December 21, 2018

TRS Bonus Money

News

  • The state-run Teacher Retirement System, which handles assets for both pensions and health care for retirees, has handed out $42.2 million in bonus payments and performance awards since 2012 but pleaded poor this year while asking lawmakers for additional funding.

    In July, state lawmakers approved handing over $212 million to help boost the system’s health care coffers.

    Amidst sometimes-robust returns for the system, the money for pension payments cannot be spread out to cover health care due to federal rules.

    Public pension operations invest assets to generate returns, which are then used in part to pay the retirement costs of members.

    The Teacher Retirement System has a projected shortfall on its healthcare payments of $500 million to $700 million in 2020-2021, according to TRS executive director Brian Guthrie.

    The deficit will increase to “approximately” $2 billion by 2022-2023, he told lawmakers at a recent hearing.

    The returns that made some of the bonus payments to TRS fund managers possible cannot be allocated to alleviate the deficits.

    A review by The Texas Monitor of state bonus payments and performance premiums, called “incentives” in some quarters of the public sector, shows some of the Teacher Retirement System’s top officials received performance payments that approached their annual, six-figure salaries.

    The payments go to the agency’s top investment talent in what the department says is a bid to secure the best strategists to ensure the state’s $143 billion pension fund meets its goals.

    The bull market of recent years has helped the TRS team meet those goals — most recently, the fund saw net returns of 12.9 percent.

    Retirees benefit from the expertise at the TRS, said Tim Lee, executive director of the Texas Retired Teachers Association.

    “It takes money to keep these professional investors there,” Lee said. “And they can command a high salary at his level. So the strategy is sound.”
  • Lee, though, questioned the formula for handing out bonuses.

    “They are paid out of the money of retirees,” he said. “And the question becomes: how much does it take to keep these people around?”

    Overall returns would seem to be the first logical step in determining performance bonus payments. But in 2015, the TRS achieved an overall investment return just below zero percent, far below the 8 percent assumed return.

    Bonus payments of $6.5 million were handed out that year.

    Similarly, in 2011, the TRS lagged benchmarks overall but awarded $6.6 million in bonus payments.

    The TRS declined a request to make an official available for an interview.

    The bonus total for the department has grown 16 percent since 2012, from an average of $6 million a year to $7 million this most recent fiscal year.

    In public documents, the agency claims that pay packages at the publicly funded investment office need to be competitive with those of Wall Street.

    “Unlike many public funds, TRS’ incentive opportunities approach private sector norms — which is critical given that TRS primarily competes with the private sector for talent,” a report presented to the TRS compensation committee in September read. “TRS’ incentive deferrals are meaningfully sized and balanced relative to cash compensation.”

    In an email, TRS spokeswoman Juliana Helton said “the performance pay plan was established…to attract and retain high caliber investment professionals…A primary purpose of the plan is to ensure retention of qualified and experienced investment employees.”

    A survey by the New York State Comptroller’s office determined the average annual salary in New York’s securities sector is $388,000 and the average bonus in 2016 was $138,210.

    At the TRS, 27 top portfolio managers received an average of $159,316 in 2016.
  • Chief Investment Officer Britt Harris, who receives an annual salary of $551,250, received a $349,827 bonus. Investment fund director Chi Chai received a bonus of $257,511 on top of his salary of $339,456. Both Harris and Chai are senior members of the team. Twenty-five other staffers received performance payments of over $100,000.

    Hired from the private sector in 2006, Harris left the fund in June to become CEO of the University of Texas Investment Management Company.

    While it’s “not smart politics” to compare a public pension fund to Wall Street, “there is a place for merit-based bonuses in the public sector,” said Charles Chieppo, former policy director for Massachusetts office of finance under Gov. Mitt Romney.

    Many states have contracts that prohibit any form of merit or performance-based awards, he said, often due to union deals.

    “If the metrics are right and the benchmarks are high enough, the taxpayers can benefit,” Chieppo said.

    But to open the investment funds to health care? It’s not going to happen, he said.

    “No one funds the health care element in public retirement funds and it has become this growing issue that no one wants to address.”

    Bonuses are generally a sign of the fiscal health of an agency, with statute permitting a percentage of excess budget funds to be handed out to employees.

    The latest analysis from S&P Global Ratings, which tracks state debts, showed Texas pension debt is $5,207 per resident, ranking the state in the middle of the U.S.

    Teachers, through their union and lobbyists, have for years asked the legislature for relief from the growing cost of health care. And lawmakers in the past have vowed to examine the bonus program at the state’s retirement investment agencies.
  • Former state Sen. Kevin Eltife said in 2011 that “you can hire fund managers and people right now in this environment, pay them good salaries, be competitive with the private sector and I do not think it’s a requirement in this environment to pay incentive for these fund managers.”

    Eltife, who served on the Senate’s Business and Commerce, Economic Development, and Finance committees, never introduced any legislation addressing the situation.

    He did not return a call from The Texas Monitor.

    Lee, of the retired teachers association, said a retooling of the federal law that prevents the moving of money between health care and pension would ease the perception that performance bonuses are taking from retirees.

    “If you had a trust fund for health care that was being invested in a similar way, you could get a yield that could reduce premiums.”

TRS Bonus Money

  • Teacher retirement system awash in bonus cash — yet still seeks help to fund health care

      
    TRS Bonuses

    The state-run Teacher Retirement System, which handles assets for both pensions and health care for retirees, has handed out $42.2 million in bonus payments and performance awards since 2012 but pleaded poor this year while asking lawmakers for additional funding.

    In July, state lawmakers approved handing over $212 million to help boost the system’s health care coffers.

    Amidst sometimes-robust returns for the system, the money for pension payments cannot be spread out to cover health care due to federal rules.

    Public pension operations invest assets to generate returns, which are then used in part to pay the retirement costs of members.

    The Teacher Retirement System has a projected shortfall on its healthcare payments of $500 million to $700 million in 2020-2021, according to TRS executive director Brian Guthrie.

    The deficit will increase to “approximately” $2 billion by 2022-2023, he told lawmakers at a recent hearing.

    The returns that made some of the bonus payments to TRS fund managers possible cannot be allocated to alleviate the deficits.

    A review by The Texas Monitor of state bonus payments and performance premiums, called “incentives” in some quarters of the public sector, shows some of the Teacher Retirement System’s top officials received performance payments that approached their annual, six-figure salaries.

    The payments go to the agency’s top investment talent in what the department says is a bid to secure the best strategists to ensure the state’s $143 billion pension fund meets its goals.

    The bull market of recent years has helped the TRS team meet those goals — most recently, the fund saw net returns of 12.9 percent.

    Retirees benefit from the expertise at the TRS, said Tim Lee, executive director of the Texas Retired Teachers Association.

    “It takes money to keep these professional investors there,” Lee said. “And they can command a high salary at his level. So the strategy is sound.”

    Lee, though, questioned the formula for handing out bonuses.

    “They are paid out of the money of retirees,” he said. “And the question becomes: how much does it take to keep these people around?”

    Overall returns would seem to be the first logical step in determining performance bonus payments. But in 2015, the TRS achieved an overall investment return just below zero percent, far below the 8 percent assumed return.

    Bonus payments of $6.5 million were handed out that year.

    Similarly, in 2011, the TRS lagged benchmarks overall but awarded $6.6 million in bonus payments.

    The TRS declined a request to make an official available for an interview.

    The bonus total for the department has grown 16 percent since 2012, from an average of $6 million a year to $7 million this most recent fiscal year.

    In public documents, the agency claims that pay packages at the publicly funded investment office need to be competitive with those of Wall Street.

    “Unlike many public funds, TRS’ incentive opportunities approach private sector norms — which is critical given that TRS primarily competes with the private sector for talent,” a report presented to the TRS compensation committee in September read. “TRS’ incentive deferrals are meaningfully sized and balanced relative to cash compensation.”

    In an email, TRS spokeswoman Juliana Helton said “the performance pay plan was established…to attract and retain high caliber investment professionals…A primary purpose of the plan is to ensure retention of qualified and experienced investment employees.”

    A survey by the New York State Comptroller’s office determined the average annual salary in New York’s securities sector is $388,000 and the average bonus in 2016 was $138,210.

    At the TRS, 27 top portfolio managers received an average of $159,316 in 2016.

    Chief Investment Officer Britt Harris, who receives an annual salary of $551,250, received a $349,827 bonus. Investment fund director Chi Chai received a bonus of $257,511 on top of his salary of $339,456. Both Harris and Chai are senior members of the team. Twenty-five other staffers received performance payments of over $100,000.

    Hired from the private sector in 2006, Harris left the fund in June to become CEO of the University of Texas Investment Management Company.

    While it’s “not smart politics” to compare a public pension fund to Wall Street, “there is a place for merit-based bonuses in the public sector,” said Charles Chieppo, former policy director for Massachusetts office of finance under Gov. Mitt Romney.

    Many states have contracts that prohibit any form of merit or performance-based awards, he said, often due to union deals.

    “If the metrics are right and the benchmarks are high enough, the taxpayers can benefit,” Chieppo said.

    But to open the investment funds to health care? It’s not going to happen, he said.

    “No one funds the health care element in public retirement funds and it has become this growing issue that no one wants to address.”

    Bonuses are generally a sign of the fiscal health of an agency, with statute permitting a percentage of excess budget funds to be handed out to employees.

    The latest analysis from S&P Global Ratings, which tracks state debts, showed Texas pension debt is $5,207 per resident, ranking the state in the middle of the U.S.

    Teachers, through their union and lobbyists, have for years asked the legislature for relief from the growing cost of health care. And lawmakers in the past have vowed to examine the bonus program at the state’s retirement investment agencies.

    Former state Sen. Kevin Eltife said in 2011 that “you can hire fund managers and people right now in this environment, pay them good salaries, be competitive with the private sector and I do not think it’s a requirement in this environment to pay incentive for these fund managers.”

    Eltife, who served on the Senate’s Business and Commerce, Economic Development, and Finance committees, never introduced any legislation addressing the situation.

    He did not return a call from The Texas Monitor.

    Lee, of the retired teachers association, said a retooling of the federal law that prevents the moving of money between health care and pension would ease the perception that performance bonuses are taking from retirees.

    “If you had a trust fund for health care that was being invested in a similar way, you could get a yield that could reduce premiums.”

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