Retirement system sees investments’ value jump

Fueled by robust stock markets, the Arkansas Public Employees Retirement System’s investments increased in value by more than $750 million to $6.6 billion in the fiscal year that ended June 30, the system’s trustees learned Wednesday.

The system’s investment return of 15.58 percent ranked among the top 5 percent for large public pension systems in fiscal 2013, said Kevin Dolsen, senior vice president of investment consultant Callan Associates of Chicago.

The system’s investment gains prompted the system’s actuary to propose slicing the rate charged to state and local governments.

The system includes more than 70,000 working and retired members and is the state government’s second-largest retirement system. Only the Arkansas Teacher Retirement System is bigger.

The investments increased in value from $5.896 billion to $6.662 billion during fiscal 2013, according to Callan Associates.

Domestic stock market investments increased in value to $2.693 billion through an investment return of 20.99 percent, while international stock market investments increased to $1.637 billion through a 20.88 percent investment return, and its bond investments increased to $1.148 billion through a 3.51 percent investment return in fiscal 2013, Callan Associates said in a written report to the board of trustees.

The retirement system’s investment gains in fiscal 2013 are largely responsible for the system’s actuary proposing to cut the system’s rate charged to governments from 14.88 percent to 14.75 percent of payroll, starting July 1, 2014, said Norm Jones of actuary Gabriel, Roeder, Smith and Co. of Southfield, Mich.

The trustees Wednesday tentatively approved the proposed rate cut. System Executive Director Gail Stone said the trustees will take final action in November.

During each of the four previous years, the trustees have approved increasing the rate charged to governments to compensate for sharp drops in the fund’s value. The system’s investments plummeted about $1.3 billion in value to $4.3 billion in fiscal 2009 during a recession and a stock market downturn. Last year, the trustees increased the rate charged to state and local governments from 14.24 percent to 14.88 percent, effective July 1, 2013.

The governments paid $250.3 million into the system in fiscal 2013, while system members chipped in $43.2 million, according to a report to the board of trustees. About 28,000 the system’s working members pay into the system and the system started requiring new members to contribute 5 percent of their salaries to the system in 2005, according to system officials.

The system includes 45,707 working members with an average age of 44.9 years, average service of 9.3 years and an average annual salary of $35,283, according to Gabriel, Roeder, Smith and Co.

It also includes 28,672 retired members with annual retirement benefits of $370.3 million - which means average annual benefits of about $12,915 - and 1,733 deferred retirement participants with annual credits of $53.9 million, the actuary said.

The system’s unfunded liabilities totaled $2.122 billion as of June 30 based on a projected 25-year payoff period, according to Gabriel, Roeder, Smith and Co.

Unfunded liabilities are the amount by which a retirement system’s liabilities outstrip an actuarial value of the system’s assets.

The system’s unfunded liabilities have dropped since a year ago when Gabriel reported the system’s unfunded liabilities totaled $2.541 billion based on a 30-year projected payoff period.

The rate charged to state and local governments could drop from 14.75 percent of payroll in fiscal 2015 to 14.13 percent in fiscal 2016 and fiscal 2017 and then to 13.73 percent in fiscal 2018 if the system earns investment returns of 8 percent in each of the next four years, according to the actuary.

But the rate charged could increase from 14.75 percent of payroll in fiscal 2015 to 15.14 percent in fiscal 2016, to 16.27 percent in fiscal 2017 and to 17.10 percent in fiscal 2018 if investment return is minus 10 percent in fiscal 2014 and then 8 percent a year in the three subsequent years, the actuary said.

Front Section, Pages 1 on 08/22/2013

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