Texas Public Pension Funds Set Financial Health Record

The number of state and local pension funds receiving Texas Pension Review Board recommendations for overall financial health reached a record high in 2019, according to the Texas Association of Public Employee Retirement Systems (TEXPERS).

“This is indisputably the best overall set of data we’ve seen regarding the aggregate health of Texas’ state and local pension funds,” Art Alfaro, executive director of TEXPERS, said in a release. “Clearly, the public policies established by the Texas Legislature are achieving intended results.”

A special report issued by TEXPERS said the 99 state and local pension funds that report financial statistics to the review board significantly improved their aggregate amortization periods. The report said that 45 of them achieved PRB-recommended amortization period of 0-25 years, which is the most that reached this level in eight years. The PRB has said that amortization periods are the single “most appropriate” measure of public retirement systems’ health.

“The most compelling finding is that amortization periods continued to improve despite a very bad year-end in the markets in 2018, and despite systems’ continuing efforts to lower target rates for investment returns,” Alfaro said. “If target rates had remained the same, we might have seen even greater numbers of funds improving their amortization periods.”

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The report emphasized, however, that amortization periods are not the only measure of pension fund health and said the PRB has developed other tests in recent years to trigger “intensive reviews.” The evaluations are intended to help detect whether certain measures might be giving warning signs before “worrisome amortization period changes” occur.

“Our member pension systems can always strive to do better and the Pension Review Board’s expansion of issues of concern beyond amortization periods is warranted,” said Alfaro. “The intensive reviews it established a few years ago to explore other measures of pension fund health may already be having effect in the data here.”

The analysis also found that the trend of pension funds lowering their target investment return rate continues to rise. For the first time in decades, no Texas pension fund has a target investment return rate greater than 8%. Only five have a target of 8%, which is down from 11 last year, and 21 in 2017. Meanwhile, the number of pension funds with investment return target of 7% has more than doubled in the past two years to 16 in 2019 from 12 in 2018 and 7 in 2017.

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Tags: Texas Association of Public Employee Retirement Systems (TEXPERS), Texas Pension Review Board

In their youth, baby boomers were known for their over-the-top behavior—whether it be with sex, drugs, or rock and roll. Now, as they enter retirement, it’s investing.

This giant generation, born 1946-1964, has far too much of their retirement money in stocks, according to research from Fidelity Investments in its quarterly report on retirement funding.

By the fund house’s assessment, about one in three (37.6%) of 401(k) account holders in this age cohort have a higher amount of equities than recommended. Disturbingly, 7% of them have portfolios that are completely in stocks.

“While the market’s performance over the last few years has had a positive effect on many retirement account balances, it may have also contributed to some individuals having more stock than is recommended,” said Kevin Berry, president of workplace investing at Fidelity.

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What does Fidelity think the right amount of equity exposure should be? For 60-year-olds, who are approaching retirement but not there yet, the right amount is 59%. That’s close to the classic 60-40 stock-bond split that you’ve heard about for years. For post-retirement folks, as in 75-year-olds, the recommended stock allocation shrinks radically, to 36%. Bonds make up almost half of that suggested portfolio, with 15% in short-term assets, meaning federal fixed-income obligations that mature within a year.

By way of contrast, Fidelity believes that a 50-year-old should be on the aggressive side regarding stock holdings, with 84% in equities. The thinking, of course, is that you need stocks to build wealth over time.

But once your working life is over, prudence—as in fewer stocks—seems more sensible. A 75-year-old has less time to recover from a bear market than does a 50-year-old. The Fidelity asset allocations come from its target-date funds.

No surprise, Fidelity’s Berry is a strong advocate of a balanced asset allocation that synchs up with an investor’s age. “Maintaining the right balance of stocks, bonds, and cash,” he said, “can help ensure investors are not exposing their savings to any unnecessary risk, especially if the market was to trend downward.”

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Tags: 401(k), Asset Allocation, Baby Boomers, Fidelity Investments, Stocks, target-date funds