Credit turmoil takes a chunk out of pension
Posted on Wednesday, November 19, 2008
The Arkansas Teacher Retirement System’s investments fell in value by $ 1. 17 billion in the quarter that ended Sept. 30, but the system’s interim director said the plunge shouldn’t affect benefits for the system’s 25, 000 retirees.
Ennis Knupp & Associates of Chicago, the investment consultant that delivered the news Tuesday to the system’s Investment Committee, blamed the national credit crisis, saying it was “severely negative” on nearly all financial markets.
Ennis said the system’s investments were valued at $ 9. 69 billion as of Sept. 30.
The teacher system, the state’s largest, is not alone in reporting drops in value in the last quarter. The Arkansas State Highway Employees Retirement System reported its investments declined in value by $ 158 million and the Arkansas Judicial Retirement System reported its investments dipped $ 13. 2 million.
The teacher system gets financial support by charging school districts 14 percent of the districts’ payrolls, a charge that results in the districts paying it about $ 350 million a year. System members, who work for the districts, also chip in about $ 100 million a year.
Ennis also reported that the system’s investment return of minus 9 percent for the quarter ranked among the top 38 percent of the nation’s public pension systems. The system’s average annual investment return the past five years was 8 percent, ranking among the top 16 percent.
Interim Director Gail Bolden said she’s not sure whether it was the system’s worst investment quarter ever.
A preliminary report for October from Ennis showed the value plummeted further, to $ 8. 42 billion. But that only reflected changes in stock and bond investments, not other investments such as private equity and real estate.
P. J. Kelly of Ennis told the Investment Committee to be patient because the stock market eventually will rebound.
Another Ennis report noted that the stock market has generated positive returns about 72 percent of the time since 1926, adding, “ride out the current market storms with a focus on, and expectation of, achieving longterm objectives.”
Trustee Paul Fair of Little Rock said the system should “stay the course” with its investment allocations.
Besides retirees, the teacher system has 69, 226 working members who are paid an average annual salary of $ 31, 645. The 25, 611 retirees’ benefits total $ 485 million a year, according to system actuary Gabriel Roeder Smith & Co. of Southfield, Mich.
Bolden said she doesn’t expect the investment losses to reduce retirement benefits for future retirees.
She said she’s not sure whether the investment losses will force the system to seek an increase in the 14 percent rate charged to school districts. The system won’t receive its actuarial report from Gabriel for June 30, 2008, until December.
It may depend on the system’s unfunded liabilities, which are the amount by which the system’s liabilities exceed the estimated value of the assets.
If as of June 30, 2008, it would take less than 30 years for the system to pay its unfunded liabilities, she doubts the system would seek an increase in the 14 percent rate, she said.
As of June 30, 2007, the unfunded liabilities were $ 1. 9 billion and would have taken 19 years to pay off, Gabriel said.
Here’s how the system’s investments’ values changed as of the end of the past quarter: Domestic stock market investments were at $ 2. 55 billion after posting an investment return of minus 9. 9 percent for the quarter. Global stock market investments were at $ 2. 71 billion after recording a minus 17. 8 percent investment return. Bond investments were at $ 2. 61 billion after posting a return of minus 4 percent. Private equity investments were at $ 711 million after a positive 1. 7 percent investment return. Real estate investments were at $ 792 million after a positive 0. 7 percent return. Timberland investments were at $ 269 million after a positive 1. 4 percent return for the quarter, Ennis said.
EXECUTIVE DIRECTOR In other action Tuesday, the trustees interviewed former state Sen. George Hopkins, D-Malvern, and Sen. Jim Argue, D-Little Rock, for about an hour each for the job of executive director of the system. More than 20 people have applied for the job, which became vacant when Paul Doane resigned last month. He was paid $ ™, 000 a year. He quit after drawing legislative criticism for his travel expenses, which included 21 trips to Boston and New Mexico, where he also has homes.
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