How TRS Invests Your Money

ATPE talked to the Texas Retired Teachers Association about what the Teacher Retirement System (TRS) does with your money.

Why are investments important?

Investing $130 billion is a big job. Income from investments has accounted for more than 60 percent of the total funding for the TRS pension fund since its inception. Each 1 percent of investment income is equal to approximately $1.3 billion. Compare this to a 1 percent contribution increase from the state or active employee payroll, which would generate less than $400 million.

Are TRS investment options limited by state statute?

Yes, the Texas state constitution requires that the TRS Board of Trustees invest funds in prudent investments.

Has the legislature further restricted the investment discretion of the board?

Yes, current statutes restrict the investment in “hedge funds” to 10 percent of the total value of the pension fund. The amount of funds invested by outside managers is also limited.

What is the process for making investment decisions?

The board adopts an investment policy statement that provides a roadmap for what types of investments can be made and who has the discretion to make the decisions regarding specific investments.

How does the board ensure compliance with the investment policy statement?

On a quarterly basis, the board receives reports on investment activity and performance from both the internal staff as well as from the independent external investment consultant via a public meeting. Performance is compared to established benchmarks, and any variation is discussed.

How much incentive compensation can the investment staff earn or receive each year?

The percentages vary by level, but the most senior investment staff can earn up to 125 percent of their base pay, which is generally paid out over a two-year time period. Some incentive compensation payments may be deferred if the fund had negative earnings.

On what factors is the incentive compensation based?

Currently, the incentive compensation is based on 50 percent for excess returns over the benchmark, 30 percent based on peer group comparisons, and 20 percent based on discretionary factors.

Why does TRS pay incentive compensation?

TRS uses the combination of salary and incentive compensation to attract and retain the most qualified staff it can get. Periodic studies are done by TRS management to ensure the total compensation package is reasonable given the competition from other public pension funds and private sector employers.

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