For taxpayers and state employees, the figures are bound to look out of line: The state’s public pension systems are struggling with billions of dollars in unfunded liabilities while, according to a Texas Monitor review, compensation is up nearly 24 percent over the past two years for the top-paid 20 investment executives involved with those pension systems.
State Rep. Dan Flynn, chairman of the House Pensions Committee, said those salary and bonus boosts will be under careful review in the next session of the Texas Legislature. But there’s more to the picture than rising salaries within a debt-ridden system, he said in a recent interview.
“I am very well aware of the competition in the marketplace for this expertise, and we want the best available people in those important positions,” the East Texas Republican said. “On the other hand, we have a responsibility to make sure these high salaries and these bonuses are justified.”
The investment executives’ salaries range far beyond what even the governor and executives of Texas’ largest agencies make.
Charles Tull, director of investments for the Employees Retirement System, is on schedule to earn more than $783,000 in salary and bonuses in 2018, the most for any state investment executive. Jerry Albright, chief investment officer for the Teacher Retirement System, came in second at $760,398, according to the data provided to The Texas Monitor. Eric Lang, an investment fund director for Teacher Retirement, was third at $699,498.
By contrast, James Bass, head of the Texas Department of Transportation, overseeing more than 11,000 employees, will receive a little less than $300,000 this year. In fact, 20 investment executives for public pension funds in the state make more than Bass — and three times or more than the $153,750 salary of Gov. Greg Abbott.
Sixteen of those top 20 earners work for the state’s two biggest pension plans, the Teacher Retirement System and the Employees Retirement System. The Teacher Retirement System carries more than half of the total unfunded liabilities — $35.5 billion — for all of the 92 public pensions in the state.
The steady increase in such salaries comes as political attention has turned to the growing debt of public pension systems throughout the state. At the end of 2016, Moody’s Investors Service ranked Dallas second only to Chicago among major American cities in the amount of pension debt it was carrying. Houston ranked fourth, Austin was ninth and San Antonio came in at 12th among the top 15 cities.
As the The Texas Monitor reported in April, researchers for the Texas Public Policy and Reason foundations found Austin’s three pension funds — the Austin Employees’ Retirement System, the Austin Police Retirement System and the Austin Firefighters Relief & Retirement Fund — in crisis.
All three of those funds carried surpluses 20 years ago. A series of benefits increases granted — but not funded — by the legislature has meant those three pension systems were only 64 percent funded as of 2016, according to the joint study.
So serious was the threat of pension debt that legislators the last session forced significant reforms on Dallas and Houston, including mandating increased city contributions to their respective pension funds and an increase in the minimum age at which city employees can begin claiming benefits.
“Our primary focus was getting Houston and Dallas, which were both going backward, back on a sound actuarial basis,” Flynn said. “By the end of the session, I have to say I was surprised by some of the pension system salaries, particularly in comparison to some of our agency heads with all of their responsibilities. Yes, it’s got my attention.”
But salaries of investment executives, even if they work for the State of Texas, have far more to do with Wall Street than with Austin.
“Many pension executives are drawn from Wall Street and hence their compensation is tied more or less to what fund managers earn in the private sector,” said Michael Granof, accounting professor at the University of Texas at Austin.
In the private sector, the compensation of such executives is related directly or indirectly to the performance of the funds they manage, he said.
But private sector investments don’t have to take into account the huge effect that political decisions — such as approving unfunded benefit increases — can have on public-sector pension funds. As a result, investment executives with pension funds don’t always find their income tied so directly to the health of the systems whose money they invest.
The state auditor reported in August 2016 , salaries for some investment executives in Texas’ public pension systems aren’t even competitive. In 48 of those executive positions, the report warned, posted salary ranges would not allow Texas to compete well with the private market for talent.
The Austin American-Statesman in 2015 concluded that compensation policies for Texas pension investment executives “vary widely among agencies, and the frequency of bonuses and their size depend almost entirely on the whims of agency directors.”
The Texas Monitor contacted public information officials of both the Teacher Retirement and Employees Retirement systems, with questions about how executive compensation is determined. Neither responded.
According to the state comptroller’s office, state agencies are not required to make public their reasons or methodologies for setting salaries and awarding raises and bonuses.
Salaries and bonuses for state investment executives have climbed unabated, at least since the Great Recession began tapering off in 2011. The auditor’s report made no mention of how the agencies determined executive pay raises. (Please see page 21 of the report for a ranking of the thirty highest salaried investment positions at state agencies as of June 20, 2016).
“When I look at the salaries of these executive, I have to look at it in the same way we looked at the actuarial soundness of the systems in Dallas and Houston,” Flynn said, “acting as a watchdog for the taxpayers of the state of Texas.”
Mark Lisheron can be reached at [email protected].