ERS Trust Fund performance in the second quarter of CY24

5-minute read

The Employees Retirement System of Texas Retirement (ERS) Trust Fund (“the Fund”) earned a 10.8% return on investments for the 12 months ending on June 30. The steady performance exceeded the agency’s policy benchmark, which is the standard the Fund is measured against and reflects value added by ERS’ investments staff.

The annualized 9.1% return over the last five years was above the assumed annual rate of return, which is currently set at 7% and is the investment return ERS’ retirement actuaries expect from the Fund each year to ensure it can meet its commitments over the long term.

Other highlights for the ERS Fund as of the June 30 include:

• The market value was $39.1 billion, a gain of about $300 million since the end of the previous quarter and $2.4 billion since the beginning of 2024.
• It was recognized in the top 1% of peer public pension funds in the country over the last five years.
• Its investment earnings are doing better than the ERS policy benchmark over one, three, five and 10 years.

ERS’ Private Equity Program has been the largest source of the Fund’s five-year excess return, followed by Global Credit and Private Real Estate.

The policy benchmark recorded 9.3% for the last year, or 1.5% behind the ERS Fund. In fact, the ERS Fund also exceeded the policy benchmark over the last three years (6.1% compared to 4.6%), five years (9.1% compared to 7.2%) and 10 years (7.6% compared to 6.6%).

These numbers demonstrate the effectiveness of the ERS Fund’s steady, highly diversified portfolio that helps it weather swings in markets and contributing to the overall fiscal wellbeing of the State of Texas, which guarantees lifetime pensions for retired state employees.

Helpful terms

Policy benchmark: the standard against which ERS measures the Fund’s performance. There are benchmarks for every type of investment and strategy. The Standard and Poor’s 500 (S&P) index and Dow Jones Industrial Average (DJIA) are examples of two popular benchmarks in the U.S. equity market. 

Passive Index: a portfolio designed to mirror the returns of indices with a passive mix of 80% stocks and 20% bonds. ERS uses the Passive Index as another benchmark against which to measure the Fund’s performance.

Reference the August 2024 ERS joint Board of Trustees and Investment Advisory Committee meeting to find out more about the performance of specific asset classes during the first quarter of CY24.

Why investment performance matters

The State of Texas Retirement program for state agency employees is a defined benefit plan that will provide the employees with a stable, lifelong income when they become eligible and retire. ERS prudently invests contributions from employees, the state and agency employers through the ERS Retirement Trust Fund. The Fund supports current and future earned benefits.

When employees retire from state employment, they will receive a monthly annuity payment from ERS for the rest of their life regardless of the Fund’s investment performance. By design, about 60% of retirement annuities currently are paid from the Fund’s investment earnings. Contributions from the state and active members over their career account for the other approximately 40%.

For employees in ERS Retirement Group 4 (state agency employees who started on or after Sept. 1, 2022), their lifetime retirement annuities will be based on their age and how much money is in their ERS retirement account when they retire, including a 150% state match of the entire account balance at retirement. Their account balance includes Group 4 employees’ contributions, guaranteed 4% annual interest and, through a feature called gain sharing, additional earnings of up to 3% when ERS’ investments earns more than 4% on average over the previous five years. Gain sharing means investment earnings could help increase a Group 4 employees’ State of Texas Retirement account balance and the amount of their monthly retirement annuity. It is important to note that Group 4 accounts will never earn less than 4% interest, even in years when the Fund returns less than 4%.

The five-minute Group 4 explainer video helps state employees understand how gain sharing in the Group 4 retirement benefit works. There is also a video for certified law enforcement and custodial officers (LECOS), who participate in the LECO Supplemental Retirement Fund. Both videos are also available in Spanish.

Reminder: The monthly annuity payment is just one part of state employees’ retirement income. ERS encourages a “three-legged stool” approach to achieving a financially secure retirement. Under this approach, the monthly annuity payment from the Fund is just one part of their retirement income. Social Security makes up another portion of retirement income. Personal savings, like an individual retirement account (IRA) or 401(k), are important to supplement the monthly annuity payment and Social Security. ERS offers the Texa$averSM 401(k) / 457 Program, a voluntary savings program managed by ERS that offers investment flexibility with lower-than-average fees.

Ensuring reliable payments to state retirees

Annuity payments to retirees currently total more than $3 billion per year. ERS must ensure the Fund is well diversified to not only achieve reliable investment earnings over the long term, but also to make sure the Fund has enough money on hand to pay hundreds of millions of dollars in annuities each month.

That much money going out each month means ERS must make different investment choices than an individual managing a personal retirement account—such as a 401(k) or 457—who does not need to withdraw funds regularly.

This prudent approach also allows the earnings from the ERS investment portfolio to meet long-term projections and withstand the market’s ups and downs. This is great news for state agency employees, even if the amount of their annuity does not depend on ERS’ investment performance.