TCRS missing investment return goals

The Tennessee Consolidated Retirement System, which provides pensions for more than 370,000 people around the state, has now posted anemic returns and missed investment targets for two years in a row, reports The Tennessean, and this could impact its ability to meet obligations to state workers, teachers and retirees.

In 2015, the fund generated returns of 3.3 percent, falling short of its 7.5 percent target. In the most recent fiscal year, ending June 2016, the pension earned 2.8 percent.

Despite the two years of lackluster results, Tennessee Treasurer David Lillard says the state’s pension remains healthy and that the stronger returns in previous years help cushion the recent blows. In 2014 and in 2011, for example, the TCRS more than doubled expectations, reaping nearly 17 and nearly 20 percent returns.

“The liability horizon we invest for is a very long-term horizon,” Lillard said. “Unless you are an extremely badly funded pension, you have an ability to ride out any downturns that may occur.”

Across the nation, public pension funds have struggled as interest rates stay at record lows, people live longer and lower contributions from past years haunt current returns. Moody’s Investors Service estimates unfunded public pension liabilities totaled $1.3 trillion in 2014.

In fact, Lillard calls the pension’s strength “a point of pride for Tennesseans” and his confidence in the state’s pension is not unfounded. The state has a AAA bond rating from Standard & Poor’s, Fitch Ratings and Moody’s and TCRS is ranked as one of the top four funded pensions in the nation by the Pew Charitable Trusts. As of last year, Tennessee was 99 percent funded, according to Lillard’s office, compared to the national median of 59 percent funded, reported by Moody’s.

Even so, Tennessee’s investment returns over the past 10 years is 6 percent, failing to meet the 7.5 percent target.

“We are the best house in a bad neighborhood,” said Stephen Frohsin, a principal at Woodmont Investment Counsel in Nashville.