A seventeen-year look at how the City of Troy, Michigan pension fund performed against the broad U.S. stock market.
Troy's pension fund is among the best-funded municipal plans in Michigan, with a fiduciary net position covering more than 150% of obligations as of fiscal year 2025. That overcapitalization is what makes the next finding striking: over the same 17-year window, the fund underperformed the S&P 500 by 2.20 percentage points annually. Compounded across the trust's asset base, that gap represents tens of millions of dollars in foregone wealth — wealth that would have belonged to retirees and Troy taxpayers.
Each bar shows the Troy pension's annual money-weighted return; the dashed line tracks the S&P 500 Total Return Index over the matching July-to-June fiscal year. The pattern is stark: the pension trailed the S&P in fifteen consecutive years from FY2010 through FY2025, averaging about 4 percentage points of underperformance per year. The two years of outperformance during the 2008–2009 crisis bought a cushion that was repaid many times over by what followed.
Compounding magnifies small annual gaps. A million dollars invested at the start of FY2008 in Troy's pension portfolio would have grown to about $3.18 million by mid-2025. The same million in the S&P 500 would have grown to $4.49 million — a shortfall of $1.31 million per million invested, or about 29% less terminal wealth. Scaled to a trust holding $236M in fiduciary assets, the opportunity cost runs into the tens of millions of dollars.
Every fiscal year, every number, every gap.
| Fiscal Year | Troy Pension | S&P 500 TR | Difference |
|---|
Beginning with FY2015, the City of Troy ACFR discloses pension trust investment expense as a separate line on the Statement of Changes in Fiduciary Net Position. Across the eleven years on the public record, the trust paid $5.04 million in directly invoiced management expense. This is a floor, not a ceiling — see methodology below.
| Fiscal Year | Pension trust investment expense |
|---|
What's not in this $5.04M number. The disclosed line captures fees invoiced directly to the trust — typically the investment consultant retainer and a portion of separate-account manager fees. It does not capture embedded fees: mutual fund expense ratios netted into NAV, private equity "2 and 20" management fees and carried interest taken out at the fund level, and real estate fund-level fees. A reasonable all-in estimate for Troy's actual asset mix (≈60% equity, 26% fixed income, 5% private equity, 2% real estate) sits around 50–80 basis points a year — implying $17–30M in all-in fees over the full 17-year window, of which only about $5–7M is visible on the face of the ACFRs.
FY2008–FY2014 are excluded from the table because the ACFRs for those years do not break investment expense out as a separate line; it is netted within reported investment income. Applying the observed FY2015–FY2025 effective rate (≈20–25 bps) to those years' beginning pension assets implies an additional ~$1.5–1.8M of directly invoiced fees — bringing the conservative 17-year directly-invoiced total to roughly $6.5–7M.
The Board's assumed discount rate is 6.50% — a bar Troy's 7.03% return clears, but a bar set deliberately low for a plan that has been overcapitalized for years. The relevant comparison is not the discount rate but the opportunity cost of holding bonds, real estate, and private equity sleeves inside a plan that does not need volatility dampening. By that measure the gap is large and compounding.
The standard defense of the current allocation points to FY2008 and FY2009, when Troy's diversified mix beat a 100% equity benchmark by 13–18 percentage points. That cushion was real — and was repaid with interest. The two crisis years bought roughly 21 pp of cumulative relative outperformance; the following fifteen years gave back roughly 60 pp of cumulative relative underperformance. The net effect of the diversification across the full 17-year window is sharply negative.
As of FY2025, roughly 60% in U.S. and international equities, 26% in fixed income, plus smaller allocations to private equity, real estate, and cash. The Board of Trustees selects external investment managers; MissionSquare administers the related defined contribution accounts.
The defined benefit plan is closed to new entrants. Liabilities are shrinking as retirees draw benefits, while the asset pool continues to compound. Troy has not been required to make an employer pension contribution in seven of the last ten years.
A passive S&P 500 index fund costs 3–5 basis points all-in. A multi-asset book with active fixed income, private equity, real estate, and investment consultants typically runs 50–100+ basis points. For a 152%-funded closed plan, the alternatives sleeves primarily generate fees for managers and consultants rather than risk-adjusted return for the trust. Municipal bond yields offer no tax benefit to a tax-exempt pension and come nowhere close to offsetting the equity returns forgone.
The Employees Retirement System Board of Trustees — eight members including the City Manager and CFO, with appointees from City Council and the membership. The Board meets the second Wednesday of each month at Troy City Hall. Meetings are open to the public.