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Tennessee pension system boasts historic investment earnings

Virginia Gov. Bob McDonnell recently proposed that new state workers pay more into their retirement plans and announced a voluntary 401(k)-style arrangement in his blueprint to cut costs for the commonwealth?s retirement system.

Tennessee pension system boasts historic investment earnings

October 08, 04:00 PM October 08, 04:00 PM

Tennessee’s state pension system made money for the 12th consecutive year, earning a 25.6% return last fiscal year; the fourth-highest rate since the Tennessee Consolidated Retirement System (TCRS) was consolidated in 1972.

The state continues to have one of the healthiest pension systems in the country, according to Pew Charitable Trusts research.

“Successful state pension systems, such as those in Wisconsin, South Dakota, and Tennessee, have maintained high funded ratios over the past 20 years in part because they have strategies – including policies that target debt reduction and share gains and losses with workers and retirees – to mitigate cost increases during economic downturns,” Pew wrote.

Think tank Truth in Accounting said last month Tennessee had one of the healthiest financial outlooks of any state in the nation, ranking sixth nationally for fiscal health in its annual Financial State of the States report.

At the end of fiscal year 2020, Tennessee had 92 cents set aside for each promised dollar of pension benefits, but only 12 cents saved per dollar of promised retiree health care debt, Truth in Accounting CEO and founder Sheila Weinberg said.

“They have almost fully funded their pension liability,” Weinberg said.

TCRS made $13.6 billion in fiscal 2021; a record high in earnings that put the balance of TCRS’ investments at $65.3 billion. In fiscal 2020, the system had a 4.94% return and finished the fiscal year with a balance of $53.4 billion. The Tennessee Department of Treasury said that return outearned its peers by four times the median 1.2% return during the fiscal year.

“When retirement plans around the nation are under scrutiny for their performance, TCRS is thriving,” Tennessee Treasurer David Lillard said. “Our Governor and General Assembly ensure the plan is fully funded every year. The Tennessee Department of Treasury strives to be good stewards of the state’s financial resources. This $13.6 billion in investment income is evidence of our commitment to both active and retired members of the TCRS pension plan.”

The Tennessee Legislature voted to add a one-time appropriation of $250 million to the State and Higher Education plan in April’s budget appropriations process, the largest single contribution to the plan ever.

“The 25.6% return was especially satisfying given the conservative nature of our investment policy,” Tennessee Chief Investment Officer Michael Brakebill said. “The Investments team greatly appreciates the support and critical resources provided by Treasurer Lillard and the Tennessee General Assembly.”

The plan paid $2.8 billion in benefits to 148,025 retirees in fiscal 2021. The department said of every $100 paid out of the plan, $67 comes from investment earnings.

“The TCRS portfolio is structured to be a naturally conservative fund and is widely diversified to minimize risk,” a department news release said.

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