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All of which has hurt the fund's overall position. In 2010, the plan was 80 percent funded — meaning it had 80 percent of the money needed to pay out all the retirement benefits for its members. It would take 21 years to make up the difference, the fund's actuaries figured. Now the plan is 73.9 percent funded, a 30-year gap. As of January 1, 2012, according to the draft report, the plan's total unfunded liability was $1.9 billion, an increase of $304.8 million from 2010.
State regulators say that's all within reason. For the plan to become dangerously underfunded, things would have to go terribly wrong very quickly, says Chris Hanson, executive director of the Texas Pension Review Board. "Those types of cataclysmic events rarely happen," Hanson says.
But for DPFP, funding worries have already made an impact on members. In 2010, the fund quietly cut the benefits of all new members, to a level Tettamant described as what a retiree would have received in the 1970s. For instance: Prior to the cut, a firefighter who made $60,000 a year would collect about $45,000 a year when she retired. Under the new system, the same retiree would get about $30,000.
And even with that cut, taxpayers may have to pony up more. According to a May report from Buck Consultants, the plan's actuaries, the city will have to increase its contribution — from 27 percent of police and fire payrolls to 33 percent — to keep the plan from becoming underfunded.
Tettamant insists that no one project, and no one year's worth of returns, can make the fund second-guess its strategy. "Anything less than five years is just noise," he says. But experts say that missing that 8.5-percent mark is meaningful, even if it's just for a year or two.
"It's more than just a benchmark on the wall," says Ed Easterling, the researcher at SMU's business school. It "is the number that they use to determine their actuarial assets and their funding status." Even if the fund did manage to hit 8.5 percent each year into the future, it would still only have 73 percent of the money it needs for the next 30 years.
The question, then, is whether promising an 8.5-percent return in the first place is responsible.
"They may recognize that a traditional portfolio of stocks and bonds in today's environment going forward over the next several decades has very little chance of achieving an 8.5-percent return," Easterling says. "It will probably be more like half of that."
Easterling says funds could be more secure, and have less need for risky investments, if they moved to lower, more realistic return expectations. But that could create panic.
"It just wouldn't be acceptable to revise to a more realistic number that shows that the plan is 30 or 40 or 50 percent funded. It would create a fiscal crisis. It would lead to a combination of benefit cuts and additional funding, which makes taxpayers and beneficiaries upset."
Also, he says, more risk doesn't always mean more rewards. In fact, it may mean the opposite.
"The reality is the higher the risk, the lower the probability of achieving the return."
Back in the pension fund's conference room, the investment team isn't concerned about a few key things: They certainly don't envision the plan going bust, and they don't foresee asking the city to put in more money. "The contributions have not changed since 1984, and we don't see any need to change them in the foreseeable future," Tettamant says. "We have been steady and static on the contributions." He doesn't mention that police and fire payroll contributions will need to increase slightly, according to the fund's own actuaries.
The fund administrators are also noticeably frustrated by the amount of negative media attention they're receiving. In March, Tettamant sent an email to the fund's lawyer and city staffers complaining that the Nasher had decided to "attack Museum Tower in the press." Just before this interview, they were listening to a radio interview with D Magazine editor Tim Rogers, who wrote the cover story on Museum Tower. Rogers claimed that discussions between the Nasher and Museum Tower had gotten much more civil since the news went public.
"He'd like to think that," says Barbara Shaw, the fund's communications director. She smiles, a little frostily.
"I'm still confident about Museum Tower," Tettamant says, that day in June. As he is about alternative investments as a whole: Although the board voted recently to reduce the fund's real estate and private equity allocations to 15 percent each, it'll still have 50 percent of their assets in alternative investments, including infrastructure and natural resources.
In fact, if they can reverse those odds laid out by Easterling, they may yet surprise their critics. The same Cliffwater analysis that found such disappointing returns found that plans with a high percentage of alternative investments tended to do better than others. The real variable, the consultants cautioned, was selecting good assets and finding competent managers to oversee them.
Tettamant and his team seem certain — truly, unshakably certain, in a way that does not feel forced by the presence of a journalist's tape recorder — that they'll be one of the alternative investment success stories. Just wait and see, they say.
"I think we've done a good job," Tettamant says. "I think we've watched over our ship."