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Okla. Teachers Selects Northern Trust to Manage Index Portfolios

BlackRock and Rhumbline Advisers were among the finalists considered.

By Amrita Sareen-Tak

The $15.8 billion Teachers’ Retirement System of Oklahoma selected Northern Trust to manage nearly $1.5 billion of its equity assets at its board meeting on October 25. The plan also received a performance update by its consultant, AndCo.

“There is not an easy ‘why’ Northern was selected,” Tom Spencer, executive director of the fund, told CIO.  “All three candidates were qualified and would do a great job. We have used Northern as an index manager for several years. The fees quoted were quite good, and it was an easy decision to stay with them.”  BlackRock and Rhumbline Advisers were among the finalists considered.

As per its investment policy statement, the fund has a target allocation of 40% to US domestic equities. “The current domestic equity portfolio is about $5.9 billion. Northern will have about 15% of that number ($885 million) in a factor-based index, and 10% ($590 million) in a Russell 1000 cap-weighted index,” Spencer added. “Northern currently manages a $900 million S&P 500 cap weighted index fund, so those funds will go into the firm’s new portfolios.” The factor index to be used is the Scientific Beta US Multi-Beta Multi-Strategy Six Factor Equal Weight index.

Discussions surrounding the changes to the portfolio started a few months ago. In August, the staff received an education session, with representatives from Russell, MSCI, and EDHEC Research to talk about factor investing through an index. “The board accepted our chief investment officer’s analysis that TRS has an excellent chance of getting the same or better net returns in US equities at less cost,” Spencer asserted.

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Separately, the board received a monthly and quarterly investment performance update from AndCo. The plan’s one-month, third-quarter, and 10-year annualized returns were 1.95%, 3.76%, and 7.08%, respectively, for the period ending on September 30.

The next board meeting is scheduled for November 15.

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Home > News > Newsmakers > Connecticut Teachers’ Pension Contribution May Rise 1%
Newsmakers

Connecticut Teachers’ Pension Contribution May Rise 1%

Think tank says change will not be enough to stave off budget cuts and tax increases.

By Michael Katz

Connecticut lawmakers are considering increasing the state’s teacher pension contribution rate to 7% of a teacher’s pay from 6% as part of a new compromise budget package, according to think tank the Yankee Institute.

The increase in contribution rate is expected to raise $38 million per year, which could help offset the rising costs of teacher pension liabilities, which could increase by six times by 2032, according to the Yankee Institute. The rate would still be below the national average of 8%, and the 11% contribution required in Massachusetts.

However, “even with the proposed contribution change, Connecticut will have to make drastic cuts and tax increases to handle the projected increase in pension costs, or teachers may be forced to pay even more in pension contributions and get less in retirement,” wrote Mark Fitch in a Yankee Institute blog.

According to Connecticut’s Office of Fiscal Analysis, the state’s teachers do not pay into, nor receive, social security, but they collect some of the highest pensions in the country, as the average Connecticut teacher pension is nearly $60,000.

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The state currently pays 23% of a teacher’s salary into the pension fund, but those payments are spent entirely on the unfunded liabilities, said the Yankee Institute. Of the $1.2 billion Connecticut paid for teacher pensions in 2016, more than $1 billion was to pay for the $10 billion in unfunded liabilities. The state is expected to pay $1.3 billion in 2018.

“Those liabilities threaten the stability of the teachers’ pension fund and state budgets in the future,” said Fitch.

Nearly half of all teachers leave the profession before becoming vested in the pension plan and Connecticut teachers have to work 25 years before they will see a return on their investment, said the Yankee Institute, citing a study by EdChoice.

Gov. Dannel Malloy originally proposed forcing municipalities to pay part of the cost of teacher pensions, an idea that was largely criticized because it would allegedly lead to property tax increases. In the latest version of the plan, municipalities would have to contribute $200 million annually to the pension system.

According to the Yankee Institute, a teacher who spends his or her career in the Connecticut system, for example from age 23 to age 60 1/2, will receive a retirement income of 75% of their salary. A cost-of-living adjustment is applied annually once a teacher begins to receive benefits, which are actuarially adjusted for various factors, such as early retirement.

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