The Arkansas Teacher Retirement System is on sounder financial footing, but it needs to aim for further improvement, actuaries told the system's board of trustees Monday.
The trustees authorized Monday more than $200 million in new investments, mostly in private-equity investments, in their latest steps to further diversify a portfolio that system Executive Director George Hopkins estimated at $14.7 billion.
The trustees also learned in their review of the system's annual actuarial report that the projected payoff period for its unfunded liabilities is less than it was in 2014. Unfunded liabilities are the amount by which financial liabilities -- the projected amount needed to pay benefits to all of its retirees -- exceed an actuarial value of the system's assets. Actuaries often compare the payoff period to a mortgage on a house.
The payoff period was 39 years June 30, 2014, and it was reduced to 33 years June 30, 2015, said Judith Kermans of the Southfield, Mich.-based actuarial firm of Gabriel, Roeder, Smith & Co. The system's unfunded liabilities also declined from $3.93 billion to $3.70 billion in this period.
State law requires the state government's retirement systems to aim for projected payoff periods of 30 years or less. The Teacher Retirement System is the state government's largest retirement system, with more than 100,000 working and retired members.
Board Chairman Jeff Stubblefield of Charleston said he wanted to remind trustees that some of them "witnessed a bloodletting" when the actuary announced that the system had a projected payoff period of about 90 years, and they were warned that "the sky was falling."
He recalled that the late former board member Charles Dyer of Alma once assured the board "that we have been here before and we will be back in time" and that Dyer "is not here to witness it."
Stubblefield said the trustees need to be mindful of the volatility of the stock markets and the markets' effect on the system's financial footing, adding that "it can go from this to where it was pretty quickly."
Unless there is "a large investment loss" in fiscal 2016, the projected payoff period for the system's unfunded liabilities is likely to fall below 30 years in the June 30, 2016, actuarial report, Kermans said. The actuaries recognize the system's investment gains and losses by phasing them in over a four-year period, and the system has several hundred million dollars of unrecognized investment gains due to stock market gains in recent years, she said.
Kermans said she recommends that the system seek a projected payoff period of about 18 years for its unfunded liabilities.
The system included 68,945 working members with an average age of 44.6 years, average service of 10.3 years and an average salary of $36,717 in fiscal 2015 -- a 2.9 percent increase over fiscal 2014 -- Gabriel, Roeder, Smith & Co. reported. It also included 3,974 other working members in the deferred retirement plan with a total payroll of $246 million (an average of about $61,902) in fiscal 2015.
It also included 40,748 retired members who were paid retirement benefits totaling $917 million (an average benefit of about $22,504) in fiscal 2015, Kermans said.
But trustee Richard Abernathy, executive director of the Arkansas Association of Educational Administrators, said he is worried about the impact of the system's declining number of working members in the past few years hurting the system's financial footing. He said "outsourcing" of school district services is decreasing the system's number of working members.
The trustees approved the following investments:
• Up to $30 million in DW Healthcare Partners IV Limited Partnership, a private-equity buyout fund that invests in expansion stage companies in the health care industry. DW Healthcare Partners is based in Toronto and Park City, Utah, according to a system staff report.
• Up to $30 million in PineBridge Structured Capital Fund III Limited Partnership, a debt and equity securities fund that is a private equity investment. PineBridge is based in New York.
• Up to $30 million in Thoma Bravo Discover Limited Partnership, a private-equity buyout fund focused on United States investments with a specialization in software companies. Thoma Bravo is based in Chicago and San Francisco.
• Up to $25 million in the Franklin Park Venture Fund Series 2016 Limited Partnership, a venture fund of funds managed by the system's Bala Cynwyd, Pa.-based private-equity consultant, Franklin Park Associates.
• Up to $25 million in the Franklin Park International Fund 2016 Limited Partnership, an international private-equity fund of funds managed by Franklin Park Associates.
• Up to $65 million in the Teacher Retirement System and Franklin Park Associates co-investment and next generation of manager fund. That fund is aiming to invest $30 million in Capital Partners III Limited Partnership, a buyout fund that will focus on investments in the business services, health care services, government services, light manufacturing and distribution sectors. It is based in New York.
• Up to $20 million in the Metropolitan Real Estate Partners Secondaries & Co-Investments Fund Limited Partnership, a New York-based real estate fund in which the retirement system will only invest in the co-investment part of the fund. A co-investment occurs when the system invests directly in a real estate investment alongside a real estate manager, according to a system staff report.
Metro on 12/08/2015