Monday, March 11, 2013

Teachers Retirement System - Why is it $4.4B short

I recently became aware that the NYC Teachers Retirement System (TRS) has had a regular and significant negative cash flow as far back as 2000 and maybe further. The total negative cash flow for the 13 years is $8.8B . In plain English a negative cash flow for a city pension fund means that the employee and employer contributions, interest payments, and dividends are less than expenses and pension payments. That leads to liquidating assets to cover the shortfall and creates a permanent handicap when it comes to investment returns.

This raises a question about the actuary's funding strategy for TRS.

None of the other four city pension funds have had consistent negative cash flows over the same time period. As of June, 2012 these four funds have reached or surpassed their pre-crash 2007 values. From the table below you can see that TRS is $4.4B short of its 2007 asset value.

TRS has a serious investment problem. Of course, in FY-2012 the other four funds didn't do so well with their positive cash flows. The five funds managed to turn $1.45B into $306.5M in a market that was was up 3.4% for the year.

The New York State Department of Financial Services (DFS) has not done a statutory examination report on any of the five city pension funds since at least 2003. This is in spite of the fact that the pension funds have paid DFS for the associated audits.

Asset Values and Cash Flows for the Five City Pension Funds: (2007 - 2012)

Pension Fund20072009201220122012
Closing BalanceClosing BalanceClosing BlanaceAsset ChangeNet Cash Flow
NYCERS $42,514.3M $31,903.4M $42,655.3M $246.3M $728.0M
TRS $37,142.8M $23,077.5M $32,774.8M -$826.7M -$472.3M
BERS $2,179.5M $1,536.6M $2,310.6M -$13.0M -$46.4M
Police Fund $21,905.5M $17,424.1M $25,479.9M $731.0M $944.0M
Fire Fund $7,202.7M $5,576.8M $8,124.7M $169.0M $268.0M
Total $110,944.7M $79,518.3M $111,345.3M $306.5M $1,452.4M

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