The county owes the county retirement plan $50 million because of 2015 investment results.
That’s right–fifty million dollars.
How Did We Get Here?
State law requires the plan to achieve an 8% return each year. Any less and taxpayer dollars have to make up the difference. A return above that percentage would be reserved to protect against future lean years.
The 2015 estimated investment return was -1% (minus one percent). So the taxpayers owe the county retirement plan about 9% on $386 million in total assets.
And let’s not forget about the previous investment return shortfall in 2014–about $9 million.
Because the plan “smooths” losses and gains over five years, we are underfunded by only $35 million today, thanks to previous positive years still rolling off the five-year calculation.
Why the Huge Numbers?
The county is responsible for all shortfalls below a mandatory 8% return, so when you have $386 million in assets, shortfalls or gains add up fast. The plan either earns the legally required 8% every year, or collects the difference from you.
It’s state law. The county must pay any shortfall.
What Would It Take To Make Up The Difference?
Let’s do a back-of-the-envelope calculation.
Ignoring the smoothing for now, it would take an approximate 17% return next year to make up for the modest returns we have seen. Or considering smoothing, it would take an approximate 10% return every year over five years to break even.
What are the chances of that kind of return?
Where Do We Go From Here?
We have overfunded the plan for several years. So for now our constant contribution level is still more than the county is required to contribute by the Texas County and District Retirement System (TCDRS) calculation.
Our overfunding surplus has helped so far. Let’s hope for good investment returns this year.