Teacher Retirement E.D. touts one-year and seven-year investment returns

CapitolBeatOK Staff Report

Published: 11-Aug-2010

The Oklahoma Teachers Retirement System (OTRS) funds outperformed all other Oklahoma public retirement funds in both the one-year (FY 2010) and long-term (seven-year FY 2004-10) officials announced today (Wednesday, August 11).

CapitolBeatOK has previously reported underfunding of OTRS, and its designation among the nation’s worst-funded public pension systems.  The overall poor condition of the system has drawn widespread coverage this year, including from CapitolBeatOK, The Journal Record and The Oklahoman.

The new data from OTRS, provided to CapitolBeatOK, puts in some historical context the system’s long term weakness with comparatively strong recent investment performance.

According to a new Pension Commission report released, the OTRS’s return of 16.6% in FY 10 puts the state teachers’ retirement system fund at the 11th percentile of all public funds in the U.S. Additionally, the OTRS fund ranked first among Oklahoma public funds by a wide margin in terms of national percentile. The Oklahoma judges’ retirement fund was next at the 26th percentile with a 14.2% annualized return.

“The board made a tactical move in January 2009 to invest in high-yield bonds in the midst of the market turmoil,” said Dr. James Wilbanks, executive director of the OTRS. “They saw an opportunity to take advantage of dislocated markets and this strategy provided the biggest return on our investments in FY 10 and is the reason we performed so well.”

In FY 10, OTRS returns on its high-yield bonds were 24.9%. The returns for the other asset categories for OTRS were 18.4% for domestic equity, 10/0% for international equity and 13.1% for fixed income.

Wilbanks says OTRS’s annualized return of 6.7% for the seven-year window (FY 04-10) also put the teacher’s fund in the top 10 percent nationally – in the 9th percentile – which outpaced the second-best Oklahoma Police Pension fund, which rated at the 28th percentile during the same timeframe.

However, Wilbanks and other state officials agree that fund management strategy, coupled with controlling costs at the agency level, will not alleviate the system’s $9.5 billion unfunded liability.  National analysts, studying teacher retirement systems in general, have said that the gap in teacher pension funding, in sum, is worse than generally supposed. A CapitolBeatOK story earlier this year detailed substantial office redecorations at OTRS. In a subsequent News9 report, Wilbanks defended the redecoration project.

Oklahoma state Treasurer Scott Meacham has previously described  Oklahoma’s Teacher Retirement System as “the number one financial threat the state is facing.”
“Above average investment performance is certainly to be commended,” said Meacham, also chairman of the Oklahoma State Pension Commission. “However, due to the high unfunded liability of the Teachers Retirement System, it is obvious the state cannot earn its way out of the problem. State leaders are going to have to step up and take decisive action to keep the system viable.”

Wilbanks says the OTRS board is working to develop proposals that will address the unfunded liability issue. At a recent retreat, the board voted to form a legislative committee that will present possible solutions to the Legislature and the incoming administration. This past legislative session, one proposal that did not advance would have ended special status for private association executives allowed to continue in OTRS as if they are public employees.

The OTRS is a state agency that administers retirement assets and provides income security through a monthly retirement benefit payable to its clients, who are educators and employees of Oklahoma’s public education institutions and agencies.

NOTE: Pat McGuigan contributed to this report.