclosures within 30 days of taking office. The bill would tell presidents and vice presidents they should act as if they are covered by the conflict-of-interest law, which actually exempts them. Again, this wasn't an issue in previous administrations because past presidents did not have the volume of business entanglements that Trump has.

“House members would be barred from serving on corporate boards. Rep. Chris Collins, R-N.Y., is under indictment for allegedly using inside information he gained as a corporate board member.

“House members would be forbidden to use taxpayer money to pay penalties for employment discrimination. Former Rep. Blake Farenthold, R-Texas, used $84,000 in federal funds to settle a sexual harassment claim by a former staffer, said he would repay it, but changed his mind after leaving office. Congress passed a bipartisan measure in December requiring members to pay out of their own pocket for some settlements and court judgments in sexual misconduct cases.

“The Supreme Court would have to establish a code of ethics, something it has never had. The laws regulating foreign and domestic lobbying would be expanded” (NPR). 

Pass this on to your friends. Thank you.

To read more about HR 1, click here. 

An Important Message You Can't Miss

  There are people in charge who don’t believe in science. Please join Conservation International and the fight to protect nature. WeNeedNature conservation.org/

Auld Lang Syne (With Lyrics and English Translation)

Teachers Quit Jobs at Highest Rate on Record by the Wall Street Journal

Small raises, budget frustration and opportunities elsewhere persuade teachers and other public-education workers to move on

“Teachers and other public education employees, such as community-college faculty, school psychologists and janitors, are quitting their jobs at the fastest rate on record, government data shows.

“A tight labor market with historically low unemployment has encouraged Americans in a variety of occupations to quit their jobs at elevated rates, with the expectation they can find something better. But quitting among public educators stands out because the field is one where stability is viewed as a key perk and longevity often rewarded.

“The educators may be finding new jobs at other schools, or leaving education altogether: The departures come alongside protests this year in six states where teachers in some cases shut down schools over tight budgets, small raises and poor conditions.

“In the first 10 months of 2018, public educators quit at an average rate of 83 per 10,000 a month, according to the Labor Department. While that is still well below the rate for American workers overall—231 voluntary departures per 10,000 workers in 2018—it is the highest rate for public educators since such records began in 2001…” (“Teachers Quit Jobs at Highest Rate on Record,” Wall Street Journal).

Commentary (from MONDAY, APRIL 25, 2011)

An Implicit Goal of Some Illinois Legislators Is to Ultimately Destroy the Teachers’ Pension and the Teaching Profession:

Teachers were stunned last spring when Senate Bill 1946 passed in less than 12 hours. “It is estimated that [the Teachers’ Retirement System’s new] Tier-Two benefits will be 30 percent less than benefits for Tier-One teachers, if the final average salary and creditable service time for both are equal” (Illinois Education Association, IEA).

Furthermore, teachers retiring with “10 years of service credits under [the] Tier Two [plan] would actually earn more benefits from Social Security” (IEA). Besides other egregious changes to the teachers’ pension, with the creation of a Second-Tier, teachers hired after January 2011 cannot receive their pension benefits until they are 67 years old: this would be the highest retirement age in the nation!

What could be the effects if Senate Bill 105 proposed by Senator Chris Lauzen, et. al. and HB 149 proposed by Representative Tom Cross, and other pension bills are passed in the future? Even without discussing the third incongruous part of this fire-breathing Chimera, which also includes a Tier-Three Defined-Contribution option, presumably, many young teachers will not continue to work in Illinois or lose their desire to teach.

Students across Illinois will be deprived of receiving an excellent education from the best teachers available, and they will become the unintended victims of this legislative charade. Teachers in the Tier One pension plan will also lose an essential financial resource needed for pension sustainability -- perhaps the unstated objective for those legislators who want to challenge the Pension Protection Clause. What's more, the “best and brightest” teacher candidates will not major in education. These young aspirants will find other professions that value their passion and competency.

There will be a teachers' shortage in Illinois (and elsewhere) if attacks on teachers' pensions and their profession continue. The teaching profession, as we know it, will be in jeopardy in the future.  

Blogger’s Choice 2018

Thank you for reading my blog. 

I chose one post from each month.
Click on any of the following "Titles":

Thinking about voting for Daniel Biss in the next Illinois gubernatorial election? (January 28, 2018)

America and Guns (February 19, 2018)

Many years ago, I had to defend why I taught this novel in my World Literature class to the school board and principal at Lyons Township High School (March 28, 2018) 

The Teachers Retirement System of Illinois 2018 Spring Report… (April 20, 2018)

The Sad Abandonment by Catholic Universities and Colleges of Their Religious Identity to Serve Budgetary Purposes (May 26, 2018)

$100,000+Pension Is the Exception and Not the Rule in Illinois (June 13, 2018)

A Rather Short Conversation with a Trumpite on Facebook Today (July 8, 2018)

A Facebook Discussion Regarding God and Human Suffering (August 27, 2018)

“Someone must have been telling lies about [Brett] K., for without having done anything wrong he was...”-Franz Kafka (September 27, 2018)

Why I Do Not Trust the Illinois Education Association’s Leadership, Especially Their Endorsements (October 28, 2018)

Chaos (November 5, 2018)

Lately the Chicago Tribune and its ilk have been lambasting public pensions again (December 4, 2018)

-Glen Brown