Tag Archives: MERF

The MERF and the General Fund

Investment returns on the assets in the City’s pension fund have been well below average for the past five years. Poor investment performance impacts the General Fund in two ways.

First, the General Fund will need to make extra contributions to the MERF because of the poor investment performance. The General Fund is a main source of cash inflows for the program. Since Hartford’s pension investments didn’t grow as much as those of other pension funds, the taxpayers have to provide additional support.

Second, poor investment performance diverts scarce resources from the other General Fund priorities. Pension contributions are a top priority. The extra contributions that result from the MERF’s poor investment performance mean that other programs and services need to be cut even further to bring the budget into balance.

Pension contributions are one of the larger line items in the General Fund budget. The table below comes from page 28-1 of the Mayor’s Recommended Budget.


The recommended budget calls for just under $42 million in pension contributions this year, and over $47 million in contributions next year. It also calls for $16.5 million in employee concessions.

The table is full of large numbers. It might look a little different if the assets of the pension fund produced investment returns that matched, or exceeded, its peers.

$50 million in estimated MERF underperformance matters.

Pension Investment Performance

The Municipal Employees’ Retirement Fund (MERF) is a $972 million investment portfolio that pays the pension benefits of retired City employees.

The investment performance of the MERF has been poor in recent years. The poor performance is costing the City money, and contributing to the structural budget deficit.

The Fourth Quarter 2015 Investment Performance Analysis report, on the City Treasurer’s website, ranked the fund’s total return over different time periods. The following chart was taken from the “Investment Summary” on page 16.


It reported that over the past 5 years the fund was in the 81st percentile, which meant that 4 out of 5 Public Funds did better than the MERF. Over the last 3 years the fund was in the 91st percentile, so 9 out of 10 Public Funds did better than the MERF.

Underperformance in the short term is understandable. Markets fluctuate, and the MERF does not attempt to mimic the market. However, five years of very poor returns suggests there is something wrong with the MERF’s investment strategy.

It’s difficult to know exactly how much the poor investment performance has cost the MERF. It’s about a $1 billion fund, so 1% of underperformance for 1 year would result in about $10 million in missed opportunity.

The chart above states that underperformance has been 1% per year for five years. That suggests the MERF’s assets are about $50 million lower than if the fund performed at the median Public Fund level. Going a step further, if Hartford had an above average investment strategy, then MERF assets would be even more than $50 million higher than they are right now.

The investment strategy of the MERF has cost the fund tens of millions of dollars. This missed opportunity, in turn, will result in extra contributions from outside the fund.